Tax & Trade Blog

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EMPLOYER HEALTH TAX: RELATED PARTY RULES

INCOME TAX RULES REIGN, BUT AS INTERPRETED BY ONTARIO?

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Ontario’s Employer Health Tax Act (the “Act” and the “EHT”) regime contains important associated-employer and related-party rules impacting things like EHT Exemptions and the calculation of payroll thresholds, as well as ultimate EHT liability. While the rules borrow heavily from Income Tax Act (“ITA”) definitions and concepts, the application of the rules in the EHT context is not always straight-forward and often influenced by administrative interpretation.

In this Indirect Tax Report, we review the EHT associated-employer variation of these rules and highlight practical difficulties arising when income tax concepts are applied for provincial purposes.

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EHT FOR "RELATED" EMPLOYERS

GETTING THE FULL EXEMPTION AMOUNT

Employer Health Tax (“EHT”) is a part of our overall Indirect Tax practice, and a common EHT question we get is whether two corporations are “associated employers” for the tax.  Being associated is problematic, as it essentially makes each employer pay more than if they were unrelated. 

While this may seem like a straightforward bedrock question (is "Aco" associated with "Bco"), there is some confusion as to how the technical rules apply (even, it appears, at the Ontario Ministry of Finance (“MOF”) – at least based on some recent Ontario assessment positions that we have seen).