6 March 2003 GST/HST Interpretation 43124 - Status of Employee Salary Settlements - Case 37137

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the employee related supplies within a cost sharing scenario.

You refer to a scenario where employees were employed by more than one company, in a group of related companies, all of which operated XXXXX. You sought our concurrence with your position that the employees were employees of each company they worked for. Each company would pay a proportion of the salary earned by the employee.

As a means to us concurring with this position, it was proposed that a company (the Company) could be established which would account for the payment to the employee as agent for each of the companies for whom the employee worked rather than having one of the employer companies employ the employees on its own behalf as well as on behalf of its related corporations within the group.

We took the position that a person could only be considered an employee of a corporation if the corporation is registered with Employment Insurance (EI) and Canada Pension Plan (CPP) as the employer with regard to the employee.

You have indicated that the XXXXX companies do not intend to separately register employee-employers.

Policy P-238 Application of the GST/HST to payments made between parties within a medical practice organization contains within it an example relating to the joint hiring of employees in an agency relationship. That is, it recognizes that when a group of medical practitioners has jointly hired an employee and has appointed an agent to remunerate the employee on its behalf, the reimbursements of the employee's wages by the principal group to the agent does not give rise to a re-supply of the employee services to the principal group.

Interpretation Requested

In your opinion, the cost-sharing scenario illustrated in P-238 Application of the GST/HST to payments made between parties within a medical practice organization mirrors exactly the arrangement among the XXXXX companies and as a result, the GST/HST treatment should apply equally to the employee related transactions related to the group of XXXXX companies.

Interpretation Given

The scenario at issue in Policy P-238 merely illustrates the CCRA's general position that the tax status of employee transactions depends on who is considered the employer.

Generally, where a person incurs an expense in the capacity of agent on behalf of principals involved in a cost-sharing arrangement, the expense would be considered incurred and the supply would be considered received by the principals and not the agent. The payment made to the agent by the principals for the reimbursement of this expense is not subject to tax, although the fees related to the services of acting on behalf of the principals are considered taxable. Therefore, where the transaction involves the agent hiring and remunerating the principal's employee, the amount of money the principal pays the agent as a reimbursement for the employee's wages is not consideration for a supply and would not be subject to tax.

Where the XXXXX companies do not separately register as the employers of the employees, they could not be regarded as principals. Furthermore, the person hiring and remunerating the employees could not be regarded as agent. As a result, the payments made by the XXXXX companies to the person would be regarded as consideration in exchange for the taxable supplies of employee services.

The employment status of a person for GST/HST purposes is the same as for income tax purposes. Whether an employer-employee relationship exists between the two parties is a question of fact and is determined by CPP/EI Rulings based on the actual facts of a given situation.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613)954-9700.

Yours truly,

Donato Licursi
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate