Associated Employers

Effective January 1, 2014, the amount of annual Ontario payroll that may be exempt from Employer Health Tax (EHT) is increased from $400,000 to $450,000. To better target EHT relief, the exemption is eliminated for private‑sector employers with annual Ontario payrolls over $5 million. Eligible employers who are registered charities can claim the exemption even if their payroll exceeds $5 million.

Tax exemption

Are you exempt?

Eligible employers are exempt from EHT on the first $450,000 of total Ontario remuneration. Total Ontario remuneration refers to the remuneration on which you are required to pay EHT.

Employers with total Ontario remuneration over $5 million are not eligible to claim the exemption. Employers that are associated at any time during the year must take into account the total Ontario remuneration of each associated entity in determining whether they can claim the exemption. When the combined total Ontario remuneration of all the employers that are associated exceeds $5 million, these employers are not eligible for the exemption.

Eligible employers are generally private‑sector employers. Eligible employers who are members of an associated group are required to enter into an agreement to allocate the tax exemption for the year.

For more information about the tax exemption, refer to tax exemption.

Associated employers rules

Extension of associated corporations rules

Associated employers are connected by ownership or by a combination of ownership and relationships between individuals. Individuals are related either through blood, marriage or adoption. The rules for associated corporations under section 256 of the federal Income Tax Act are used to determine whether or not employers are associated for EHT purposes. Although these rules refer to corporations, their application is extended under the EHT Act to include individuals, partnerships, and trusts. Employers are associated if they are associated with each other at any time in the year.

Individuals, partnerships, and trusts are deemed to be corporations with one class of voting shares.

Rules to determine ownership of shares:

  • Sole Proprietor

    The individual owns all of the shares of the corporation.

  • Partnership

    Each partner owns shares in the same proportion in which he or she shares the income or loss of the partnership.

  • Trust

    Each beneficiary of a trust owns shares in the same proportion in which he or she shares the income or loss of the trust.

All of the following examples show employers which are associated.

Example (a) and (b)

One of the corporations controls the other.

Example (a)

A parent company controls a subsidiary.

A parent company controls a subsidiary by 97%.

    Example (b)

    A doctor hires a superintendent to manage his rental properties, and hires a secretary in his medical practice. He also owns an art gallery.

    A doctor hires a superintendant and a secretary. The doctor also owns 100% of Art Gallery Ltd.

    Example (c)(i)

    Both of the corporations are controlled by the same person:

    A dentist owns 83% of Art Gallery Ltd. and 75% of Laboratory Equipment Co.

    Example (c)(ii)

    or group of persons:

    Bob owns 80% of Great White North Co. and 33.3% of Canadian Bacon Ltd. Geddy Lee owns 33.3% of Canadian Bacon Ltd. Doug owns 20% of Great White North Co. and 33.3% of Canadian Bacon Ltd.

    Both Great White North Co. and Canadian Bacon Ltd. are controlled by the group of Bob and Doug.

    Example (d)

    Each corporation is controlled by a different person and they are related. One of them owns at least 25 per cent of any class of shares of each corporation (other than shares of a specified class).

    Ms. A owns 94% of Lunber Co. and 25% of Furniture Co. Mr. B (Ms. A's brother) own 75% of Furniture Co.

    Example (e)

    One corporation is controlled by one person, and that person is related to all members of the group that controls the other corporation. That one person also owns at least 25 per cent of the shares of the other corporation (other than shares of a specified class). It is not necessary that the members of the group be related to each other.

    Mr. X owns 92% of Fish Market Inc. and 25% of Laundry Ltd. Mr. Y (Mr. X's brother) owns 25% of Laundry Ltd. Mr. Z (Mr. X's son) owns 25% of Laundry Ltd. Mrs. W (Mr. X's sister-in-law) owns 25% of Laundry Ltd.

    Example (f)

    Each corporation is controlled by a related group, with all members of one group related to all members of the other group. One or more persons who are members of both groups, either alone or together, own at least 25 per cent of the shares of each corporation (other than shares of a specified class). It is not necessary for every member of a group to own shares in the other corporation.

    Mrs. X owns 60% of Garden Centre Ltd. Mr. X owns 40% of Garden Centre Ltd. and 25% of Factory Outlet Inc. Mr. Y (Mr. X's brother) owns 25% of Factory Outlet Inc. Mrs. Z (Mr. X's sister) owns 50% Factory Outlet Inc.

    Example (g)

    Both of the employers are associated through a third corporation.

    Global Pharmacy Holding Company owns 55% of Pharmacy 1 employer and 75% of Pharmacy 2 employer.

    Association rules include indirect ownership

    Share ownership includes both direct beneficial ownership and indirect ownership. Indirect ownership occurs when shares of a corporation are held by another corporation. For example, when Bob owns 100 per cent of Company X which owns 50 per cent of Company Y, Bob is considered to own 50 per cent of Company Y.

    Control

    Situations when control can occur

    These are situations in which control can occur:

  1. When a person owns enough shares to give him or her a majority of the votes.
  2. When a person has direct or indirect influence that, if exercised, would result in control of the corporation. For example, the ability to cause the corporation to change the board of directors, or to make decisions relating to vital actions of the corporation, would result in control of the corporation. A potential influence, even if it is not actually exercised, would be sufficient to result in control in fact. Control can occur regardless of share ownership.
  3. When a person owns more than 50 per cent of the fair market value of all shares, regardless of whether or not these shares have voting rights.

Situations when control does not occur

A person at arm's length may have influence over a corporation, regarding how the business is to be conducted, from a legal arrangement (for example, under a franchise, license, lease, distribution, supply or management agreement). This influence is not control.

Relationship

The term related is used in examples (d) to (f) in the association rules, and the term related group is used in example (f).

Related individuals

Individuals can be related by blood, marriage, or adoption. For tax purposes, you are related to your spouse or common‑law partner, parents and children and in‑laws, siblings and in‑laws, and grandparents and in‑laws, and grandchildren. However, you are not related to your uncles, aunts, nieces, nephews and cousins.

Related group

Related group is defined as a group of people, with each member related to every other member of the group.

For example, three brothers form a related group.

A group consisting of a son, father, and brother of the father does not form a related group, because an uncle and a nephew are not considered to be related for tax purposes.

References

For more details on relationships, refer to the CRA’s web page entitled S1-F5-C1, Related Persons and Dealing at Arm's Length.

Registered charities

Special rules

Eligible employers who are associated with a registered charity are not required to include the payroll of the charity when determining whether the combined payroll of the associated group is within the $5 million exemption threshold. The associated group is not required to share its exemption with the charity and is not required to include the charity on its Associated Employers Exemption Allocation Form.

A registered charity that has two or more qualifying charity campuses may claim an exemption amount for each qualifying charity campus.

For more information on the EHT rules for registered charities.

Non‑share capital and non‑profit corporations

The usual associated rules do not apply

For non‑share capital and non‑profit corporations, the association rules dealing with control through share ownership do not apply. We rely on direct or indirect influence, the type of control described under the section Control in (2).

Factors to be considered in determining associated status

The ministry will consider the following factors in its determination of associated employer:

  • whether the board, committee (or majority of the members) or person in charge is the same for two or more organizations
  • whether the board, committee or person in charge of each organization is reporting to the same body or larger organization
  • whether the board, committee or person in charge is appointed (or could be appointed) by another organization
  • whether the employer is a member of a larger organization under an agreement/contract (whether verbal or written)
  • whether a larger organization has the ability to directly or indirectly terminate the existence of the employer or its business
  • whether the larger organization has the ability to make alternative decisions concerning the actions of the employer in the short, medium or long term
  • what would happen to the ownership of assets upon dissolution of the employer
  • whether there is a third party ownership of a large debt on demand
  • who has the responsibility of outstanding debts/liabilities upon dissolution
  • whether there is economic dependence on the larger organization.

Associated employers exemption allocation schedule

Eligible employers who are members of an associated group of employers at any time during the year are required to enter into an agreement to allocate the tax exemption for the year. Only one member is required to complete the Associated Employers Exemption Allocation form and submit it to the ministry by the return due date. The exemption for all members of the group will be denied if a completed form is not received.

For more information on allocating the tax exemption, refer to tax exemption.

Request for written interpretations

To obtain a written interpretation on a specific situation, please send your request in writing to:

Ministry of Finance
Advisory Services
33 King Street West, 3rd Floor
Oshawa ON L1H 8H5

For more information

Visit ontario.ca/eht or contact the Ministry of Finance at 1‑866‑ONT‑TAXS (1‑866‑668‑8297) or 1‑800‑263‑7776 for teletypewriter (TTY).

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