Is the employee's home office a deemed permanent establishment of Company A?

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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 Please be aware that any statute or policy referred to in this letter may have been superseded.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 09-0091, August 2009

We refer to your correspondence with our XXXXXX Tax Office regarding Company A and the Employer Health Tax (EHT).

Employers are required to pay EHT on the remuneration paid to employees who report for work at a permanent establishment (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. For EHT purposes, the residency of the employee is not a factor in determining if the employer is subject to the tax.

A PE may also exist or be deemed to exist where the employee:

  • has general authority to contract on behalf of the employer
  • conducts day to day business of the employer at an office in his home.

To determine whether an employee's home office qualifies as a PE of the employer, the ministry looks at the following factors:

  • whether 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)
  • whether the employee is required to provide an office as a condition of employment
  • whether the employer pays reasonable (fair market value) rent 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 is accessible to other individuals employed by or doing business with the employer
  • whether 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
  • whether the employer pays for supplies, maintenance and office equipment costs (e.g., telephone, computer, fax machine)
  • whether the office is advertised by telephone listings, business signs, inclusion in sales or product advertising, etc., to indicate its presence
  • whether the employee's residence is commercially registered as a place of the employer's business, and for local property tax purposes, as appropriate.

From your correspondence and our conversation, we understand that:

  • Company A's only office is located in XXXXXX, Ontario.
  • Company A has an employee, a service representative (Rep), working from his home in Quebec.
  • Company A has been paying contributions to the Quebec Health Services Fund (QHSF) of the Ministry of Finance of Quebec since XXXX.
  • The Rep was hired and is paid from Ontario.
  • The Rep contacts customers to promote Company A products.
  • The Rep works within set company guidelines to issue quotes (from a company catalogue) or with consultation with the Sales Manager.
  • Any quote that needs special pricing to obtain a sale is communicated to head office for approval by the Sales Manager.
  • Clients send their orders directly to the head office. If they try to place it with the Rep they are instructed to send to head office.
  • The Rep is supervised by and regularly receives instruction and direction from a Sales Manager in Ontario.
  • The Rep submits attendance records and expense claims to Ontario.
  • The home office is not required as a condition of employment.
  • The Rep uses his home office for doing paper work, preparing expense and call reports, occasionally preparing presentations and correspondence to clients.
  • The Rep travels for 80% of his work schedule and the balance is at his home office.
  • Company A does not reimburse the Rep for costs associated with the use of space in his residence.
  • Company A reimburses the cost of such things as cell phone, office supplies, travel expenses and provides the Rep with a computer and printer.
  • The home office is not advertised by telephone listings, business signs, or included in sales or product advertising, etc., to indicate its presence.
  • The Rep's residence is not commercially registered as a place of the employer's business, and for local property tax purposes, as appropriate.

Based on the information provided, it is our opinion that the home office in the Rep's residence does not meet the criteria to be considered a PE of Company A, and the Rep does not have general authority to contract on behalf of Company A. Therefore, Company A does not have a PE in Quebec and is required to pay EHT on the remuneration paid to the Rep in Quebec.

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