Hiring a family member or a related person

Under the Employment Insurance Act, employees who are related to their employer (individual or corporation) might not be in an insurable employment. This means that they would not have EI premiums deducted from their pay and would not be able to get EI benefits.

There are several ways employees are considered to be related to the employer. They can be related:

• by a blood relationship
• by marriage
• by common-law partnership
• by adoption
• where the employer is a corporation, the employee is considered related to the corporation when they are related to a person who either controls the corporation or is a member of a related group that controls the corporation

However, these individuals can be in insurable employment if you would have negotiated a similar contract with a person with whom you deal at arm's length.

You have to look at all the circumstances of the employment to see if someone else would have been hired under a similar contract of employment. The circumstances that we look at include:

• remuneration paid
• terms and conditions of the employment, such as the hours of work
• timing or duration of the employment
• nature of the work being done by the employee
• importance of the work being done

If you are still not sure if you should deduct EI premiums, you can request a ruling from CRA before June 30 of the year following the year to which the question relates. For example, if the employment took place in 2021, the ruling request has to be made before June 30, 2022.

If you have already deducted EI premiums and you think you shouldn't have, you can request a refund of the EI premiums. Normally this requires that we make a ruling decision. You must make your request for a refund no later than three years from the end of the year in which the overpayment occurred.

Forms and publications

• Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s Length