How Does EI Catch You For EI Fraud? (2023)

In 2022, 742,730 Canadians received EI benefits. Employment Insurance (EI) is a form of unemployment insurance that provides temporary benefits to individuals who are between jobs, on sick leave, have recently suffered an injury, or who are temporarily unable to work for one reason or another.

EI recipients are expected to inform the EI department of any changes to their income so that their EI benefit can be adjusted accordingly.

But how does EI catch you for EI fraud?

Failure to update your income information is considered employment insurance fraud. If the CRA discovers you (through anonymous tips, bank records, tax filing, and other sources), then you may be required to repay your EI benefit in addition to other fines and penalties.

Below, I’ll explain a bit more about EI fraud, potential penalties, and reveal how the EI department discovers fraud.

EI Fraud: A Serious Offense

The Canada Employment Insurance Commission (CEIC) is responsible for overseeing the EI program, approving applications, and handling individual cases.

EI benefits are typically issued to individuals within a certain income/asset threshold who are unable to find work or who are on temporary leave due to sickness, an injury, or who recently gave birth to a child.

EI benefits aren’t designed to replace an individual’s income completely, but they can provide a helpful safety net by paying up to 55% of a worker’s regular income for up to 45 weeks.

Unfortunately, EI benefits are also subject to fraudulent applications. Even legitimate applications upon approval may become illegitimate if the beneficiary withholds updated income information from their caseworker.

The CRA works hand-in-hand with the CEIC to root out fraud and ensure that only those who deserve EI benefits are receiving them. There are several ways that the CRA and CEIC can determine whether or not a beneficiary is committing EI fraud, including:

  1. Reports from your employer
  2. Deviations within your annual income tax returns
  3. Statements received from your bank
  4. Anonymous tip hotline
  5. When making a large purchase that’s reported to the CRA
  6. When you deposit large amounts in your bank

The most common penalty for EI fraud is repayment and a small fine. However, if you’re found to be committing EI fraud on a larger scale, then you may be forced to pay back up to triple the amount of the benefits you received as a penalty. In extreme cases, you may even face jail time.

Can You Work While You’re Receiving EI Benefits?

One of the most common misconceptions about unemployment benefits in Canada is the belief that EI recipients will immediately lose their benefits if they start working again. This is one of the justifications that those accused of EI fraud use. However, it’s not entirely true.

EI recipients can begin working again and still be eligible to receive EI benefits. However, the amount of your EI benefit will be decreased by a percentage to reflect your new income.

This is why the CEIC requires beneficiaries to update their caseworker whenever they start earning new income. Once you’re earning your regular full-time salary again, then your benefit will be discontinued.

How The CRA & CEIC Discover EI Fraud

BMO Fraud Complaints

It’s important to remember that the CRA was founded with the intention of rooting out fraud and ensuring that the federal government receives its required taxes from everybody.

Although Canada does have rather high taxes, the government also issues a number of tax credits and benefits (such as EI) to eligible individuals who are in need of financial assistance.

Unfortunately, some of these benefits are taken advantage of by individuals who commit fraud, withhold information, or knowingly provide false information to provide benefits.

Here are some of the key ways that the CEIC and the CRA catch an individual committing EI fraud.

1. From Employer Reports

Employers are required to keep a record of their employees and the paycheques issued to them. Workers are tracked with their unique SIN number.

When your employer files their taxes and employer reports, the CRA will be able to view all of the employees of that business as well as how much they earned.

2. When You File Your Annual Income Taxes

When you file your income taxes with the CRA, you’re required to claim all of the income that you received during the previous tax year. While an individual may choose to lie on their tax returns, accountants are legally bound to report all of your income accurately.

Often, the CRA may discover instances of EI fraud when the income tax returns filed by the beneficiary’s accountant show that the taxpayer earned more than they claimed to the CEIC.

3. By Viewing Your Bank Records

If the CRA or CEIC suspects an individual of EI fraud, they may request account statements from your bank to verify your eligibility for benefits.

For example, if you claimed that you weren’t working, but your statements showed regular weekly deposits, the CRA would investigate further to determine whether the deposits reflect unreported income.

4. Anonymous Tips From Other Canadians

The CEIC has a toll-free hotline through Service Canada, which encourages Canadians to report anybody who they believe is taking advantage of the system. After the report is made, the CEIC or CRA will evaluate the claim for validity and will further investigate if they believe the report could be accurate.

5. When You Make A Large Purchase

Whenever a seller receives a sum of $10,000 or more from a buyer, they must report the transaction to FINTRAC. The CRA implemented this system to keep track of suspicious transactions and help root out fraud.

If you’re actively receiving EI benefits and make a purchase over $10,000, then you may be a prime candidate for an EI benefit audit.

6. When You Deposit A Large Amount Of Cash Into Your Bank Account

The same regulations that require businesses to report transactions over $10,000 also apply to banks. Whenever you deposit a sum of $10,000 or more into your account in a single business day, your bank is legally required to report the deposit to the CRA.

Potential Penalties For EI Fraud

If you’re found to be guilty of EI fraud, then you’ll almost certainly have to repay the overage amount that you received. Depending on the severity of the fraud (how much more you were paid compared to how much you were owed), you may also be required to pay a fine on top of the EI benefit repayment.

Here’s a quick rundown of penalties you could face for EI fraud.

Repayment

Mistakes happen from time to time, and it’s not uncommon for there to be small differences or inaccuracies in reports and EI applications. In these cases, the EI overpayment you received may only be a small amount.

In these cases, fines may be waived, and you may only be required to repay the overage amount.

Fine

In addition to repayment of the overage, you may also be required to pay a fine based on the severity of your crime. The CEIC has four levels of severity, which are as follows:

Offense LevelOverpayment Amount
Minor$1,000 or less
Serious$1,001 to $4,999
Major$5,000 or more
Subsequent (repeat offenses)Any amount of overpayment received as a repeat offender

The fine amount can vary from one case to the next, depending on the severity of the offense. There aren’t any set amounts, but the maximum amount you may be fined is 150% (three times) the amount of the overpayment.

Increased Hour Threshold To Receive Benefits

If you’re found to be guilty of EI fraud, then the number of hours required to continue receiving EI (or to receive it in the future) may be increased.

I.e., if you were previously eligible to receive EI after working less than 420 hours in a year, you may be required to work up to 525 hours before you’re allowed to receive benefits in the future.

Banned From EI

If you’re a repeat offender or have been found guilty of a major instance of EI fraud, then you may be banned from receiving EI and other government benefits for a defined period of time.

Imprisonment

In some rare instances, Canadians may be imprisoned for EI fraud. Imprisonment usually only occurs after failing to repay EI benefits or the associated fine.

Can Employers Receive Penalties For EI Fraud?

Employers who are found guilty of committing EI fraud by falsifying employment records or omitting information may be charged up to $12,000 per false record.

Employment Insurance: Who’s Eligible For It

How An Employee Number In Canada Works

Canada first released its unemployment insurance (UI) program in 1941. In 1996, however, it was renamed employment insurance (EI). At the same time, the program was expanded to offer EI benefits to a wider range of Canadians.

The most common reason why people receive EI benefits is that they’ve recently become unemployed. During the 2020 pandemic, companies had to lay off and quarantine many of their employees.

As a result, the number of EI beneficiaries tripled between February 2020 (before the start of the pandemic) and October 2020 (in the midst of it).

In addition to standard unemployment benefits, though, the following individuals may also be eligible to receive temporary EI payments:

  • Those out of work due to sickness
  • Those out of work due to an injury
  • Mothers who’ve recently given birth (maternity leave)
  • Caregivers who take off work to care for an injured, sick, or dying loved one
  • Self-employed fishers looking for work
  • Other self-employed individuals who pay into the EI program and find themselves without work

If you’re approved for maximum EI benefits, you’ll typically receive 55% of your usual salary from work, up to $638 per week. To be approved for maximum EI benefits, you must meet a certain income threshold and must provide proof that you’re unable to work for one reason or another.

Conclusion

How Does EI Catch You For EI Fraud

The CRA and CEIC take employment insurance fraud very seriously and will not hesitate to set repayment terms and harsh financial penalties. Additionally, you may be barred from receiving future benefits or may be subject to stricter eligibility requirements in the future.

Similarly, the CRA has been cracking down on cryptocurrency profits and payments, another avenue which may be associated with EI fraud. To ensure that your crypto taxes are reported and paid properly, check out my list of the best crypto accountants in Canada next!

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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