The Province of British Columbia (BC) has been a popular destination for non-resident companies to land on, as there are no restrictions on the residency of the directors to incorporate in BC. Directors of a BC corporation can be 100% made up of persons who are neither Canadian citizens nor permanent residents.
The term “permanent establishment” (PE) means any fixed place of business, which may include a factory, a leased or owned office space, a farm, timberland or other physical existence. For some non-resident companies incorporated in BC, they may not have any fixed place of business location in BC or elsewhere in Canada. Nevertheless, a corporation would be deemed to have a PE for BC Employer Health Tax (EHT) purposes, if one of the following scenarios applies:
- it has a place designated in the Articles of Incorporation as being the corporation’s head or registered office;
- there is a jurisdiction where an employer owns a stock of merchandise and fills orders from the stock; or
- an employer carries on business in the jurisdiction through an employee or agent who has the general authority to contract on behalf of the employer.
Effective January 1, 2019, BC resident employers are subject to BC EHT. A BC resident is a person who has a PE, including having a deemed PE, in BC. If a corporation’s registered office is in BC and it does not have a PE elsewhere in Canada, it will be considered a BC resident employer and must consider the BC EHT implications.
The EHT is calculated based on the BC remuneration that exceeds the exemption amount. The exemption amount is $1,500,000 per calendar year for registered charities or not-for-profit employers. It is $500,000 for all other employers per calendar year. The exemption amount must be shared amongst associated employers and must be prorated if the BC resident employer begins or ceases to have a PE in BC during the calendar year. The term “associated” employers for BC EHT purposes is based on the definition of “associated” in section 256 of the Income Tax Act.
BC remuneration includes:
- all remuneration paid to the employees who report for work at the employer’s PE, including deemed PE in BC; and
- all remuneration paid to the employees who do not report for work at the employer’s PE in BC, but are paid through a PE in BC.
It is clear that if an employer has a fixed place of business in BC, it would be considered a BC resident employer and must consider the EHT requirements. However, for corporations that do not have a fixed place of business in BC, by having a registered office in BC or meeting other conditions under the extended meaning of having a deemed PE in BC, the employer must also consider if it is subject to the BC EHT.
If your business is required to but hasn’t yet fulfilled BC EHT obligations, you should consider making a voluntary disclosure. A successfully filed voluntary disclosure would relieve the business from paying some interest, penalties or from prosecution.
Jessica Zhang-Chapman, CPA, CIA