# Starting small business under spouse



## Harper77 (Nov 11, 2009)

Hello all - been a while since I posted in the forum.

Have been thinking seriously of starting a side bookkeeping business as I have so many ppl the last few mos ask me if I do bookkeeping.

Here's my issue:
-I make alot more than my wife, who currently makes just 30K
-since I am the higher earner, if anything was to happen to my job (obviously down-sizing, etc.), I don't want anything to happen to me collecting EI and I think if I had the business on the side it would
-if the business is in her name I would still be able to collect EI since everything is under her name, even though I would do all the work

OTHER ALTERNATIVE:
-incorporate the business right away and, on paper, not pay myself anything so EI cannot say: "well U also made this much", etc.

Am I thinking of this correctly or is there something I am missing...?


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## MoneyGal (Apr 24, 2009)

Harper77 said:


> -if the business is in her name I would still be able to collect EI since everything is under her name, *even though I would do all the work*
> 
> Am I thinking of this correctly or is there something I am missing...?


Well, it would be tax fraud. You'd be illegally shifting income earned by you into her hands. You'd be one pissed-off or suspicious family member calling CRA away from an audit.


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## Charlie (May 20, 2011)

when you apply for EI you have to make representations about what you're doing and your earnings...not sure exactly how it works...but they do some sort of cross reference to business registrations -- i had a friend get caught on this as he attempted to start up a business while looking for work. He made no money in this business, but they charged him back for the EI he had collected (with penalties and interest) because he was engaged in a business venture while collecting EI. Don't know all the details.

So you're likely offside with EI -- and will have to actively misrepresent what you're doing. Plus you have the income shifting issues to address as noted by MG. 

Seems like a lot of dancing to retain EI eligibility???


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## jamesbe (May 8, 2010)

I'm in the same boat. I do run my own business and it would suck to lose my job as I make a good amount. EI has been my concern for years now. I pay into it and never can collect it? What's up with that ?

If incorporating gets around it, I'd be willing to look into that as well.

To the OP I certainly would not try to scam CRA though by registering the business under your spouses name.


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## MoneyGal (Apr 24, 2009)

You can earn money while you are also collecting EI:

http://www.servicecanada.gc.ca/eng/ei/service/earnings.shtml

However, if you lie about or fail to declare what you're up to, _even if you earn no money_ your EI can be clawed back - as Charlie's friend found out. Disclosure is paramount.


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## Charlie (May 20, 2011)

thanks for the link MG. Never knew the details. So it's 25% of weekly earnings you can earn (40% to Aug 2012 under temporary measures) -- or a max of about $195/w to Aug 2012 if you're at max benefits, about $120/w after that. And you have to fess up!

I'm thinking Harper was planning on a bit more then that .


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## MoneyGal (Apr 24, 2009)

Well, you can earn whatever you want - the limits you posted are just the amounts you can earn without having your benefits affected. 

And if you earn more than the cut-off in any one week, your benefits will be reduced dollar for dollar - but if, in a subsequent week, you earn less, you will receive EI again. 

I actually think the system is integrated pretty well with people starting small businesses. It provides a (small) cushion in the event that you have no earnings, phasing out as your earnings increase - but remaining in place should those earnings not materialize.


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## Charlie (May 20, 2011)

...agreed MG. 

Periodically there are also specific programs to encourage training or entrepreneurship. I had a different friend qualify for one of these. They provided excellent training, and support, and his benefits were not clawed back at all for earnings during the qualifying period. He ended up starting his own small business and has been successful at that for a number of yrs.


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## Four Pillars (Apr 5, 2009)

I'm not sure why the fact that you own a business would affect your EI - shouldn't it be the income you get from said business?

As for how to get around it, many business owners will hire their spouse to help out in some capacity and pay out a lot of the profits to them. This works really well if the spouse isn't otherwise working.

I have a friend who does this.


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## jamesbe (May 8, 2010)

Four-Pillars, yes that is a way to do it, but they must actually be doing the tasks or capable of doing it in some way.

I'll have to look at those EI benefits. But let's say I make $100k from my day-job. and $50k from my business. Without looking I have always assumed if I lose my $100k job, $50k is still too much to collect the EI I have paid in.

Worse yet, what about all those years I paid in without the personal business? Never to collect EI. Personally I'd rather just take that amount I paid the past 11 years and have banked it for the bad times. I'd probably be better off.


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## Plugging Along (Jan 3, 2011)

As MG said, you can’t just put the money into your spouses income. If you are a sole proprietor, then you add that amount to your income and that does effect your EI benefits. Until you incorporate you are a sole proprietor.

If you incorporate, you just need to make sure that your structure is set up correctly for you and your spouse. We have a corporation in which my spouse and I almost equal share holders. You can take out dividends from the company when you are on EI, without having it impact it. However, if you under you corporation and working full time through your company while on EI, then there could be problems. When my spouse was laid off on EI and took a contract, he did need to notify them, and the benefits stopped. When he finished the contract he was able to resume the benefits. However, there was a really special circumstance, that because he was on EI not continuously over a 2 calendar year period, and had really high dividends, he lost a lot of the benefit for the second year. 

At the same time, I was on mat leave, and was still able to receive dividends, and pick up the occasional really short teaching contract with no impact to my Paternity leave EI. 

You need to really look into this to see if it makes sense. As there are costs to incorporating, and keeping a corporation going. You need to look at what will be your revenues, is this a long term thing, etc.


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## Harper77 (Nov 11, 2009)

So the long and short of it is this:

register under my name but on paper pay a salary to my wife, say for sub-contracting services to lower the income that I claim?


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## Plugging Along (Jan 3, 2011)

Charlie said:


> when you apply for EI you have to make representations about what you're doing and your earnings...not sure exactly how it works...but they do some sort of cross reference to business registrations -- i had a friend get caught on this as he attempted to start up a business while looking for work. He made no money in this business, but they charged him back for the EI he had collected (with penalties and interest) because he was engaged in a business venture while collecting EI. Don't know all the details.
> 
> So you're likely offside with EI -- and will have to actively misrepresent what you're doing. Plus you have the income shifting issues to address as noted by MG.
> 
> Seems like a lot of dancing to retain EI eligibility???


How my accountant explained it to me, (which I will not articulate nearly as well as her), is if you are creating a business just to shelter your income to get EI, then this can not be down, as it's considered at a non arms length and is considered self employment income. In our case, we have several areas where our corporation brings in revenues (we have sales, passive, and consulting, and a few other things). When my spouse was taking on a longer term contract, we could not claim EI as he was working. The money that was coming in from our sales from the internet was not consider income. 

I would recommend that one incorporates if it makes sense to do so from a business venture overall, and not do it for an EI loophole. I think that could back fire, as someone takes all the effort and money to incorporate to get EI benefits, and then they don't get the benefits.


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## Plugging Along (Jan 3, 2011)

Harper77 said:


> So the long and short of it is this:
> 
> register under my name but on paper pay a salary to my wife, say for sub-contracting services to lower the income that I claim?


I think you should talk to an accountant. 

You may want to set her up as a shareholder, then you can both take dividends. If she is actually doing work, then you could pay her a salary, but she needs to be doing work.


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## MoneyGal (Apr 24, 2009)

Four Pillars said:


> I'm not sure why the fact that you own a business would affect your EI - shouldn't it be the income you get from said business?


It has to do with your availability for work. If you are running your own small business, you are presumed to be NOT available for full-time work as an employee. 

Here's the EI link:

http://www.servicecanada.gc.ca/eng/ei/information/self_employed.shtml#What

From that link: _Generally, when your main means of living is one of the following:

self-employment;
engagement in the operation of your business;
farming or owning part of a farming business; or 
working as an independent worker. 

You are considered to be working a full working week, *therefore not unemployed, and cannot be paid EI benefits*_

/quote

Maternity/paternity benefits are different - you are not required to be available for employment if/when you are on EI parental leave benefits. One consequence is that you can earn more (than you could if you were on regular unemployment benefits) without your EI being affected.


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## MoneyGal (Apr 24, 2009)

Harper77 said:


> So the long and short of it is this:
> 
> register under my name but on paper pay a salary to my wife, say for sub-contracting services to lower the income that I claim?


It won't work, for the reasons I just provided in my most recent link. 

Perhaps you could investigate ways you can get some of your house insurance money back instead - a strategic fire?


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## atrp2biz (Sep 22, 2010)

I think the easy way to do it is incorporate and set up multiple classes or shares in your articles. You get one class and your wife gets the other. This way you can direct distributions to either one of you without having to distribute to the other.


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## Plugging Along (Jan 3, 2011)

MG Thanks for the explaination. I knew hubby was able to get EI when he wasn't working on contract, but we still had money coming from our corporation, and I was able to continue teaching. I also knew when hubby had a full time contract it was different, but I didn't know why. Now I'm clear.


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## marina628 (Dec 14, 2010)

My husband and I do not pay into EI as we both work for a corporation we own ,accountant said we are ineligible for EI on these earnings.


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## Four Pillars (Apr 5, 2009)

jamesbe said:


> Four-Pillars, yes that is a way to do it, but they must actually be doing the tasks or capable of doing it in some way.


Of course.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> It has to do with your availability for work. If you are running your own small business, you are presumed to be NOT available for full-time work as an employee.
> 
> Here's the EI link:
> 
> ...


Fair enough, but if someone has a business which is NOT their means of living ie let's say it only makes $500/month, then I would think they should be eligible for EI as long as are within the permissible income amounts.


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## Four Pillars (Apr 5, 2009)

Harper77 said:


> So the long and short of it is this:
> 
> register under my name but on paper pay a salary to my wife, say for sub-contracting services to lower the income that I claim?


Yes.

What Plugging Along said about corporations is correct. Corporations make it easier to share income with a spouse. 

However, you can do almost the same thing with a sole prop by hiring your spouse. The main difference is that this money will be counted as income for your spouse, whereas with a corp you can issue dividends which are taxed lower.

Personally, I wouldn't do this for EI (although that could be a possible benefit), but rather to lower the tax burden if one spouse is in a lower tax bracket.


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## MoneyGal (Apr 24, 2009)

...and generally they are.

Whoops, one post between my post and the one I was responding to. 

Generally speaking, as long as you are not making the bulk of your income from self-employment AND your total income from self-employment is quite low AND you qualify for EI, you can collect EI and have self-employment income at the same time. 

However: if you have high self-employment income one year, and then qualify for EI (based on the loss of an insured job), and then your self-employment income drops, you can expect an EI audit. Also: EI and CRA share information automatically, so if you have self-employment income that you report on your taxes but do not report for EI purposes, you will be caught automatically when you file your taxes. 

As for corporations: if you own more than 40% of the voting shares of a corporation you are considered uninsurable for EI purposes. This info is in the same Service Canada link I provided earlier.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> ...and generally they are.


Hehe - yes.

I should really say that if the spouses are in significantly different tax brackets, then this is worthwhile.


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## Harper77 (Nov 11, 2009)

Ok so it seems like Incorporating is the better way to go.

However, I know of a case personally where a woman was laid-off due to downsizing, and since she was like 50, she decided to incorporate while on EI because, in her eyes, it would be easier to get work as a contractor then being hired.

3 mos later, approx, EI comes knocking and says she has to pay back all the money she made on EI because, their eyes, she was in business.

THAT is what I don't want to happen or not being eligiable at all for EI if I was to be downsized.


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## MoneyGal (Apr 24, 2009)

Quoting myself from upthread: 


MoneyGal said:


> if you own more than 40% of the voting shares of a corporation you are considered uninsurable for EI purposes. This info is in the same Service Canada link I provided earlier.


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## MoneyGal (Apr 24, 2009)

And from that same link:

In order to be paid, you must show that you are actually unemployed for each week you claim EI. You are unemployed if you do not work a full working week. You have to actively look for another job, be willing and able to work at all times. *If you are self-employed or if you take up self-employment activities while you are on EI, the work that you do must be so small that you are unable to make a living from it.*

How small are your self-employment activities?

When your self-employment activities are so small that a person would not rely on that employment or engagement as a principal means of living, you may not be working a full working week. Therefore, you may be considered unemployed. A full working week is at least the same number of hours worked by other regular workers in that occupation.

Six factors are considered to determine how small your self-employment activities are during the time benefits are claimed. *All of these factors need to be evaluated in order to obtain an overview of your situation that will determine if your are working a full working week or not.*

Factors to consider are:

the time spent on these activities;
the nature and amount of the capital and resources invested;
the financial success or failure of the employment or business;
the continuity of the employment or business;
the nature of the employment or business, i.e., are the self-employment activities in line with your usual occupation or totally different; and
your intention and willingness to look for and immediately accept other employment.


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## Four Pillars (Apr 5, 2009)

Thanks for clarifying all that MG - I had wondered about that in the past.

@Harper - it's my opinion that incorporation solves nothing as far as EI goes. It's also a lot more expensive then sole prop, so unless you have other reasons for it - I'd stay sole prop.


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## Plugging Along (Jan 3, 2011)

Harper77 said:


> Ok so it seems like Incorporating is the better way to go.
> 
> However, I know of a case personally where a woman was laid-off due to downsizing, and since she was like 50, she decided to incorporate while on EI because, in her eyes, it would be easier to get work as a contractor then being hired.
> 
> ...


I think this is a lot of work for EI alone and for a loss of job that may not happen. 

If it makes sense for other reasons to Incorporate, do so, if not, then don't. 

My spouse did pay back the second of of EI, but for a different reason. If that was the only reason we incorporated, we would have been at a lost.


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