EHT in Ontario is levied on a business's “Total Ontario Remuneration”. What this is isn't as simple as you think.
You'd think that when preparing your annual EHT return for Ontario that you simply use the compensation paid to those employees who are residents of Ontario for income tax purposes.
This is mostly correct...
The legislation states that EHT is levied on an amount that uses a term "Total Ontario Remuneration", which is defined as:
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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.
- The legislation goes on the state that:
- A “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…
- Ontario.ca, goes on to say that:
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To assess whether an employee’s home office qualifies as a permanent establishment of the employer, the ON Ministry of Finance (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.
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- Please be aware, that the list above is what the Ministry looks at in determining whether an employee has a permanent residence, not that all of these factors MUST exist.
- There's a site inside Ontario.ca, EHT in practice; permanent establishment scenarios which provides excerpts from Interpretation Letters the Ministry has issued on specific scenarios which do give some insight. One such scenario is titled
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"Does Organization X’s home offices in Province A and Province B qualify as permanent establishments?"
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- In summary, in order to avoid double taxation (paying health care premiums, EHT, in province of residence, AND in Ontario due to EHT legislation, employers should ensure that they do what they should also do regarding the income tax implications for "home office' workers:
- the employment contract with each employee should clearly stipulate the requirements for their work day, use of the tools required to perform their job duties, and maintenance of a designated area for work within the home.