The federal government recently announced that medium-sized and small Canadian businesses can pay a lower employer EI premium starting January 1st, 2015. What the Minister of Finance announced is titled the “Small Business Job Credit”, but the credit actually works by bringing down the portion of Employment Insurance premiums the employers pay for a period of two years.
The credit amount is calculated for small businesses by using a reduced premium rate for that particular year. The EI premium rate for employees is $1.88 per $100 of insurable earnings. Employers must pay their EI premium share at 1.4 times the rate of employees. But in this new program, employers will have to calculate the EI premium amount for remitting by using the standard $1.88 per $100 of earnings premium rate. However, when the T4 information return of the employer is processed in the spring of the following year, the CRA is going to re-calculate the EI premium of eligible small businesses at a reduced rate of $1.60 per $100 of insurable earnings.
Premium reduction eligibility is only for those businesses that remit less than $15,000 of employer premiums for the year. Premium reductions are available for the calendar years of 2015 and 2016.
Here’s an example provided by the Department of Finance of a business that’s going to be eligible for the credit, and how this credit is going to be calculated.
A small business that employs 14 people, each making $40,000, will usually pay about $14,740 in 2015 as EI premiums. But the business can get a refund of about $2,200 under the Small Business Job Credit program since the total EI premiums paid by the employer is not $15,000. This $2,200 is the difference between employer premiums at the legislated rate and the premium calculated under the reduced small business rate ($12,540).
When the CRA decided that a business can get a tax credit, the credit amount is going to be applied first on any outstanding balance that the business might owe. The amount is going to be given back to the small business if there is no such balance, or there is some excess once this balance is paid.
Small Business Job Credit is part of several changes to the EI premium rate. The rate for 2016 of $1.88 per $100 of insurable earnings is going to come down to about $1.47 in 2017.
The 2017 rate reduction is part of a new rating system to make sure that EI premiums are no higher than what is necessary for paying the EI program over time. Annual rate adjustments are going to be limited to 5 cents from 2017.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."