Defining permanent establishment for employer health tax

An employer with a permanent establishment in B.C. may have to pay employer health tax. The employer health tax applies to employers with B.C. remuneration. The determination of B.C. remuneration is based on whether an employer has a permanent establishment in B.C.

A permanent establishment means any fixed place of business, including an agency, a branch, a factory, a farm, a gas well, a mine, an office, an oil well, timberland, a warehouse or a workshop.

The Employer Health Tax Act also deems the following places or circumstances to be a permanent establishment of an employer in B.C.:

• The principal place where the employer conducts business and each place where the employer carries on a substantial portion of the business, if the employer has no fixed place of business

• A place where business is carried on through an employee or agent who has general authority to contract for the employer

• A place where an employer has a stock of merchandise and an employee or agent fills orders from the employer's merchandise

• A place where, and at the time when, the employer uses substantial machinery or equipment

• A place where an employer produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves, processes or constructs anything (in whole or in part), if the employer does not otherwise carry on business in Canada in a year, whether or not the item is exported prior to sale

• Land or premises owned or leased by the employer

• The head office (or the registered office), as stated in a corporation's charter or by-laws

• A place where an insurance corporation is registered or licensed to do business

An employer is considered to have a permanent establishment in B.C. if they fit the definition of permanent establishment or if the deeming rules of the Employer Health Tax Act apply. Applying the deeming rules is often considered on a case by case basis.

The following information expands on the definition of permanent establishment and the deeming rules. Contact us with questions about your specific case.

Fixed place of business

A fixed place of business includes:

• A place where an employer’s business activities are carried on, whether it is for gain or non-profit. This includes government and its activities. The place of business may exist for only part of the year, and it usually belongs to the employer or the employer has certain control and authority over it

• A place where an employer’s business activities occur regularly

• A place where an employer’s business activities occur with a degree of permanence and continuity even when it is only for a specific period

• A situation where there is a person who has the authority to authorize contracts or make decisions about an employer’s operations

No fixed place of business

An employer who does not have a fixed place of business is considered to have a permanent establishment in:

• The principal place where the corporation’s business is conducted, and
• Each place where a substantial portion of the employer's business is carried on

Employee or agent with general authority to contract

An employer has a permanent establishment in B.C. if business is carried on in B.C. through an employee or agent who:

• Is resident in the province, and
• Has general authority to contract for the employer

Subsidiary of a corporation

A subsidiary in B.C. does not in itself constitute a permanent establishment of the corporation. A corporation has a permanent establishment in B.C. if its subsidiary:

• Is in B.C. or engaged in trade or business in B.C., and
• Has authority to contract on behalf of the corporation

Employee or agent has a stock of merchandise

An employer has a permanent establishment in B.C. if an employee or agent of the employer fills orders from a stock of merchandise in B.C. owned by the employer.

Use of substantial machinery or equipment

Use of substantial machinery or equipment in B.C. by an employer that does not otherwise have a permanent establishment in B.C. can deem that employer to have a permanent establishment in the province. 

Use of machinery or equipment is considered substantial depending on the employer's type of business. Factors to be considered include the:

• Quantity, type, size and dollar value of machinery or equipment used in the employer's business
• Extent of the employer's gross revenue generated by using the machinery or equipment

The machinery or equipment must be:

• Owned or leased by the employer, and
• Used by the employer. The machinery or equipment is not considered to be used by the employer if it’s rented to or used by a person that is not an employee

Whether the employer uses substantial machinery or equipment in B.C. is determined on a case-by-case basis.

Learn more about employer health tax rulings and interpretations.