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EHT in practice: permanent establishment scenarios

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Does Company A carry on a substantial portion of its business in Ontario and does it have a permanent establishment in Ontario?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter.

Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter* (March 2016)

I refer to your facsimile XXX, 2016 regarding the application of the Ontario Employer Health Tax Act (EHTA) to remuneration paid to employees of Company A.

Facts

From the information provided in your letter, we understand the following:

Company A

was incorporated in Ontario in 2011
is a wholly-owned subsidiary of Company B, a United States (US) corporation, headquartered in the US (US parent)
has its registered head office in Ontario, at its lawyer’s office
has been sub-contracted by another US corporation, to provide employees for their contract with XXXX Company based in Canada
provides employees, as consultants, who are US residents who have worked in Canada since 2011 and continue to provide these services in Canada
employees report directly to XXXX Company’s customers throughout Canada at customer locations and do not report to any Company A’s Ontario office
operates a shadow payroll process through ADP Canada

Applied legislation

The amount of tax payable under the EHTA is based on an employer’s total Ontario remuneration as defined in subsection 1(1) of the EHTA:

“total Ontario remuneration”, in respect of an employer, means the total remuneration paid,

(a) to or on behalf of all of the employees of the employer who report for work at a permanent establishment of the employer in Ontario, and

(b) to or on behalf of all of the employees of the employer who are not required to report for work at a permanent establishment of the employer but whose remuneration is paid from or through a permanent establishment of the employer in Ontario.

Under subsection 1(3.1) of the EHTA, an employee is considered to report for work at a permanent establishment of an employer,

(a) if the employee comes to the permanent establishment in person to work; or

(b) if, although the employee does not come to the permanent establishment in person to work, he or she may reasonably be regarded as attached to the permanent establishment.

Under subsection 1(2) of the EHTA, a permanent establishment is defined, in part, as follows:

“permanent establishment” in respect of an employer includes any fixed place of business, including an agency, a branch, a factory, a gas well, a mine, an office, an oil well, timberland, a warehouse and a workshop and, without limiting the generality of the foregoing,

…

(h) an employer who has no fixed place of business shall be deemed to have a permanent establishment in the principal place in which the employer conducts business and in each place from which the employer carries on or transacts a substantial portion of the business.

Company A has no fixed place of business in Canada. We understand that Company A’s registered head office is its lawyer’s address in Ontario and that there are no day-to-day operations conducted at this address.

Company A is holding itself out as engaged in staff augmentation services and it provides all of its services in Canada. It carries on its business in Canada where its employees are directed by the XXXX Company to provide consulting services for their locations in Canada.

According to Company A’s T4 summaries, a number of its employees provide their services in Ontario. The percentage of total salaries and wages that was reported on its 2012 through 2013 Ontario T4s and EHT annual returns averaged over 20% of its total salaries. In addition, Company A’s reports for corporation income tax purposes solely to Ontario.

These clearly show that Company A carries on a substantial portion of its business in Ontario.

Under clause 1(2)(h) of the EHTA, Company A is deemed to have a permanent establishment in Ontario where it carries on a substantial portion of its business through its employees, who provide their services in Ontario.

Conclusion

Based on the information provided, it is our opinion Company A is an employer with no fixed place of business that carries on a substantial portion of its business in Ontario. It is therefore deemed to have a permanent establishment in Ontario in accordance with clause 1(2)(h) of the EHTA.

Company A is required to pay EHT based on remuneration paid to employees who report for work at a permanent establishment in Ontario. It is reasonable to consider that only the employees who provide their services in Ontario report for work at the Ontario permanent establishment.

Does a US-based company have a permanent establishment at its client’s locations in Ontario?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter * (January 2016)

I refer to your facsimile dated XXXX, regarding whether Company B is liable for Employer Health Tax (EHT) on remuneration paid to its non-Ontario resident employees who temporarily work in Ontario at clients’ locations.

Facts

I understand the following facts from information that was provided:

Company B’s head office is in the USA.
Company B is registered in Canada for payroll purposes (shadow payroll), but does not have an established location in Canada.
Company B files federal corporation income tax returns in Canada.
Company B employs up to XXXX people (XXXX in 2014) who work temporarily in Ontario for Canadian clients on multiple projects. These projects are ongoing and will continue through 2016.
Company B’s employees are skilled computer professional consultants (Sr. Consultants) who provide specialized services at the clients’ locations. Work performed includes: analysis, customization, and installation of XXXXXXXXXX suite of applications.
The employees are typically on-site at the clients’ location during the work week (full or partial weeks except for weekends). The length of time spent individually by the Sr. Consultants in 2015 varied between 3 and 46 full or partial weeks on-site excluding weekends. They spend the rest of the time working from their home office in the USA.
All the employees have received waivers from the Pension and Unemployment Insurance withholding requirements from the Canada Revenue Agency
The employees do not have any authority to contract for Company B.

Applied legislation

EHT is paid by employers on the remuneration paid to employees who report for work at the employer’s permanent establishment in Ontario, and on remuneration paid to employees who do not report for work at a permanent establishment of the employer, but are paid from the employer’s permanent establishment in Ontario.

During the time period in question Company B was based in the US. Company B did not own or rent any offices in Canada and did not otherwise carry on business in Canada.

A permanent establishment usually consists of a physical structure or building where employees work. A permanent establishment may also exist or be deemed to exist under clause 1(2)(g) of the Employer Health Tax Act (EHTA), which states

“an employer, who does not otherwise carry on business in Canada in a year, has a permanent establishment at any place where the employer produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves, processes or constructs, in whole or in part, anything in Canada, whether or not the employer exports that thing without selling it prior to exportation.”

Based on the information provided, the only business that Company B carried on in Canada was the provision (at various client locations) of software and IT solutions/services which could be described by several of the verbs in clause 1(2)(g).

Conclusion

It is therefore our opinion that, in accordance with clause 1(2)(g) of the EHTA, Company B had a permanent establishment in Ontario for EHT purposes at each of its Ontario clients’ locations where it carried on these activities.

Given the existence of permanent establishments in Ontario, it is our opinion that Company B is liable for EHT on the remuneration paid to its employees reporting for work at clients’ locations in Ontario.

Does Organization X’s home offices in Province A and Province B qualify as permanent establishments?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter * (April 2016)

I refer to your letter dated XXXX, regarding Organization X (Org. X) and the Employer Health Tax (EHT). You requested an interpretation on whether Org. X has a permanent establishment in Province A and Province B.

Facts

From the information you provided, I understand the following:

Org. X is a registered charity that educates the public about injustice and oppression and raises financial support.
Org. X is registered as an extra provincial organization in Province B, and is registered in Province C to operate as a charitable organization.
The Director of XXXX for Western Canada lives in Province A and maintains a home office. The Director XXXX, XXX Region lives in Province B and maintains a home office.
The Directors’ employment agreements stipulate that they must provide and maintain an office in their homes.
The office is a room used only for the employer’s business.
All direct costs associated with the creation and maintenance of the home offices are reimbursed by Org. X. Org. X also retains ownership of the physical assets in the home offices. The costs of the office space (utilities, interest, property taxes, etc.) are eligible to be claimed by the Directors as employment expenses on their personal tax returns.
The Directors’ responsibilities include:

developing, implementing and evaluating strategies to achieve annual fundraising goals for the region;
researching, identifying and building relationships with individuals, foundations and XXX with significant fundraising potential;
obtaining and fulfilling speaking engagements for Org. X;
initiating and implementing strategies for raising the positive profile of Org. X;
developing and evaluating programs to recognize, thank and educate donors; and
building and cultivating relationships with donors and XXXX leaders.

The Directors report to the Chief Operating Officer of Org. X; however, their work is largely independent and initiated from Province A and Province B.
About sixty percent of the Directors’ time is spent working from their home offices, and about forty percent travelling to speaking engagements and to meet donors and XXXX leaders.
Staff members from the Ontario office visit the home offices of the Directors occasionally.
Volunteers are engaged at the home offices to help with events and mailings. Guests and donors periodically come to the home offices for meetings or to drop things off for Org. X.
Materials, brochures and resources (such as books and DVD’s) are housed at the home offices. Local guests and constituents are invited to visit the home offices to pick up any supplies and resources needed.
The addresses of the home offices are advertised on the Directors’ business cards and the charity’s website.
The Province A location is registered as a place of business.

Applied legislation

The amount of tax payable under the Employer Health Tax Act (EHTA) is based on an employer’s “total Ontario remuneration”, as defined in subsection 1(1) of the EHTA. “Total Ontario remuneration”, in respect of an employer, means the total remuneration paid,

(a) to or on behalf of all of the employees of the employer who report for work at a permanent establishment of the employer in Ontario, and

Under subsection 1(2) of the EHTA, a permanent establishment is defined, in part, as follows:

An office in an employee’s home is considered a permanent establishment of the employer if the office is a fixed place of business that is used in conducting the day-to-day business activities of the employer. An employee’s home office where only ancillary functions related to the business are carried out does not constitute a permanent establishment of the employer. In addition, for an office in an employee’s residence to be considered a “place of business” of an employer, some element of control of the home office by the employer is required.

Conclusion

Based on the information you provided, it is our opinion that the home offices of the Directors are considered permanent establishments of Org. X. The home offices are used on a regular and continuous basis for carrying on the day-to-day business activities of Org. X, and are normally accessible to other individuals employed by/or doing business with Org. X. The home offices are considered to be at the employer’s disposal as the employer requires the employees to maintain an office in their homes as a condition of employment; the home offices are rooms used only for the employer’s business; and all direct costs associated with the creation and maintenance of the home offices are paid by Org. X.

Since the Directors report for work at Org. X’s permanent establishments in Province A and Province B, remuneration paid to them is not subject to EHT .

Are Director’s Fees included in Company C’s total Ontario remuneration?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter * (October 2015)

I refer to your letter regarding whether remuneration paid by Company C to directors not residing in Ontario is subject to Employer Health Tax (EHT)

Facts

From the information available, I understand the following:

Company C is a producer of XXXXX and related products, focused on supplying the overseas market.
Company C’s head office is in Ontario and it has subsidiaries outside Canada.
Certain directors reside outside Ontario and only perform work in Ontario when they attend board meetings in Ontario. Often, the directors are not physically present, but are instead connected to the meeting by conference call.
These meetings occur several times a year and never exceed 26 working days.
The directors report directly to the chairman of the board of directors, who also resides outside Canada.
The Ex-CEO and Director, Mr XXX reported for work at a subsidiary of Company C outside Canada.
Salaries, including directors’ fees are paid from Ontario.
Income for income tax purposes is 100% allocated to Ontario.
It is your understanding that the directors’ fees should not be included in total Ontario remuneration as defined by the EHT guide.

Applied legislation

Liability for Employer Health Tax

EHT is payable by all employers who pay remuneration to:

(a) employees who report for work at a permanent establishment of the employer in Ontario, and/or

(b) employees who are not required to report for work at a permanent establishment of the employer but whose remuneration is paid from or through a permanent establishment of the employer in Ontario.

For the purposes of EHT , an employee is considered to report for work at a permanent establishment of an employer,

(a) if the employee comes to the permanent establishment in person to work; or

(b) if, although the employee does not come to the permanent establishment in person to work, he or she may reasonably be regarded as attached to the permanent establishment.

"employee" means,

(a) an individual employed by and in the service of an employer,

(b) an individual who holds office from an employer and receives remuneration in respect of the performance of the duties of the office.

The position of a corporate director is that of an office and therefore, director’s fees are subject to EHT .

Directors are considered to report for work at the permanent establishment where they physically meet. If they do not physically meet at a permanent establishment of the employer, the directors will be considered to be attached to the registered/head office.

Conclusion

Based on the information listed above, it is our opinion that Company C has a permanent establishment only in Ontario, and for EHT purposes all employees are attached to the sole permanent establishment in Ontario. Therefore, all directors’ fees, including directors who reside outside Ontario and only perform work in Ontario when they attend board meetings in Ontario, are subject to EHT . The fact that the directors may not physically be present and are connected to the meeting by conference call is not relevant.

The provision regarding employees who report for work at permanent establishments of the employer in Ontario and also outside Ontario during a year does not apply in Company C’s situation because Company C’s sole permanent establishment is in Ontario and they do not have any permanent establishment outside Canada.

Does Employee A hold general authority to contract on behalf of Company Y?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter * (September 2014)

This letter is in regards to your request for a permanent establishment ruling for Company Y under the Employer Health Tax (EHT) Act.

Facts

Based on the information you have provided in your letters and from your website, I understand that:

Company Y has allocated 100% of its taxable income to Ontario in its Corporations Income Tax Return.
Company Y has two employees (Employee A & Employee B) living and working in Thailand at an associated company’s (Company Z) location.
Company Y designs, imports and distributes medium and upper-medium-priced occasional tables, accent furniture, bedroom, dining room and home entertainment furniture across all style categories for retailers around the world.
Employee A was hired by the Ontario office and worked there until 2009, when she relocated to the Thailand distribution centre.
She receives instructions and reports to a supervisor, Employee B at the Thailand warehouse.
According to our conversations, Employee B, VP of Operations, holds general authority to contract for Company Y. He is responsible for the supply side of the business (including quality control, supply and demand, warehouse operations, logistics and product research and development.)
Employee B reports to the Chief Executive Officer in Ontario.

Applied legislation

The amount of tax payable under the Employer Health Tax Act (EHTA) is based on an employer’s “total Ontario remuneration”, as defined in subsection 1(1) of the EHTA. “Total Ontario remuneration”, in respect of an employer, means the total remuneration paid,

(a) to or on behalf of all of the employees of the employer who report for work at a permanent establishment of the employer in Ontario, and

Under subsection 1(3.1) of the EHTA, an employee is considered to report for work at a permanent establishment of an employer,

if the employee comes to the permanent establishment in person to work; or
if, although the employee does not come to the permanent establishment in person to work, he or she may reasonably be regarded as attached to the permanent establishment.

A permanent establishment under subsection 1(2) of the EHTA includes any fixed place of business, usually a physical structure or building where employees work such as an agency, a branch, or an office. A permanent establishment may also exist or be deemed to exist where an employee has general authority to contract on behalf of the employer.

General authority connotes the ability to enter into contracts that are necessary to conduct the business operation. General authority must bind the employer in most sales contracts, OR can conclude contracts on behalf of the employer, which must be exercised repeatedly. Generally speaking, sales contracts are considered a primary and substantial business activity. However, it is also plausible that a primary business activity would not involve sales.

Employee B is responsible for all of Asian management, product development, quality and administration. His staff member, Employee A, is responsible for managing all the Asian logistics operations in regards to container programs, sales order processing, ocean freight management, compliance programs, corporate policies and processes, and XXX project liaison for new IT systems.

Conclusion

The information you provided indicates that the VP of Operations (Employee B) is in charge and holds authority over the supply side of the business, which is a primary business activity of Company Y. This indicates he holds general authority to contract on behalf of Company Y.

Based on the information provided, it is my opinion that Company Y has a permanent establishment in Thailand as Employee B holds general authority to contract on behalf of Company Y. Therefore, although they are paid from the Ontario permanent establishment, they are considered to be attached to the Thailand permanent establishment, and the remuneration of Employee A and Employee B is NOT subject to EHT .

Is Company D liable to pay Employer Health Tax on remuneration paid to its employees working at its parent company’s location in Alberta?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter * (November 2014)

I refer to your letter dated XXXX regarding Company D and its liability for the Ontario Employer Health Tax (EHT).

Facts

Based on the information you have provided in your letter and your website, I understand that:

Company D is a manufacturer of XXXX operating within Ontario.
It has permanent establishments only in Ontario, with the head office located in Ontario, and various showrooms located across the province.
The parent company is located in Alberta.
There are some Company D employees who report for work at the parent company’s permanent establishment in Alberta, and do not report for work at any of the Ontario permanent establishments of Company D.

(Please note that the parent company does not hold general authority to contract for Company D; Company D’s employees have no rights to use the parent company’s location as its own; does not control the space at the parent’s location; the parent company’s location is not identified as a location of the subsidiary)

The Alberta employees do not have authority to contract and are not working from home offices.
The Alberta employees are paid from Company B in Ontario.

Applied legislation

(a) to or on behalf of all of the employees of the employer who report for work at a permanent establishment of the employer in Ontario, and

Under subsection 1(3.1) of the EHTA, an employee is considered to report for work at a permanent establishment of an employer, if the employee comes to the permanent establishment in person to work; or if, although the employee does not come to the permanent establishment in person to work, he or she may reasonably be regarded as attached to the permanent establishment.

There is no tie between EHT and health coverage in any province.

Conclusion

In Company D’s case, the employees working at the parent company’s location do not report for work at any permanent establishment belonging to Company D as they have no control over the space and the parent company’s location is not identified as a location belonging to Company D. They are working at a location of a different legal entity. The parent company does not hold general authority to contract on behalf of Company D.

These employees do not report for work at any permanent establishment belonging to Company D. As they are paid from Ontario, it is our opinion that the remuneration paid to the Alberta employees is considered to be part of total Ontario remuneration, and therefore subject to EHT .

Is remuneration paid to Quebec resident employees subject to Employer Health Tax?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter 07-0254, January 2008

I refer to your correspondence dated XXXX, 2007 regarding remuneration paid to Quebec resident employees, and the Ontario Employer Health Tax (EHT).

Facts

From your correspondence and our conversations I understand that:

Company E is a manufacturer and distributor of XXXXXX
Company E’s manufacturing plant and head office are in Toronto, Ontario
Company E has no other offices outside of Ontario
Company E has sales representatives (Reps) working in Ontario and in Quebec
Reps working in Quebec are also residents there
Reps work on the road calling on customers to address issues or to respond to technical inquiries as well as trying to solicit new clients
There is no requirement for these employees to have a home office
Company E pays for incidental office expenses only
The Reps business cards shows the Rep’s cell phone number, Company E’s Toronto, address and toll-free number
Quebec resident Reps:

are hired and paid from Company E’s head office in Toronto, Ontario
are supervised and receive direction from Ontario
submit attendance records and expense claims to Ontario
do not have general authority to contract
sometimes deliver a small order to a client from stock held at a rented warehouse in Montreal, Quebec

Sales orders are received directly from customer at the Toronto office for approval and then are transmitted to the rented warehouse facility (the Warehouse) in Montreal, Quebec for shipping
The Warehouse:

Company E pays rent to Company M to store stock there and for services to process orders sent there from the Toronto head office.
Orders are transmitted from Company E’s Toronto office for shipping.
Company E has no employees working at the warehouse nor do they conduct day to day business or any portion of business at the warehouse.
Company E does not have authority over the warehouse other than their own stock.
The warehouse address is not publicly listed on letterhead, website, telephone directory.

Applied legislation

EHT is payable by all employers who pay remuneration to employees who:

report for work at a permanent establishment of the employer in Ontario, or
are not required to report for work at the employer’s permanent establishment, but are paid from or through a permanent establishment of the employer in Ontario.

Remuneration paid to employees who report for work at a permanent establishment of the employer outside of Ontario is not subject to EHT .

A permanent establishment usually consists of a physical structure or building where employees work such as an agency, a branch, a factory, a farm, a gas well, a mine, an office, an oil well, timberland, a warehouse and a workshop. A permanent establishment may also exist or be deemed to exist where the employee:

has general authority to contract on behalf of the employer
conducts day to day business of the employer at an office in his home, or
fills orders from stock of merchandise owned by the employer.

A home office is not required by employment contract, nor does the employer pay any rent for exclusive use of space in the employees’ homes. Telephone numbers listed on the Reps’ business cards are their cell phone numbers and the Toronto, Ontario, head office toll free number. Reps in Quebec do not have general authority to contract. Reps are hired, paid and supervised from Company E’s head office in Toronto, Ontario; therefore, they are regarded as attached to the office in Ontario.

Customers submit their sales orders directly to the office in Ontario for approval. The orders are then transmitted to a rented warehouse in Montreal, Quebec for shipping. Company E’s employees do not work at the warehouse. The warehouse is used for storage of stock and shipping is done by employees of Company M. Company E has no control over the day to day operations at the warehouse. No advertising is done to show the space as belonging to Company E.

Conclusion

Based on the information provided, it is our opinion that, remuneration paid to the Quebec resident employees is subject to EHT based on the facts that they report for work at Company E’s office in Toronto, and that they are paid from the head office in Toronto, Ontario. You should request a refund from the Ministère du Revenue du Quebec for contributions made in error to the Quebec Health Services Fund.

Does a Quebec company have to pay Employer Health Tax on remuneration paid to its Ontario sales representatives?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter 08-0011, December 2008

We refer to your letter dated XXXXXX regarding Company F and the Employer Health Tax (EHT).

Facts

From your correspondence and our conversations we understand that:

Company F is a manufacturer of quality XXXXXX products
Company F’s head office is located in Quebec
Company F has a warehouse in Ontario
Company F has representatives (Reps) working on the road in Ontario trying to find new clients
Reps living and working in Ontario do not report to the warehouse in XXXXXX Ontario
Reps are hired and paid from Company F’s head office in Quebec
Reps receive direction and are supervised from head office
They submit attendance records and expense claims to the Quebec office
Reps work from a price list established by head office and do not have general authority to contract on behalf of Company F
Their home offices are not publicly advertised in any of Company F’s promotional material nor are they commercially registered
In 2008 or 2009, Company F anticipates hiring an Ontario resident employee who will be responsible for Ontario-based representatives.

Applied legislation

EHT is payable by all employers who pay remuneration to employees who:

report for work at a permanent establishment of the employer in Ontario, or
are not required to report for work at the employer’s permanent establishment, but are paid from or through a permanent establishment of the employer in Ontario.

Remuneration paid to employees who report for work at a permanent establishment of the employer outside of Ontario is not subject to EHT .

has general authority to contract on behalf of the employer in his or her province/jurisdiction of residence
conducts day to day business of the employer at an office in his home, or
fills orders from stock of merchandise owned by the employer.

Conclusion

Based on the information provided, it is our opinion that remuneration paid to the Reps who do not report for work at the warehouse in Ontario is not subject to EHT because they are considered as reporting for work at Company F’s head office in Quebec.

Interpretations are issued based on the actual facts surrounding a particular case. As a result, we are not able to provide an opinion on the EHT implications without knowing for certainty if Company F is going to hire an Ontario employee to be responsible for Ontario-based representatives.

Is Company A required to pay Employer Health Tax on remuneration paid to its construction project employees currently working in Alberta?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter 08-0108, October 2008

We refer to your letter dated XXXXXX, regarding whether Company G is required to remit Employer Health Tax (EHT) for remuneration paid to its construction project employees currently working in Alberta.

Facts

The information provided by you is as follows:

New location in Alberta will be opening its first phase by XXXXXX, 2009
Alberta location is on land owned by Company G
Since the beginning of 2008, the construction crew in Alberta is comprised of twelve (12) Company A employees, six (6) of whom work from the Ontario warehouse, two (2) of whom work from the US head office, and others were hired locally
The employees from the Ontario warehouse work exclusively at the Alberta site for 2 to 3 weeks before returning home for their extended weekend
During their extended weekend rest time, these employees do not work at home nor report back to the Ontario warehouse
Physical aspect of construction work is performed by local sub-contractors
The warehouse in Ontario has existed for 4 years
The Canadian business is part of the U.S. corporation – i.e., there is no separate Canadian entity
Payroll hours are submitted by the Ontario warehouse for that location while pay cheques, etc. are prepared at the U.S. head office.

Applied legislation

EHT is payable by all employers on remuneration paid to employees who report for work at a permanent establishment in Ontario, and to employees who do not report for work at a permanent establishment of the employer, but who are paid from or through a permanent establishment of the employer in Ontario.

An employee is considered to be reporting for work at a permanent establishment of the employer if the employee comes to the permanent establishment in person to work. If the employee does not come to the permanent establishment in person to work, the employee is considered to be reporting for work at a permanent establishment if he or she may reasonably be regarded as attached to the permanent establishment.

For EHT purposes, the definition of permanent establishment includes any fixed place of business, including the owning or leasing of land, an agency, a branch, a factory, a farm, a gas well, a mine, an office, an oil well, timberland, a warehouse and a workshop.

Conclusion

Based on the information provided, it is our opinion that Company G has a permanent establishment in Alberta since Company G owns the land. Company G’s Alberta resident employees who are working on the Alberta plant construction project are considered to be reporting for work at that location. The employees from the Ontario warehouse who are assigned to the Alberta project are reporting for work at the Alberta permanent establishment. Therefore, for EHT purposes, Company G is not required to include any of the remuneration of the Ontario employees, who are working in Alberta, or the remuneration of the Alberta resident employees.

The construction project employees who travel back and forth between the US head office and Alberta are not relevant for EHT purposes.

Is the employee’s home office a deemed permanent establishment of Company H?

Information and Disclaimer

*This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued.

In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter 09-0091, August 2009

We refer to your correspondence with our XXXXXX Tax Office regarding Company H and the Employer Health Tax (EHT).

Facts

From your correspondence and our conversation, we understand that:

Company H’s only office is located in XXXXXX, Ontario.
Company H has an employee, a service representative (Rep), working from his home in Quebec.
Company H has been paying contributions to the Quebec Health Services Fund (QHSF) of the Ministry of Finance of Quebec since XXXX.
The Rep was hired and is paid from Ontario.
The Rep contacts customers to promote Company H products.
The Rep works within set company guidelines to issue quotes (from a company catalogue) or with consultation with the Sales Manager.
Any quote that needs special pricing to obtain a sale is communicated to head office for approval by the Sales Manager.
Clients send their orders directly to the head office. If they try to place it with the Rep they are instructed to send to head office.
The Rep is supervised by and regularly receives instruction and direction from a Sales Manager in Ontario.
The Rep submits attendance records and expense claims to Ontario.
The home office is not required as a condition of employment.
The Rep uses his home office for doing paperwork, preparing expense and call reports, occasionally preparing presentations and correspondence to clients.
The Rep travels for 80% of his work schedule and the balance is at his home office.
Company H does not reimburse the Rep for costs associated with the use of space in his residence.
Company H reimburses the cost of such things as cell phone, office supplies, travel expenses and provides the Rep with a computer and printer.
The home office is not advertised by telephone listings, business signs, or included in sales or product advertising, etc., to indicate its presence.
The Rep’s residence is not commercially registered as a place of the employer’s business, and for local property tax purposes, as appropriate.

Applied legislation

Employers are required to pay EHT on the remuneration paid to employees who report for work at a permanent establishment of the employer in Ontario, and to employees who do not report for work at a permanent establishment of the employer, but who are paid from or through a permanent establishment of the employer in Ontario. For EHT purposes, the residency of the employee is not a factor in determining if the employer is subject to the tax.

A permanent establishment may also exist or be deemed to exist where the employee:

has general authority to contract on behalf of the employer
conducts day to day business of the employer at an office in his home.

To determine whether an employee’s home office qualifies as a permanent establishment of the employer, the ministry looks at the following factors:

whether the office is a room or substantial area in the employee’s residence used exclusively for the employer’s business (i.e., it is strictly for business use at any time and for no other purpose)
whether the employee is required to provide an office as a condition of employment
whether the employer pays reasonable (fair market value) rent for the use of an office, which is a room or area set aside in the employee’s home, that is maintained and controlled by the employer and is accessible to other individuals employed by or doing business with the employer
whether sales orders, which may be forwarded for processing elsewhere (e.g., at the employer’s head office or regional office location), are regularly accepted there
whether the employer pays for supplies, maintenance and office equipment costs (e.g., telephone, computer, fax machine)
whether the office is advertised by telephone listings, business signs, inclusion in sales or product advertising, etc., to indicate its presence
whether the employee’s residence is commercially registered as a place of the employer’s business, and for local property tax purposes, as appropriate.

Conclusion

Based on the information provided, it is our opinion that the home office in the Rep’s residence does not meet the criteria to be considered a permanent establishment of Company H, and the Rep does not have general authority to contract on behalf of Company H. Therefore, Company H does not have a permanent establishment in Quebec and is required to pay EHT on the remuneration paid to the Rep in Quebec.

Updated: January 09, 2024

Published: March 29, 2022