The Small Business Job Credit lowers a small business’s Employment Insurance premium rate for tax years 2015 and 2016. The Canadian Revenue Agency automatically establishes a business’s eligibility for this credit for tax years 2015 and 2016 based on the T4 information returns the business filed for those years. After recalculating the company’s EI tax liability using a lower rate, the CRA issues it a refund for the difference. Despite the automatic features of this new credit, it’s a good idea to know the rules about tax treatment of the credit and how T4 filing deadlines apply.
This new business tax credit is available to most businesses, registered charities and nonprofit organizations, but it doesn’t apply to employee-paid premiums. Your clients don’t have to apply for this credit. They’re eligible if they meet all of these conditions in tax years 2015 or 2016:
- They deducted EI premiums from payments made to their employees, or paid EI premiums on behalf of certain types of employees, including fishers, barbers, hairdressers, and some drivers of taxis and other passenger-carrying vehicles, and remitted EI tax collected to their payroll program account.
- They reported income and EI deductions on filed T4 slips.
- The total of employer EI premiums they paid under all of their RP (payroll deduction) accounts in 2015 and/or 2016 was $15,000 or less. In making this calculation, the CRA adds up all of the EI premiums an entity paid under all of its RP accounts registered under the same Business Number. If the CRA issues a refund, it remits a proportional share to each RP, according to how much EI tax each RP paid.
Registered charities and nonprofit organizations are only eligible to receive this credit if all of the EI premiums they paid in 2015 and 2016 total no more than $15,000.
Calculating the Credit
You don’t need to apply for this credit for your clients. Using EI information from the T4 slips your clients filed with their 2015 and 2016 T4 information returns, the CRA automatically recalculates their credits and refunds the differences. For example, if your client paid less than $15,000 in EI premiums, the reduced rate is $1.88 per $100 insurable earnings rather than the $1.60 your client paid. These rates vary depending on the total amount of premiums your client remitted. Special rates apply to EI premiums paid by Quebec employers. To issue the credit, the CRA first applies any refund to outstanding balances on your client’s RPs. It then refunds any amount greater than $2. The CRA makes it easy if you to amend, cancel, or file additional T4 slips for your clients. It automatically recalculates credits after processing any of those changes.
In 2017, a seven-year break-even rate-setting mechanism went into effect, designed to increase the stability of premium rates and help ensure they’re only as high as necessary to balance EI program’s revenue and expenses. Under this mechanism, annual rate increases are limited to 5 cents, and the government publicizes upcoming rate increases earlier, on September 14 of each year. Think ahead. The CRA will disallow the Small Business Job Credit for any entities that submit their original 2015 T4 returns or any changes to those after Jan. 1, 2019, or after Jan. 1, 2020 in the case of tax year 2016. Your clients need to report as income any refunds they receive under this credit, in the year they receive it, even if the CRA applies it to their debit-balance RP accounts.