A corporate client's previous representative filed a voluntary disclosure for Ontario's employer health tax during a Canada Revenue Agency audit of GST/HST paid on subcontractor expenses. Not surprisingly, it was denied. The disclosure was for unpaid tax for the corporation's limited number of employees, distinct from its subcontractors, temporary workers. Subsequently, the Ontario Ministry of Finance deemed all of the subcontractors to be employees and assessed the corporation for employer health tax in substantial amounts. The Canada Revenue Agency has suggested that those same workers do not exist.
The employer health tax is a payroll tax on employee compensation, including but not limited to salaries, wages, or bonuses. It is intended to subsidize health care. An employer is liable for employer health tax once an exemption amount is exceeded. If an employer's payroll exceeds $5,000,000 an exemption is not available.
An employer health tax ("EHT") assessment by the Ministry of Finance ("MOF") simultaneous to a GST/HST audit by Canada Revenue Agency ("CRA") is rare in my experience and was apparently triggered by the attempted voluntary disclosure.
Voluntary Disclosure – Employer Health Tax
The voluntary disclosure process provided by the MOF is similar to the CRA program. The disclosure must be voluntary which means it was not compelled by an enforcement action, e.g., notice of a pending audit. It must be complete and accurate but minor inaccuracies will not lead to disqualification. Payment should be made with the disclosure application. Yet, a payment plan can be requested.
Notice of Objection – Employer Health Tax
Similar to Federal tax legislation, according to subsection 8(5) of the Employer Health Tax Act, RSO 1990, c E.11 ("EHTA") an assessment is "valid and binding despite any error, defect or omission in the assessment or in any proceeding under this Act related to the assessment."
Notices of Objection are referenced in section 9 of the EHTA. Pursuant to subsection 9(1), a taxpayer has 180 days from the Notice of Assessment to file a Notice of Objection. Under subsection 9(1.1), the taxpayer must "clearly describe each issue raised by way of objection; and...fully set out the facts and reasons relied on by the taxpayer in respect of each issue." The MOF provides a prescribed form as well.
The Notice of Objection can be served by registered mail. The MOF also accepts service by regular mail, fax or online. A request for an extension of time can be made if the 180-day deadline is missed. Importantly, disputing an EHT assessment does not halt collections activity.
Notice of Appeal – Employer Health Tax - Ontario Superior Court of Justice
The Tax Court of Canada manages appeals pursuant to a variety of tax statutes including the Federal Income Tax Act, RSC 1985, c 1 (5th Supp). In contrast, as outlined in section 10 of the EHTA, a Notice of Appeal must be filed with the Ontario Superior Court of Justice within 90 days of the objection decision. An extension can be requested, but within the initial 90-day period. The appeal has to be filed with the court and also served on the MOF. It can be served by registered mail and the MOF has 180 days from service to file a reply.
Practitioners might appreciate the benefit of appealing a tax assessment to the Tax Court of Canada versus Superior Court. The streamlined, specialized, and efficient process of the Tax Court is favourable to navigating the rules of Superior Court for a tax matter. Also, in my experience, CRA does a better job of explaining and supporting its assessing position than its MOF counterpart.
Penalties – Employer Health Tax
A director, officer or agent of a corporation can be liable for an offence committed pursuant to the EHTA:
Every person who contravenes or fails to comply with any provision of this Act or the regulations is guilty of an offence...Where a corporation is guilty of an offence under this Act, any officer, director or agent of the corporation who directed, authorized, assented to, acquiesced in, or participated in, the commission of the offence is guilty of the offence and on conviction is liable to the punishment provided for the offence whether or not the corporation has been prosecuted or convicted...
The limitation period for an offence proceeding, per section 37, is 6 years from the date of the alleged offence. As an example, if a tax refund is fraudulently obtained, financial and criminal liability attaches pursuant to EHTA subsection 31(8).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
