Canadians who choose self-employment generally enjoy more autonomy in their working lives and can claim a number of tax benefits not available to those who earn their income from employment. What the self-employed have to do without, however, is the security that comes from being covered under Canada’s Employment Insurance program as those who are self-employed can only count on receiving income when working. By contrast, Canadians who work as employees can, in almost all cases, receive Employment Insurance (EI) benefits when they are temporarily out of the work force because of a job loss, an illness, or the birth or adoption of a child. Such EI benefits were, until recently, not available to the self-employed.
Recent changes to the EI system, however, mean that self-employed Canadians can opt into that system in order to become eligible for certain EI benefits. Specifically, individuals who are Canadian citizens or permanent residents of Canada and who own their own business (or who work for a corporation but cannot access EI benefits because they own more than 40% of the corporation’s voting shares) can choose to pay EI premiums to become eligible to claim what is known as EI “special benefits”. These special benefits include maternity, parental, sickness, and compassionate care benefits. Notably absent from that list is EI regular benefits received as the result of a job loss –such benefits still remain unavailable to the self-employed.
The special benefits which can now be accessed by the self-employed generally become available when either personal illness or family circumstances prevent an individual from carrying out his or her normal work. It is not necessary for income from self-employment to cease entirely in order to claim any of the special benefits.
Rather, such benefits can be claimed where an individual has reduced the amount of time devoted to the business by more than 40% because of any of the following reasons:
- she had a child;
- he or she is caring for a newborn or adopted child or children;
- he or she is ill, injured, or in quarantine;
- he or she needs to provide care or support to a gravely ill family member; or
- he or she needs to provide care or support to a critically ill or injured child.
In order to become eligible for any of the special benefits, it’s necessary for a self-employed person to register with the Canada Employment Insurance Commission, (done through the Service Canada website at http://www.servicecanada.gc.ca/eng/sc/ei/sew/application_information.html). Once registration is completed, the individual must pay EI premiums. While employed Canadians have such premiums deducted at source from their paycheques, the process is not necessarily so different for the self-employed. Once notification of a successful registration is received, EI premiums payable will be calculated based on the individual’s income for that calendar year. For example, if an individual registers in 2013 to participate in the program, EI premiums will be calculated based on income reported on the 2013 income tax and benefit return, and will be payable by the usual tax payment deadline of April 30, 2014. In other words, regardless of when an individual registers during a given year, EI premiums are payable based on income from self-employment for the entire year.
The current premium rate for residents of all provinces excluding Quebec is $1.88 per every $100 of income to a maximum premium payable of $891.12 per year. Since Quebec has its own parental insurance program that offers maternity, paternity, and parental benefits, premium amounts payable are different for Quebec residents. In 2013, self-employed Quebec residents who register for the EI program will pay $1.52 for every $100 of earnings on up to a total of $720.48 for the year.
Self-employed individuals who register for EI must wait 12 months from the date of registration before qualifying for any of the special benefits listed above. For example, someone who registered on November 13, 2012 will be able to apply for EI special benefits as of November 13, 2013. As well, such individuals, in addition to paying premiums, must have earned a minimum amount of self-employment income in the year before any claim is made. For claims made in 2013, it’s necessary to have earned at least $6,342 in income from self-employment during 2012.
As is the case for anyone claiming EI special benefits, a self-employed person making a claim must provide some documentation showing the need for those benefits. Where the claim is made for sickness benefits, a medical certificate indicating that the claimant is unable to work because of illness, injury, or quarantine must be provided. Those claiming compassionate care benefits must provide medical proof that the family member for whom the individual will be providing care is at risk of dying within the next 6 months. Similarly, parents of critically ill or injured children must provide a medical certificate completed by a specialist physician stating that the parent’s care or support is required by that critically ill or injured child. And finally, individuals claiming maternity or parental benefits must provide both the expected and actual dates of birth (or the actual placement date where a child is adopted).
EI special benefits, while providing some measure of income replacement, are never as much as the actual income foregone. Rather, the weekly benefit amount, for all claimants, is 55% of average weekly earnings from the calendar year before the application is made, to a maximum benefit (for 2013) of $501 per week. Consequently, a self-employed individual who earned at least $47,500 in 2012 could qualify for the maximum weekly benefit of $501 where a claim is made in 2013.
The length of time for which special benefits are paid differs depending on the type of benefit claimed. Compassionate care benefits received while caring for a terminally ill relative are paid for a maximum of 6 weeks while illness and maternity benefits are payable for a maximum of 15 weeks. Parental benefits paid in respect of either a newborn or newly adopted child, or one who is critically ill or injured, can be received for up to 35 weeks. Such benefits may be claimed by either parent or shared by spouses.
It’s obvious that a decision on whether to register to become eligible for EI special benefits will be driven entirely by the individual circumstances of the self-employed person making that decision. More particularly, deciding whether it’s worth spending up to $900 per year in EI premiums will depend on the perceived likelihood that a claim (for example, for maternity or for parental benefits) will be made in the near future. It is, however, worth noting that the cost of obtaining what is essentially income replacement insurance through the EI system is relatively inexpensive relative to the amount of benefits obtainable. A self-employed person who makes a single claim for illness benefits and who qualifies for the maximum benefit will receive, over a 15 week period, an amount equal to about 8 years of premium payments, at current rates. To assist self-employed individuals in making the decision on whether to register for the EI program, the federal government has prepared a publication dealing specifically with Employment Insurance and the Self-Employed. That publication is available at http://www.servicecanada.gc.ca/eng/ei/publications/sew_publication.pdf.