302.1 (1) An amount that may reasonably be regarded as equal to the amount of salary or wages earned by an employee of an employer for performing a service in Ontario for the benefit of or on behalf of a corporation that is not the employer of the employee shall be deemed for the purposes of this Part to be salary paid by the corporation to an employee of the corporation in the taxation year of the corporation in which the salary or wages are paid to the employee if, (a) at the time the service is performed, the corporation and the employer do not deal at arm’s length; (b) at the time the service is performed, the corporation has one or more permanent establishments in Ontario; (c) the service performed by the employee, (i) is carried out by the employee in the course of his or her employment by the employer, (ii) is carried out for the benefit of or on behalf of the corporation as part of the regular and routine operations of a business carried on by the corporation, and (iii) is of a type that could reasonably be expected to be performed by employees of entities carrying on the same type of business as the business referred to in subclause (ii); and (d) the amount is not otherwise included in the aggregate of the salaries and wages paid by the corporation that is determined for the purposes of this Part. (2) An amount that may reasonably be regarded as equal to the amount of salary or wages earned by an employee of an employer for performing a service in Ontario for the benefit of or on behalf of a partnership that is not the employer of the employee shall be deemed for the purposes of this Part to be salary paid by the partnership to an employee of the partnership in the fiscal year of the partnership in which the salary or wages are paid to the employee if, (a) at the time the service is performed, (i) the partnership or a member of the partnership does not deal at arm’s length with the employer, or (ii) the employer is a member of the partnership; (b) at the time the service is performed, the partnership would be considered to have one or more permanent establishments in Ontario if references in section 4 of the Act to “corporation” were read as references to “partnership”; (c) the service performed by the employee, (i) is carried out by the employee in the course of his or her employment by the employer, (ii) is carried out for the benefit of or on behalf of the partnership as part of the regular and routine operations of a business carried on by the partnership, and (iii) is of a type that could reasonably be expected to be performed by employees of entities carrying on the same type of business as the business referred to in subclause (ii); and (d) the amount is not otherwise included in the aggregate of the salaries and wages paid by the partnership that is determined for the purposes of this Part. (3) This section does not apply to a corporation for a taxation year if, (a) the total of all amounts that would be included as a result of this section in a determination for the purposes of this Part of the aggregate of the salaries and wages paid by the corporation in the taxation year is less than 20 per cent of the aggregate of the salaries and wages paid by the corporation that would otherwise be determined for the purposes of this Part in the absence of this section; or (b) the Minister is of the opinion that an undue reduction in the total amount of tax payable to Ontario by the corporation and the employer, (i) was not one of the purposes or intended ancillary results of entering into or continuing the agreement or arrangement under which the service was performed by the employee for the benefit of or on behalf of the corporation, and (ii) was not one of the purposes or intended ancillary results of entering into or continuing any other arrangement or agreement that affects the amount of salaries or wages paid by the corporation in the taxation year for the purposes of this Part, if in the Minister’s opinion the other arrangement or agreement can reasonably be linked to the agreement or arrangement referred to in subclause (i). (4) If an amount is deemed under this section to be salary paid by a corporation to an employee of the corporation, the amount shall be deemed to have been paid to an employee employed at, (a) the permanent establishment or establishments of the corporation in Ontario where the service was performed; or (b) such other permanent establishment or establishments of the corporation in Ontario as are reasonable in the circumstances, if the service was not performed at a permanent establishment of the corporation in Ontario. (5) If this section applies in respect of a year, the Minister may, on receipt of a joint request from the corporation and the employer in a form approved by the Minister, permit the employer, for the purpose of a determination under this Part of the employer’s salaries and wages or gross revenues for the year, to deduct an amount the Minister considers reasonable that does not exceed the lesser of, (a) the amount included by the corporation for the year as a result of this section in its salaries and wages with respect to the services performed by employees of the employer for the benefit of or on behalf of the corporation; and (b) the amount included by the employer for the year in its salaries and wages and gross revenues with respect to the services performed by employees of the employer for the benefit of or on behalf of the corporation. (6) The references in subsections (3) and (4) to amounts included in a determination as a result of this section in respect of a corporation for a taxation year or deemed under this section to be salary paid by a corporation to an employee of the corporation for a taxation year include any amount that, in accordance with subsection 302 (6), is required to be included in the amount of salaries and wages paid in the taxation year by the corporation in respect of an amount that is deemed under subsection (2) to be salary paid by a partnership to an employee of the partnership in the partnership’s fiscal year ending in or coinciding with the corporation’s taxation year. (7) This section does not apply in respect of a corporation’s taxation year that commenced on or before the date that Ontario Regulation 488/96 is filed with the Registrar of Regulations in accordance with the Regulations Act
unless one of the following agreements or arrangements is entered into after that date: 1. An agreement or arrangement under which services are performed in Ontario for the benefit of or on behalf of the corporation by an employee of an employer that is not the corporation. 2. An agreement or arrangement that affects the amount of salaries or wages paid by the corporation in the taxation year for the purposes of this Part, if in the Minister’s opinion the arrangement or agreement can reasonably be linked to an agreement or arrangement referred to in paragraph 1.  O. Reg. 488/96, s. 1. Insurance Corporations