25 February 2016 CBA Roundtable, Q. 7

A group of professionals (e.g., dentists), each operating as sole proprietors, hire common staff members (e.g., receptionists, file clerks, etc.) Before going on to address whether the professional, who is acting as agent in employing the staff, can make all payroll remittances under the professional's own Payroll account, without jeopardizing the status of the other professionals as also being employers of the staff, CRA stated:

The Supreme Court of Canada has expressed its view on the essential elements present in a relationship that is a partnership: (1) a business, (2) carried on in common, (3) with a view to profit. In the Civil Code of Québec, a contract of partnership is defined in section 2186 as “a contract by which the parties, in a spirit of cooperation, agree to carry on an activity, including the operation of an enterprise, to contribute thereto by combining property, knowledge or activities and to share among themselves any resulting pecuniary profits.” Both common law and civil law’s approach to partnership require an element that relates to profit sharing.

[Here] the professionals each operate as a sole proprietor; they agree to share certain expenses but do not operate as a partnership as they do not carry on a business in common with a view to sharing profits; rather, they only share expenses. They jointly hire a group of employees … [so that] [e]ach professional is an employer at law….

A group of dentists, who are not in partnership, wish to share the costs of staff such as receptionists and bookkeepers and also are shared employers of the staff, so that all of the staff remuneration paid by each dentist is exempted from GST/HST as a result of being paid qua employer. CRA indicated that it can accept such an arrangement as being valid notwithstanding that all of the source deductions are handled on the payroll account of only one of the dentists, who does the remittances, and source deduction and T4 reporting, as agent for the other dentists as well as on her own behalf – and also pays the staff remuneration as agent and is reimbursed on a pro rata basis by the other dentists.

A group of professionals (e.g., dentists), each operating as sole proprietors, hire common staff members (e.g., receptionists, file clerks, etc.) Can the professional who is acting as agent in employing the staff make all payroll remittances under the professional's own Payroll account, without jeopardizing the status of the other professionals as employing the staff as employer, i.e., does CRA require each of the principal employers to remit payroll amounts under their own Payroll accounts in order that no GST/HST be exigible on the services provided by the staff members? CRA responded:

…Both common law and civil law’s approach to partnership require an element that relates to profit sharing.

[Here] the professionals.. agree to share certain expenses but do not operate as a partnership as they do not carry on a business in common with a view to sharing profits; rather, they only share expenses. They jointly hire a group of employees who will work for each of the professionals. Each professional is an employer at law; however, there is an agreement that one of them will act as an agent of the others in regards to the employment expenses. It is understood that the support staff is hired under a contract of service and not under a contract for services (that is, it is an employment contract).

[T]he actual employer… is the group of dentists who all came together and hired the support staff. That group of dentists, that association or as what is referred to as a non-trading or non-commercial partnership, or a partnership of employment or occupation, is the actual employer. The dentists are jointly responsible for any source deductions required from the remuneration paid to the employees. The group of dentists could open a Business Number (BN) payroll account for payroll purposes and remit and report under that BN.

It is also possible for one of the members to act on behalf of the group of dentists and to pay, deduct, remit and report the wages of the support staff under its own BN. Once again, the dentists would be jointly responsible for any source deductions…..

When a person pays the salary or wages of an employee employed in pensionable and/or insurable employment, that person who paid is deemed to be the employer in addition to the actual employer. The deemed employer is then required under both the Canada Pension Plan…and the Employment Insurance Act…to pay, deduct, remit and report as if he were the actual employer. These deeming provisions do not negate the fact that the dentists are the actual employers.

A group of dentists, who are not in partnership, wish to share the costs of staff such as receptionists and bookkeepers and also are shared employers of the staff, so that all of the staff remuneration paid by each dentist is exempted from GST/HST as a result of being paid qua employer. CRA indicated that it can accept such an arrangement as being valid notwithstanding that all of the source deductions are handled on the payroll account of only one of the dentists, who does the remittances, and source deduction and T4 reporting, as agent for the other dentists as well as on her own behalf – and also pays the staff remuneration as agent and is reimbursed on a pro rata basis by the other dentists.

In addressing the GST/HST consequences, CRA stated:

As each dentist is an employer at law of each staff member, no staff member employed by the dentists would be supplying a service for GST/HST purposes; the definition of service in subsection 123(1)… excludes anything that is supplied to an employer by a person who is an employee of the employer in the course of or in relation to the office or employment of that person.

We consider the person who is acting on behalf of the group to be the agent of the other dentists. As the agent can recover the respective portions of the remittance from the other dentists, we consider that the agent is being reimbursed for amounts it pays on behalf of these other dentists, who would be considered to be principals. A reimbursement of this nature is not payment for supplies made by the agent. The reimbursement to the agent would not constitute consideration for a supply and would not be subject to GST/HST.

A group of dentists, who are not in partnership, wish to share the costs of staff such as receptionists and bookkeepers and also are shared employers of the staff, so that all of the staff remuneration paid by each dentist is exempted from GST/HST as a result of being paid qua employer. One of the dentists does the remittances, and source deduction and T4 reporting, as agent for the other dentists as well as on her own behalf - and also pays the staff remuneration as agent and is reimbursed on a pro rata basis by the other dentists. In commenting on the payroll reimbursement arrangements, CRA stated:

We consider the person who is acting on behalf of the group to be the agent of the other dentists. As the agent can recover the respective portions of the remittance from the other dentists, we consider that the agent is being reimbursed for amounts it pays on behalf of these other dentists, who would be considered to be principals. A reimbursement of this nature is not payment for supplies made by the agent. The reimbursement to the agent would not constitute consideration for a supply and would not be subject to GST/HST.