Is EHT required on remuneration paid to employees working on a foreign assignment?

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This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued. Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter. Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided. In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.

Interpretation Letter 09-0075, June 2009

We refer to your letter regarding whether Company A is required to pay Employer Health Tax (EHT) on remuneration paid to employees on a work assignment outside Canada.

The following is our understanding of facts:

  • Employees (expatriates) of Company A were sent to the USA to assist in the XXXX disaster relief
  • The duration of their assignment was from XXXX to XXXX
  • Company A does not have a permanent establishment (PE) in USA
  • The expatriates reported for work at PEs of foreign affiliates
  • The expatriates were supervised on a day-to-day basis by the foreign affiliates
  • The expatriates were paid through a PE of Company A in Ontario
  • The expatriates' earnings were subject to USA taxes and they were required to file USA tax returns
  • The remuneration of expatriates was excluded from Ontario remuneration in XXXX annual EHT return, which was subsequently assessed by the ministry
  • The remuneration of expatriates was not subject to federal income tax due to the tax treaty between Canada and the USA.

Under the EHT Act, employers are required to pay EHT on the total remuneration paid to employees who report for work at a PE of the employer in Ontario, and to employees who do not report for work at a PE of the employer, but who are paid from or through a PE of the employer in Ontario.

Remuneration includes all payments, benefits and allowances received or deemed to be received, that would be included in income by reason of section 5, 6 or 7 of the Income Tax Act (Canada), or would be required if the individual were resident in Canada.

The expatriates are employees of Company A, they did not report for work at a PE of Company A and they were paid from Ontario. Accordingly, the remuneration paid to the expatriates is subject to EHT.

The federal government of Canada has entered into tax treaties or conventions with other countries to avoid double taxation with respect to income taxes and certain other taxes. However, Ontario is not bound by these international tax treaties or conventions. There are no tax treaty provisions in the EHT Act, nor are there any agreements to exempt Company A from paying EHT.

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