Information Bulletin 5-00, November 2000

This publication is provided as a guide only. It is not intended as a substitute for the Employer Health Tax Act and Regulations.

This guide explains how the Employer Health Tax (EHT) applies to the remuneration of employees who do not report for work at a permanent establishment of their employer, but instead perform all or some of their employment duties from an office in their residence.

General

Employers are required to pay EHT based on remuneration paid to employees who report for work at a permanent establishment in Ontario, and to employees who do not report for work at a permanent establishment but who are paid from or through the employer's permanent establishment in Ontario.

Consequently, employers are required to pay EHT on remuneration paid to employees who work outside of Ontario (usually in another province or outside Canada), but do not report for work at a permanent establishment of the employer, and are paid from a permanent establishment of the employer located in Ontario. Within this context, the place from where the employees are paid includes the employer's head office, and/or any other place where the payroll administration is normally performed and where the employee records are kept.

Permanent Establishments

For EHT purposes, the definition of "permanent establishment" includes any fixed place of business, including an agency, a branch, a factory, a farm, a gas well, a mine, an office, an oil well, timberland, a warehouse, and a workshop. This definition is similar to the definition applicable for purposes of the Income Tax Act (Canada) and the Ontario Corporations Tax Act.

Office - General

An office is considered a permanent establishment of the employer if the office is a fixed place of business used in the day-to-day business of the employer. For example, meeting clients at an office or product demonstration, with a view to attracting new customers, new orders, etc., would constitute carrying on a business. Therefore, the office would be a permanent establishment of the employer.

In general, an office that is maintained for the purposes of fulfilling functions which are accessory to the business of the employer, would not be considered a permanent establishment. For example, an office is not a permanent establishment if it is:

• maintained and controlled by the employee at the employee's choice and expense;
• only used for storage of records or for promotional purposes including advertising or display of products; or,
• maintained solely to purchase merchandise.

In order for an office in an employee's residence to be considered a "place of business" of an employer, it must be a place where some element of control or maintenance by the employer is required.

Office in an Employee's Residence

In some circumstances an employer may decide to operate from an office located in an employee's home. In order for the office in an employee's residence to qualify as a permanent establishment of the employer, the terms and conditions of an employee's employment are examined and analysed as they relate to the following factors:

• the office is a room or substantial area in the employee's residence used exclusively for the employer's business (i.e. it is strictly for business use at any time and for no other purpose);
• the employee is required to provide an office as a condition of employment;
• the employer pays reasonable rent (at fair market value) for the use of an office, which is a room or area set aside in the employee's home, that is maintained and controlled by the employer (and therefore is normally accessible to other individuals employed by/or doing business with the employer);
• sales orders, which may be forwarded for processing elsewhere (e.g. at the employer's head office or regional office location), are regularly accepted there;
• the employer pays for supplies, maintenance and office equipment costs (e.g. telephone, fax machine);
• the office is advertised by telephone listings, business signs, inclusion in sales or product advertising, etc., as appropriate, to indicate its presence; and
• the employee's residence is commercially registered as a place of the employer's business, and for local property tax purposes, as appropriate.

It is important to note that one or more of the factors alone are not conclusive in the determination if a permanent establishment exists. The Branch will examine all the facts of the situation to determine the substance of the relationship between the parties.

Further information

To obtain the most current version of this publication, or additional information, visit our website at ontario.ca/revenue or contact the Ministry of Revenue at:

• 1 866 ONT-TAXS (1 866 668-8297)
• 1 800 263-7776 teletypewriter (TTY)

© Queen's Printer for Ontario, 2000

ISBN 0-7794-0495-5