Employment Insurance Eligibility for Corporate Shareholders
Employment Insurance eligibility while holding shares in a corporation
Pandemic related restrictions forced a significant number of Canadians into unemployment. Out of work, many turned to employment insurance to assist during these trying times. However, the plethora of accompanying regulations prompted a lot of questions – especially for individuals with self-employment income or dividend income derived from shares they hold. Below you’ll find insight on a few of the common inquiries we receive on this matter.
Do I have to report self-employment income while claiming EI benefits?
Generally, all earnings arising out of employment must be reported alongside your claim for EI benefits. This includes both employment and self-employment income. You must report income earned from any and all jobs or ventures you are actively involved in.
What constitutes self-employment earnings for EI benefits?
Self-employment earnings include any income generated from activities designed to generate income. For example, providing services, selling products, or overseeing the operations of a business. Income derived from investments, rather than active participation in a business, generally won’t be regarded as self-employment income.
Can I be a shareholder of a corporation while claiming EI benefits?
Income earned as a result of merely owning shares of a business is not enough to constitute self-employment earnings. The dividend income that shareholders might earn on their investment is not likely to impact EI benefits – especially when the shareholder is not involved in the business operations. However, dividend income may have to be reported when a shareholder becomes involved in the management of people or the generation of income. For example, a shareholder, who is also a director of a corporation, decides if or when dividends are declared in a particular year – effectively rendering them involved in the operation of the business and leading their income to be regarded as self-employment income for EI purposes.
Note, as well, your employment earnings may not be insurable if you own shares in the corporation employing you. For employment earnings to be considered insurable, employees are limited to holding up to 40% of the voting shares in the corporation employing them. Small business owners and corporate shareholders ultimately face several challenges when applying for EI while actively being involved in the operations of the business.
Contact a lawyer at Kalfa Law for more information on the impact of corporate income on your individual benefits.
-Ocean Enbar, Summer Law Student, JD Candidate
Ocean Enbar is a JD candidate and summer student at Kalfa Law. Ocean assists our corporate, commercial, and tax lawyers in preparing research memoranda, conducting due diligence, drafting letters, and tending to the general corporate needs of our clients. Ocean completed his honours political science degree at Western University. He then worked as an intern on parliament hill until he transitioned to the private sector, interning for a reputable international lobbying firm.
© Kalfa Law 2021
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.