The federal government has announced that small and medium-sized Canadian businesses will be able to pay lower employer EI premiums, beginning January 1, 2015. While the program recently announced by the Minister of Finance is entitled the “Small Business Job Credit”, the credit actually operates by reducing, for a two-year period, the portion of Employment Insurance premiums paid by employers.
The amount of the credit is calculated using a reduced premium rate for small businesses for the year in question. Employees pay EI premiums at a rate of $1.88 per $100 of insurable earnings. Employers are then required to pay their share of EI premiums at 1.4 times the employee rate. Under the new program, employers will calculate the amount of EI premiums to remit using the standard premium rate of $1.88 per $100 of earnings. When the employer’s T4 information return is processed in the spring of the following year, however, the Canada Revenue Agency (CRA) will re-calculate EI premiums owed by eligible small businesses at a reduced rate of $1.60 per $100 of insurable earnings.
Eligibility for the premium reduction will be limited to businesses which remit less than $15,000 in employer premiums for the year. The premium reduction will be available during the 2015 and 2016 calendar years.
The Department of Finance provides the following example of a business which will be eligible for the credit, and how that credit will be calculated.
A small business employing 14 employees, each earning $40,000, would ordinarily pay about $14,740 in EI premiums in 2015. However, since the total EI premiums paid by the employer are less than $15,000, it would be eligible under the Small Business Job Credit for a refund of about $2,200, which is the difference between employer premiums paid at the legislated rate versus the premiums calculated under the reduced small business rate ($12,540).
Once the CRA determines that a business it entitled to the tax credit and the amount of that credit, any such amount will first be applied to any outstanding balances owed by the business. Where there is no such balance or there is an excess after the balance is paid, that amount will be refunded to the small business.
The Small Business Job Credit is part of a program of changes to the EI premium rate which will see the 2016 rate of $1.88 per $100 of insurable earnings reduced to an estimated $1.47 in 2017.
The rate reduction for 2017 is part of a new rate-setting mechanism which ensures that EI premiums are no higher than needed to pay for the EI program over time. Beginning in 2017, annual adjustments to the rate will be limited to 5 cents. Finally the annual announcement of the EI premium rate for the upcoming year will be announced by the middle of September, to give both employers and workers more time to plan for any change in the rate.
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