Canada: Case Comment: Toronto Blue Jays Baseball Club et al v. Ontario (Minister of Finance) - Meaning of "Permanent Establishment" for Ontario Employer Health Tax and Beyond

Last Updated: August 24 2005
Article by Jamie M. Wilks

Originally published July, 2005

Toronto Blue Jays Baseball Club v. Ontario (Minister of Finance) (February 15, 2005), docket no. 041861

For the purpose of funding health care in Ontario, the Employer Health Tax Act1 taxes Ontario employers on specified percentages of the remuneration paid to their employees. The employer health tax (EHT) is calculated on "total Ontario remuneration" 2 paid to employees.3 Prior to recent amendments, to the extent that employees report to their employer's "permanent establishment" outside Ontario, that proportion of the remuneration is excluded from the employer's taxable "total Ontario remuneration" paid. In Toronto Bhie Jays Baseball Club v. Ontario (Minister of Finance), three Ontario professional sports teams ("the teams") sought to exclude the proportion of remuneration paid to their professional athletes and other employees earned from "away games" played outside Ontario on the basis that the employees reported to permanent establishments outside Ontario. The "away venues" consisted of designated dressing rooms for the players, a coaches' room, and a training room at die sports stadium. The teams shared facilities with the host teams, such as training room equipment, playing fields or surfaces, and other common areas. The Ontario Court of Appeal's consideration of the jurisprudence regarding the meaning of "permanent establishment" and the application of the term to the particular facts has far-reaching tax implications beyond the EHT Act, which the Canadian and provincial taxing authorities might ultimately come to regret.

Lower Court Decision

The Ontario Superior Court of Justice allowed the teams' application for a declaration that each of the away venues constituted a permanent establishment for the purpose of the EHT Act.4 As a result, remuneration relating to employees' services rendered at those permanent establishments was excluded from the definition of total Ontario remuneration and was exempt from EHT. The EHT Act defines "permanent establishment" as including any fixed place of business. A "fixed place of business" includes "an agency, a branch, a factory, a farm, a gas well, a mine, an office, an oil well, timberland, a warehouse and a workshop."5 The definition then lists a number of specific circumstances in which an employer is deemed to have a permanent establishment. The one specifically considered in this case is the situation where an "employer uses substantial machinery or equipment."6

In determining that the sports, medical, and training equipment at away venues did not constitute "substantial machinery or equipment," the lower court reluctantly followed the Supreme Court of Canada decision in Sunbeam Corpn. (Canada) Ltd. v. Minister of National Revenue.7 In that case, the Supreme Court dismissed Sunbeam Corporation's ("Sunbeam's") appeal to claim income tax deductions that depended on Sunbeam's having a permanent establishment in Quebec. Sunbeam's head office and manufacturing plant were in Ontario. At issue was whether Sunbeam's sales representatives in Quebec maintained "substantial machinery or equipment" at their home offices. They maintained sales demonstration equipment at their premises varying in value from $4,000 to $11,000. The Supreme Court found that such equipment was not "substantial," "such as is used by contractors or builders in the course of their operations." In addition, the equipment was used merely for demonstration purposes.

In Toronto Blue Jays, however, the lower court did find that the teams had a fixed place of business at their away venues, notwithstanding the apparently transitory nature of the business activities conducted at those venues. In so finding, the court relied on the Tax Court of Canada precedent in Fowler v. MM?.8 In that case, the Tax Court had to determine whether James Fowler, a US resident, had a permanent establishment under article V of the Canada-US income tax convention (1980)9 and was therefore subject to Canadian income taxation on business profits earned through that permanent establishment pursuant to article VII of the treaty. For 15 consecutive years leading up to the assessment period, Mr. Fowler travelled to Vancouver, British Columbia to spend three weeks at the Pacific National Exhibition (PNE) to sell knives, car wash mitts, and kitchen devices. Mr. Fowler used a trailer and a collapsible booth to sell his wares. Given his consistent and continuing presence at the PNE each year and the fact that he derived a significant proportion of his income from his business enterprise there, the Tax Court found that he had a permanent establishment in Canada and would be subject to Canadian income tax.

Ontario Court Or Appeal Decision

The Court of Appeal reversed the lower court's decision in concluding that the teams did not have any permanent establishment outside Ontario under the EHT Act. As a result, the teams' taxable total Ontario remuneration included remuneration earned by employees from away games.

Like the lower court, the Court of Appeal purported to follow the Supreme Court precedent in Sunbeam, stating that the " 'machinery and equipment' must be very much more substantial than equipment transported by the teams to the out of Ontario playing venues."10 Furthermore, the court noted that "the use of sports equipment and sport related machinery is only incidental to the raising of revenue by the playing of games between the teams and their opponents."11 The teams argued that the Court of Appeal should apply the decision in Club de Baseball de Montreal Ltee c. Quebec (Sous-Ministre du Revenu).12 In that case, a Quebec court agreed with the Montreal Expos that the Quebec health tax should be calculated on players' salaries only to the extent that they were earned in Quebec, because the players' activities outside Quebec were attributable to the team's places of business at those locations. The Montreal Expos were deemed to have places of business outside Quebec because of their use of a significant amount of machinery or material there.

In Toronto Blue Jays, the Court of Appeal found that the teams did not have a fixed place of business outside Ontario. In reaching this conclusion, the court considered Sunbeam, Syntex Ltd. c. Sous-Ministre du revenu du Quebec,13 Dudney v. The Queen14 and Fowler.

In Sunbeam, the Supreme Court found that the home offices of Sunbeam's Quebec employee and representatives were not Sunbeam's fixed places of business on the basis, among other reasons, that Sunbeam did not exercise sufficient control over, and was not sufficiently identified with, those premises.

Relying on Sunbeam, the Quebec Court of Appeal in Syntex upheld a lower court decision overturning Quebec health tax assessed against an employer's payroll. The court found in that case that the use of an office by an employer does not necessarily mean that the office constitutes a permanent establishment of the employer. The employer must also demonstrate a sufficient degree of management and authority over the office for it to constitute a permanent establishment.

In Dudney, the Tax Court of Canada considered whether a non-resident individual had a "fixed base regularly available to him" to carry on business in Canada. Under article XTV of the Canada-US treaty, Canada can tax a non-resident individual in respect of independent personal services, but only to the extent of his income attributable to "a fixed base regularly available to him" in Canada. This case is relevant to the meaning of permanent establishment since the Tax Court found that there was little, if any, real difference in meaning between the expressions "fixed base" and "permanent establishment." Mr. Dudney, a US resident, was an independent subcontractor performing computer-training services at the premises of the main contractor's customer in Calgary, Alberta. Although he spent substantial time at the customer's premises during the course of two consecutive calendar years, the Tax Court found that Mr. Dudney had no fixed base available to him because he "had no control over the premises in which he worked, nor was he identified with them in any way."15 The Federal Court of Appeal agreed and dismissed the Crown's appeal.

In Toronto Blue Jays, die teams relied on Fowler for the proposition that a permanent establishment can exist even if only for an extremely short duration. Chief Justice McMurtry, writing for the Court of Appeal, distinguished Fowler from the case at bar:

I am of the opinion that the away venues do not have the characteristics of "a place of management," or a "branch of the whole operation," or as an "office" as was found to be the situation in Fowler. Furthermore, the use of the out-of-town venues of the Teams do[es] not have the element of ownership, management and authority over the establishment as in Syntex Ltd.16

Chief Justice McMurtry concluded that the facts did not support the finding of a fixed place of business at the away venues. The relevant business activities included entering into contracts with players, selling tickets, licensing concessions, and negotiating sponsorships, advertising, and television and radio broadcasting rights to games. All of these activities were performed at the teams' home locations in Ontario. The Court of Appeal went even further and called into question Fowler itself.17

Amendments To The EHT Act

To address the lower court decision in Toronto Blue Jays, Ontario amended the EHT Act by legislation that came into force on December 16, 2004, expanding the definition of "total Ontario remuneration."18 The amendments generally apply retroactively to January 1, 1990. Where at any time during a year an employee reports for work at a permanent establishment in Ontario and also at a permanent establishment outside Ontario, the total remuneration paid to the employee during the year is included in the definition of "total Ontario remuneration."19 There are a couple of exceptions to this general rule. First, no remuneration is included in the employer's total Ontario remuneration paid where "the Minister is satisfied that the employee reported for work at a permanent establishment of the employer outside Ontario for all or substantially all of the year."20 Second, the general rule does not apply to any parties affected by the Toronto Blue Jays lower court decision—that is, the teams—for any year before 2002.21 This second exception is irrelevant unless the Court of Appeal decision is appealed to the Supreme Court of Canada and overturned,22

Broader Implications

The position taken by the Ontario minister of finance in Toronto Blue Jays runs counter to that typically taken by taxing authorities. In Toronto Blue Jays, die minister argued for a narrow construction of "permanent establishment" in order to expand the EHT base. Canadian and provincial taxing authorities usually argue for an expansive definition of "permanent establishment" or "fixed base," as in Fowler and Dudney, in order to capiture as much income or capital as possible in the tax net. The Ontario Court of Appeal has called into question whether the expansive definition of permanent establishment enunciated in Fowler is good law and has suggested that it should not be followed as a precedent. For premises to constitute a permanent establishment, it now appears that a person must not only use the premises, but also exercise some degree of control or management over them or have them identified as its own. Furthermore, "substantial machinery or equipment" is interpreted in a restrictive manner, such that the machinery or equipment used by a person must not only be large, but also used for a purpose essential to the person's business, in order to constitute a permanent establishment. While not binding on federal courts and provincial courts outside Ontario, the Ontario Court of Appeal's thorough consideration of the jurisprudence on permanent establishment may cement the trend toward interpreting this concept in a restrictive manner.


1. RSO 1990, c. E.I 1, as amended (herein referred to as "the EHT Act").

2. The definition of "total Ontario remuneration" is found in EHT Act section 1(1).

3. EHT Act section 2(2).

4. Toronto Blue Jays Baseball Club v. Ontario (Minister of Finance) (April 27, 2004), docket no. 03-

CV-248830CM3 (Ont. SCJ).

5. EHT Act section 1(2).

6. EHT Act section l(2)(e).

7. [1963] SCR 45. The lower court believed that modern statutory interpretation principles would cause the Supreme Court of Canada to hold differently if the same issue were to come before it now.

8. 90 DTC 1834; [1990] 2 CTC 2351 (TCC).

9. The Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed at Washington, DC on September 26, 1980, as amended by the protocols signed on June 14, 1983, March 28, 1984, March 17, 1995, and July 29, 1997 (herein referred to as "the Canada-US treaty").

10. Toronto Blue Jays Baseball Club v. Ontario (Minister of Finance) (February 15, 2005), docket no. C41861, at paragraph 35 (Ont. CA).

11. Ibid., at paragraph 36.

12. [1995] RDFQ 322 (Civ. Ct.).

13. [1981] RDFQ 1 (CA); aff'g. the decision of the Quebec Provincial Court, November 8, 1977.

14. 99 DTC 147; [1999] 1 CTC 2267 (TCC); aff'd. 2000 DTC 6169; [2000] 2 CTC 56 (FCA); leave to appeal to the Supreme Court of Canada denied November 2, 2000.

15. Ibid., at paragraph 14 (TCC).

16. Supra note 42, at paragraph 24.

17. Ibid., at paragraph 23.

18. Budget Measures Act (Fall), 2004, SO 2004, c. 31, schedule 12, amendments to the Employer Health lax Act. There is a concern that this expansive definition of "total Ontario remuneration" could lead to multiple jurisdictions taxing the same payroll.

19. Section 1(1.3) added to the EHT Act.

20. Section 1(1.4) added to the EHT Act.

21. Section 1(1.5) added to the EHT Act.

22. On April 18, 2005, the teams filed an application for leave to appeal with the Supreme Court of Canada.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2005 McMillan Binch Mendelsohn LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Jamie M. Wilks
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions