What is the Hiring Credit for Small Business?

The Federal Budget for 2012 extended the hiring credit  to the 2012 calendar year.  The calculation and eligibility requirements remains the same.

Recently, a client received a notice from the CRA indicating that he had received a credit of $265.  The explanation was simply that it was a hiring credit.  Upon further research, we determined that the credit was a result of the provision in the 2011 budget that gave a credit to small business for hiring additional employees.

To be eligible for the credit, small businesses are not required to prepare any additional reporting.  The small business hiring credit is simply calculated based on the increase in employment insurance (EI) premiums paid in 2011 over 2010.  The maximum amount that any business is eligible to receive is $1,000.

Since the calculation is based on amounts reported on your T4 slips for 2010 and 2011, you are only eligible if the slips have been filed for these calendar years.

It appears that the amount of the credit is 100% of the excess of 2011 EI premiums over the 2010 EI premiums, up to aforementioned limit of $1,000.

The credit will not actually be paid out immediately, but applied to your payroll account.

New businesses (like my client who was responsible for creating jobs in Montreal ) will receive the credit.  Their 2010 EI premiums will be calculated at $0.

Note that since the EI credit should reduce your payroll expense, it will reduce your business expense and by extension, increase profits.  The journal entry is as follows:

Dr. Payroll (EI) Liability

Cr. Payroll Expense

Once you receive your payroll statement from Revenue Canada indicating the amount of the credit, you may reduce the payroll liability owing to them by the same amount.  You cannot, however, estimate the amount of the credit before you have received notification from Revenue Canada.

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