The Employer Health Tax Act includes measures that address tax avoidance structures by incorporating the association rules from the Federal Income Tax Act. As a result of the application of the association rules, a group of associated entities is treated as a single enterprise and is required to share the Small Business Deduction (“SBD”) and the Employer Health Tax (“EHT”) exemption. This is intended to address tax avoidance through artificial multiplication of relief meant for smaller businesses and employers.
The 2016 Federal budget introduced new anti-avoidance measures to prevent multiplication of the SBD through certain complex structures. As part of its commitment to enhance tax fairness, the government proposes to parallel one of these measures by eliminating the EHT exemption for any employer that is a “designated member” of a partnership, as defined in the Income Tax Act. This change will be effective on a prescribed date no earlier than January 1, 2018, to provide the opportunity for feedback and consultation.
“Designated member” is defined in 125(7) to be a corporation that is not a partner, but which provides services to the partnership (directly or indirectly).
If you are concerned about the potential impact of this change on your business, please contact a member of our team.