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Remote Workers & Canadian EHT: More Than Meets the Eye!
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Most of Canada’s largest provinces have a version of something usually called an “Employer Health Tax” – or “EHT” for short – and that is imposed on provincial employers based on annual employee remuneration.
While EHTs are levied provincially, just how these provincial taxes are supposed to work intra-jurisdictionally is complicated. Think of an employer, with multiple work locations and with “remote employees scattered across Canada reporting to those multiple work locations. With all of those permutations and combinations, EHT liability can become a difficult question, fraught with potential double-tax issues.
Background
Most of Canada’s largest provinces have a version of a Health Tax.
In Ontario and British Columbia, for example, two provinces with about 53% of Canada's population, something called the “Employer Health Tax” is employed. In Quebec, a province with another 22% of the population, something called the “Employer Contributions to the Health Services Fund” is used.
Whatever the name, the taxing system is the same: a relatively small tax (e.g., 1-2%, on payroll costs) is usually applied above a certain threshold (e.g., 1,000,000 in BC and Ontario, but no threshold in Quebec), although potentially rising with levels of remuneration (e.g., the Quebec EHT hits about 4.25% on payrolls over $7.2 million).
The application of the EHT provincially is generally tied to businesses with “permanent establishments” in the province, with extended definitions of what that term means in the provincial context.
But that is where the uncertainty really starts.
Difficult Questions
How does a business with permanent establishments in both Toronto and Vancouver pay the EHT? Is it taxed twice by each province on all employee remuneration nationally? Is a business in that situation required to pay BC EHT on the BC resident employees, and pay ON EHT on the ON resident employees? (Many businesses assume that is the case, but that way of thinking may be incorrect).
What about remote workers? Say an Ontario based business pays a BC resident employee for working on various day-to-day tasks. Is Ontario the province that EHT is to be paid, or BC – or both?
These are just some of the issues that we are seeing on the EHT side of our practice, as the provincial authorities begin to compare and assess based on the annual payroll figures from provincially filed Corporate T2 Tax returns (comparing those figures to what the same business is reporting on its Annual EHT Returns).
Takeaways
The move to “remote work” as a “norm” rather than an “exception”, has sharpened EHT issues for a number of businesses operating nationally in Canada. As we have written here, Ontario and other provinces are at the same time taking very aggressive approaches on audit, including the issuance of police-enforced search warrants to obtain business records.
Best practices in this environment is to commission periodic EHT compliance reviews in order to ensure proper compliance with Canada’s provincial EHT framework.