The answer is simple and straight forward! Yes, you can start a business while on Employment Insurance in Canada. Besides, if you have been looking for a job and you couldn’t find any, the next option you have is to start a business. But you must be aware of the implications of starting a business while on Employment Insurance (EI) in Canada.
The law states that in Canada, a taxpayer can operate a business while collecting EI benefits where his business activity is to such a minor extent that a person would not normally rely on that business activity as a principal means of livelihood. This did not minimize the significance of time spent setting up the business.
Table of Contents
- What is Employment Insurance (EI)?
- What is the Rate of EI Premium in Canada?
- What to Do If You Have Started a Business While on EI
- Step 1: Choose a Workable Business Idea or Niche
- Step 2: Conduct Your Feasibility Studies and Market Survey
- Step 3: Choose a Catchy Name for Your Business
- Step 4: Write a Workable Business Plan
- Step 5: Choose a Legal Entity for Your Business
- Step 6: Register Your Business Name
- Step 7 Source for New Business Financing
- Step 8: Apply and Obtain the Needed Business License and Permits
- Step 9: Register for the Goods and Services Tax/Harmonized Sales Tax (GST/HST)
- Step 10: Register for Provincial Sales Tax (PST)
- Step 11: Purchase the Needed Business Insurance
- Step 12: Lease or Rent and Ideal Office Location
- Step 13: Hire the Required Employees
- Step 14: Advertise and Market Your Business
What is Employment Insurance (EI)?
Employment Insurance (EI) is a form of insurance in Canada that provides regular benefits to individuals who lose their jobs through no fault of their own (for example, due to the shortage of work, seasonal or mass lay-offs) and are available for and able to work, but can’t find a job.
Citizens are advised to always apply for EI benefits as soon as they stop working. You can apply for benefits even if you have not yet received your Record of Employment (ROE). If you delay filing your claim for benefits for more than four weeks after your last day of work, you may lose benefits.
What is the Rate of EI Premium in Canada?
In Canada, everyone pays the same rate of EI premiums, whether they are self-employed or an employee. In 2022, you will pay $1.18 in EI premiums for every $100 you earn. The most you will pay for 2022 is $664.34 and it is important to state that this premium rate changes annually.
You can benefit from EI if you have been without work and without pay for at least seven consecutive days in the last 52 weeks; if you have worked for the required number of insurable employment hours in the last 52 weeks or since the start of your last EI claim, whichever is shorter.
Please note that if you are on (or eligible for EI), it extends your EI benefits by 48 weeks, provides you with resources and mentorship while starting your business, and any income you earn from your business while in the program will not be clawed back.
Please note that if you earn money either from offering your services or owning a business while receiving Employment Insurance (EI) benefits, you can keep 50 cents of your benefits for every dollar you earn, up to 90 percent of your previous weekly earnings (roughly four and a half days of work). Above this cap, your Employment Insurance (EI) benefits are deducted dollar-for-dollar.
As a matter of fact, you can even work while getting Employment Insurance (EI), but half the amount you earn will be taken off your Employment Insurance (EI) benefits. This applies as long as you do not earn more than 90 percent of the average insurable earnings your benefit was based on. Any money you earn above that 90 percent will be fully taken off your benefits.
However, self-employed individuals and business owners as well as their immediate family, with over 40 percent ownership of the voting shares of a company, are exempt. The employer’s share of the Employment Insurance (EI) contribution is 2.63 percent of the insurable earnings of the employee up to the same annual limit.
What to Do If You Have Started a Business While on EI
If you have started a business, you are expected to report to the Authority. In the Employment Insurance (EI) forms, you are obligated to report any money received during the period that is not income. Failing to do so is fraud and can result in loss of benefits and forced repayment of benefits received to date. So, you are not expected to lie to Employment Insurance (EI).
They can and will check your banking history if they feel there is an adequate reason. Having said that, if you are on Employment Insurance (EI) and you are looking towards starting a business in Canada, here are quick steps you can follow to start your business in Canada;
How to Start a Business in Canada While on EI
Step 1: Choose a Workable Business Idea or Niche
No serious entrepreneur registers a business without first settling for a workable business idea or niche in an industry. The first step that you are expected to take if you are serious about starting a business is to come up with a workable business idea; an idea that can get the support of Government and of course that can attract clients.
For example, if you are not too sure whether starting a Marijuana dispensary business is legal in Canada why go ahead to choose such a business idea? So, the rule of the thumb is that you must ensure that your business idea falls in line with what is acceptable in Canada.
Step 2: Conduct Your Feasibility Studies and Market Survey
Irrespective of the country or city that you decide to start a business, the one important step that you are expected to take is to conduct thorough feasibility studies and market survey. In other words, once you have settled for a business idea, the next step to take is to conduct thorough feasibility studies and market survey.
With the result from your feasibility studies and market survey, you will be able to make an informed decision, especially as it relates to the type of business to settle for, the location of your office, the demographic composition of those who need your services or product, the likely competitions that you will be confronted with, how to source for raw materials or goods and loads of other factors that can either make or mar your business.
Step 3: Choose a Catchy Name for Your Business
After coming up with a workable business idea and of course having conducted your market survey and feasibility studies, the next step to take on your quest is to choose a catchy name for your business. The truth is that, when it comes to choosing a name for your business, you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents.
Usually, it is the norm for people to follow the trend in the industry they intend to operate from when naming their business. Before choosing a name for your business, it won’t cost you anything to go online and check out the names of leading brands in the industry you intend to start a business in.
Step 4: Write a Workable Business Plan
No matter the type of business or size of business you intend to start in Canada, it is a wise decision to first write a good business plan before taking any action. With a workable business plan in place, you will reduce the trial and error approach of doing business. You will be able to manage your business with purpose and perhaps precision; you will know what to do per time and how to handle challenges, growth, and expansion.
The whole idea of writing a business plan is not just for the sake of having a business document in place, but a detailed guide on how to effectively run your business from the scratch. Your business plan should cover strategies on how you intend to manage your business.
The rule of thumb in writing a business plan is to try as much as possible to be realistic and never to over project when putting figures on income and profits. As a matter of fact, it is safer to underestimate when writing a business plan so that you won’t be so disappointed when reality sets in.
These are the key areas that should be covered in your business plan;
Executive summary and Company’s description: you are expected to write about the concept of your business, description of your company, your company’s vision statement, mission statement and where your company will be located, etc.
Other key components that should not be missing in your brewery business plan are product offering, SWOT analysis, competitive analysis, marketing, and sales analysis/strategies, target market, market goals, pricing, costing and financial projection, publicity and advertising strategy, expansion, and growth strategies, budget, and start-up capital generation et al.
Step 5: Choose a Legal Entity for Your Business
If you choose to start your business in Canada, it is important to note that there are only four basic forms of business ownership or legal entity you can build your business structure on in Canada and they are sole proprietorship, partnership, corporation, and cooperative.
Having said that, here are some of the factors you should consider before choosing a legal entity for your business; limitation of personal liability, ease of transferability, admission of new owners and investors’ expectation, and of course taxes. The truth is that, in Canada, you can choose to start your business as a limited liability company (LLC) and in the future convert it to a ‘C’ corporation especially when you have plans of going public.
Some of the advantages of upgrading a business from a limited liability company (LLC) to a ‘C’ corporation is that it will give you the opportunity to grow the business so as to compete with major players in the industry; you will be able to generate capital from venture capital firms, you will enjoy separate tax structure, and you can easily transfer ownership of the company; you will enjoy flexibility in ownership and in your management structures.
Step 6: Register Your Business Name
Before you register your business name, you must have done the necessary business name search that will ensure that you are not settling for a name that is already in their database. In essence, if you don’t want someone to register your business name, then you should be fast about registering the name.
As regards your registration and licensing requirements, you should visit your municipal, provincial and federal government to get the process started. When you successfully complete the process of registering your business name, you will be issued a Business Number, registered business name, and a GST/HST account.
Please note that you can register your business name online via Canada Revenue Agency’s Business Registration Online portal; they take care of all of your federal business registration requirements. If you want to launch your business in the province of Quebec, you will be required to register using Revenu Québec’s Businesses Portal.
You can also go ahead to register for a business number, GST/HST, corporation income tax, payroll, and import/export accounts on the online portal.
Step 7 Source for New Business Financing
One of the reasons why Canada is considered a top destination when it comes to doing business is because there are financial institutions that are established to help finance a new business. So, the next step you are expected to take is to ensure that you source for new business financing. The only reason why you should ignore this step is if you already have the required start-up capital needed to kick start your business.
Step 8: Apply and Obtain the Needed Business License and Permits
Please note that licensing for business in Canada is different from business registration and it is the city’s Municipal Licensing and Standards Division that handles the application process. If you want to apply for a business license, you need to go along with photo identification and proof of work status and notarized controlling interest forms.
Despite the fact that obtaining a specific business license may not be necessary for all businesses, it is the standard that new businesses in a certain industry will need to get business licenses before they can operate legally within their municipalities.
If your business can generate health implications then you would need a business license to operate in Canada. Businesses such as food trucks, hospitals, labs, hairdressers, pet shops, grocery stores, holistic centers, secondhand shops, nightclubs, and restaurants among others.
If you are not sure about the type of business license and permit to apply for, then you should visit Industry Canada’s BizPaL. They have a useful tool for finding out what federal, provincial/territorial, and municipal permits and licenses you will need to do business in any province in Canada. As a matter of fact, BizPaL will provide a personalized list of the business documents you need for all levels of government.
Step 9: Register for the Goods and Services Tax/Harmonized Sales Tax (GST/HST)
The next step that you are expected to take is to ensure that you register for the goods and services tax/harmonized sales tax (GST/HST) in your province. If your new small business’ gross income exceeds $30,000, it is mandatory to register for GST/HST. (Note that this Small Supplier exemption doesn’t apply to all businesses: taxi and limousine services, for instance, always have to register for GST/HST.)
In order to be on the good book of the law when operating your business in Canada as a new business that is not making up $30,000, it is still to your advantage to register for GST/HST immediately because of Input Tax Credits, which are basically your way of getting back the GST/HST your business has paid out on purchases for business use.
Step 10: Register for Provincial Sales Tax (PST)
The next step to follow in order to ensure that your business is starting on the right footing is to ensure that you register for provincial sales tax (PST). For example, if you choose to start your business in Saskatchewan or British Columbia, or Manitoba, it is compulsory to register as a collector of provincial sales tax (PST).
But, if you decide to start your business in Quebec, you will need to register for Quebec Sales Tax (QST). Please note that some provinces have not harmonized their sales taxes with the federal goods and services tax (GST) and in those provinces, you will also have to register to collect and remit the appropriate provincial tax.
Step 11: Purchase the Needed Business Insurance
The rule of business engagement in Canada and in most countries of the world is that you can’t operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from. So, it is important to create a budget for insurance and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your business.
You might want to consider buying some or all of these insurance policies; General insurance, Health / Medical insurance, Liability insurance, Workers compensation, Overhead expense disability insurance, Business owner’s policy group insurance, and payment protection insurance.
Please note that if you are going to operate your business from home, then you might want to learn about home-based business insurance.
Step 12: Lease or Rent and Ideal Office Location
Another important step to follow when establishing a business in Canada is to choose an ideal location for your office. When it comes to renting an office facility in Canada, the nature of business you want to do should serve as a guide. Besides, you would need your business license and permit as part of the document to be tendered before any landlord or realtor will sign any leasing agreement with your business in Canada.
Step 13: Hire the Required Employees
The only reason why you should ignore this step is if you want to run a one-man business. If you want to operate a business in Canada, it is mandatory to hire only those that are legally permitted to work in Canada, or else your business might be fined or shut down.
The is why once you have hired employees, your business will probably need to register with the Worker’s Compensation Board in your province. You can find out more about hiring employees, employment standards, E.I., and other employee issues from the appropriate authority in your province if you are not sure of how the process works.
Step 14: Advertise and Market Your Business
One thing is certain, if you choose to start any business in Canada, you can be rest assured that there are competitors waiting to compete with you for the available market share. So, if you want your business to do well, then you must fashion out ways to advertise and market your products or services.
The truth is that if your business or brand is always in the eyes of the public, they will be tempted to do buy from you. You can use both print and electronic media to promote and advertise your business, but you must ensure you check up with the government of your country to know the rules and regulations governing the advertising of the type of business you are operating.
Here are some of the steps you should follow to legally set up your business in Canada. Please note that the steps are not cast in stone, hence you should make inquiries from the appropriate authorities in the province you intend to start a business if you are not too sure of what is obtainable in the province or city.