Tax & Trade Blog

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STAFFING AGENCIES CAUGHT BY EHT!

EMPLOYER HEALTH TAX: THE SMALL TAX WITH THE BIG PUNCH!

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!)

Times are changing for Canadian private corporations in terms of transparency and publicly available information. As of October 1, 2020, private companies in British Columbia have been required to maintain a registry of beneficial owners. Similarly, Québec’s transparency registry statute received Royal Assent on June 8, 2021. The Federal Government has also announced in its 2021 Budget that a publicly accessible beneficial ownership registry would be in place by 2025.

Not to be outdone, Ontario has joined the growing number of Canadian jurisdictions “pulling back the curtain” on private corporations, with plans to impose its own rules for registering beneficial ownership (the “Ontario Rules”). With the Ontario Rules set to come into force on January 1, 2023, the province will likely “leapfrog” the Federal Government.

NEXUS is a bi-national, Canada-US privilege program for pre-approved, low-risk travellers, allowing them to enter either country’s ports of entry swiftly.

Recently, however, thousands of NEXUS cards from Canadian and US citizens, have been confiscated either by the Canada Border Services Agency (“CBSA”) or U.S. Customs and Border Protection (“CBP”) – often for minor infractions.

Generally speaking, this administrative action can and should be challenged!

The January 2020 Canadian International Trade Tribunal (“CITT”) decision in Landmark Trade Services v. President of the CBSA (Case No. AP-2019-002) was a welcome relief for customs brokers because the CITT held that Landmark (acting as a customs broker for what can loosely be described as a freight-forwarding situation) was not liable as the "importer" of the goods, despite the fact the import documentation described Landmark as the importer and purchaser. Accordingly Landmark would not be on the hook for the additional duty owing from the incorrect tariff classifications used on those import documents.   

Over a year later, Landmark's victory has resulted in headaches for businesses that use similar freight-forwarding structures, as the CBSA looks to re-assess them and hold them liable for additional duty on the basis they were the owners of the goods at the time of import. To understand why, one must understand what Landmark was doing.

The Government of Ontario has now made a long-hoped for change to the Ontario Business Corporations Act (“OBCA”) removing the director residency requirement effective July 5, 2021.

This means that corporations incorporated or continued into Ontario no longer need to have any Canadian resident directors and will help put Ontario on a level playing field with provinces like British Columbia which have been without a director residency requirement for nearly two decades!