As discussed here, our recent file experience demonstrates that provincial governments, like Ontario's Ministry of Finance ("MOF"), are ramping up audits for Employer Health Tax ("EHT") liability.
One area of recent audit activity has been on Staffing Agencies, temporary employment and similar entities that procure workers for many Canadian and US businesses, contracting them out as effective out-sourced employees.
In an almost counter-intuitive result, recent assessments appear to be targeting Staffing Agencies for EHT due on remuneration paid to remote workers residing outside of the taxing province! (Think of an Ontario Staffing Agency assessed on the wages paid to remote workers residing in BC, with ABSOLUTELY NO connection to Ontario's or its health care services!)
The EHT Framework
Where enacted provincially – there are 7 EHT provinces/territories – the EHT is an employer-paid payroll tax applying to total remuneration paid to current and former employees. In Ontario, the tax rate scales up to a maximum of 1.95%, and many "eligible" employers qualify for an annual "exemption amount" of up to a maximum of $1,000,000 per year. Other provinces have similar rules and tax rates. While the EHT itself may seem minor, its unexpected application (and huge non-compliance penalties) often catches employers off guard.
Staffing Agency Exposures
The potential difficulties facing Staffing Agencies, in particular as it regards their "outside-of-the-province remote workers", is that the technical taxing rules often simply apply to employees "reporting" to or "paid out" of "in-province" establishments.
What these terms actual mean, is where an Indirect Tax Lawyer comes in – and even for those of us in this particular practice area, the answers are often unclear, especially in the context of Staffing Agencies who themselves are operating completely "remote".
Enforcement Measures
The latent issue for Staffing Agencies and others caught unaware of their EHT obligations is the ability of government entities like the Ontario MOF to assess for multi-year periods (a minimum of four-years and sometimes back "forever" if proper returns have not been filed), and to levy penalties that can be up to 10 times the value of the taxes due (or more).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
