Written by: Sophie Warwick
Family planning has its challenges, and as a first-time expectant mother I’m sure I’m only just scratching the surface of a lifetime of learning. As a self-employed expectant parent, I’ve recently uncovered the web of confusion around access to parental leave for self-employed Canadians. And let me tell you, it has not been a straightforward journey. It even included a call to the CRA where the representative responded, “I have no idea. We’ve never had dual partners who wanted to implement a top-up structure.” Excellent.
I am very lucky to have Jillian Climie as a wonderful business partner who has been incredibly supportive in my journey so far – I can’t thank her enough. I’m also lucky that she is a fellow planner and that we were able to structure a parental leave policy together in advance of my pregnancy, so we were able to approach the discussion from a pragmatic headspace without time sensitivity. I don’t need to tell our fellow self-employed readers that time is your most valuable resource, and it’s not easy to prioritize drafting a policy you won’t need for at least a year.
What we thought was going to be a relatively straightforward process turned out to be surprisingly difficult. We were both aligned on wanting to create a structure that offered support and flexibility to enable each of us to be parents if or when we chose to follow that path. We agreed on all the logistics of the structure right away. How hard could this be?
Spoiler alert, Canada’s Parental Leave structures are not well defined for self-employed people. Without thoughtful strategy, many self-employed Canadians may find themselves without access to Employment Insurance (EI) during a parental leave, even if they’ve been contributing throughout their entire career. This is an inequity facing many business owners who are planning to be parents. Additionally, it’s discouraging expectant parents from pursuing new business opportunities which is a hindrance to our economy.
This is a gap we need to close, so we decided to dig deeper and do the research for you. I’m not here to share how you should or shouldn’t structure your parental leave. I believe that is a personal discussion. Additionally, I want to say up front I’m not an accountant and cannot share all the detailed tax implications. However, I want to share the questions you should be asking, and the barriers we discovered as we explored different structures. Additionally, we’ve read countless stories of women business owners and majority shareholders who were surprised to have their EI rejected during the start of their parental leave. This is a devastating situation that results in many women being forced to suddenly end their leave and return to work prematurely. We hope this article helps demystify some of these structures and allows you to build a policy that works for you.
Dual Partnerships
After extensive searching and reading through the lengthy policies published by the Government of Canada, we still found ourselves confused. We’re smart people – surely we can figure this out? When we still couldn’t quite confirm whether a top-up structure was possible, we decided to treat ourselves to the joy of a call to the CRA. After various transfers to different departments, we finally received a very unexpected response. They hadn’t heard of Dual Partners having a top-up structure and had no idea if it would negate accessibility to receive EI payments during parental leave.
This was concerning for a few reasons. One, it speaks to the severe underrepresentation of self-employed women and parents as business owners. Additionally, it’s concerning that we were not able to reach anyone who knew the answer for sure. The best advice we received, was to assume Dual Partners wouldn’t be eligible for EI if they accepted any payment during their leave.
If you are part of a Dual Partnership and are hoping to implement a top-up structure that mirrors that of an employer top-up program, be aware that any payments (or top-ups) during this time may negate your eligibility for EI. You may be better off to do a “paid” period of leave where you continue to accept payments from the business but are ineligible for EI, followed by an “unpaid” period of leave where you would stop accepting payments from the business but could access EI. Note that if you do choose to access EI payments during your parental leave, they don’t need to start at the birth date or the date the child comes into your care. You are able to start them at a later date but are only eligible during the 12 month (or 18 month if you choose extended) window following.
Owners of a Corporation
We thought this would be the easy one. As an employee of a corporation that has a parental leave policy in place, it seems simple enough that the owners of the corporation would be able to access the parental leave policy. Unfortunately, if you own more than 40% of a business (this also applies even if you’re not a founder), then you are not entitled to EI, including during your parental leave. This can be surprising for those who have been contributing to EI throughout their career. Especially for small business owners.
However, there is hope. As a majority shareholder, you are eligible for Self-Employed EI, but you need to register 12 months prior to using the benefits. After enrollment, you are able to withdraw at any time as long as you haven’t used any benefits. Once you use this benefit (e.g. take a parental leave), you are required to participate in the program and continue to make payments for the entire duration that you are self-employed or a majority owner of a business. I’d suggest doing a quick net present value calculation on this to confirm it’s worth the payments based on your expected remaining contribution years, and the number and length of any parental leaves you expect to take. It may or may not be worth the contributions depending on your business and family plans.
While I may have the lived experience, I’m certainly not an expert in this space. So to close the gaps, I’d recommend discussing any parental leaving planning with an advisor to ensure you have adequate coverage. Remember, many of these programs require registration 12 months prior to eligibility, so if you choose to register, you would need to do so prior to a pregnancy for eligibility at delivery.
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