A Brief Overview of the Ontario Employer Health Tax
The Ontario Employer Health Tax (EHT) is a tax applied to Ontario employers on remuneration payments. The purpose of this tax is to assist with funding healthcare in Ontario. Employees pay their share of healthcare taxes via the personal income tax system. This article focuses on information and implications for employers.
EHT applies to remuneration paid to employees who physically report to/are attached to the employer’s permanent establishment in Ontario, as well as employees who do not report to a permanent establishment but are paid via the employer’s Ontario permanent establishment[1].
Types of payments that qualify as remuneration and are subject to EHT include (but are not limited to)[2]:
- Salary and wages
- Commissions
- Bonuses (including signing bonuses)
- Vacation pay
- Certain allowances (such as vehicle allowances)
- Use of an employer’s vehicle
- Employer contributions to an employee’s Registered Retirement Savings Plan (RRSP)
- Termination pay in lieu of notice
Types of payments that are excluded from remuneration and are not subject to EHT include (but are not limited to)[3]:
- Salary and wages paid by a corporation on reserve to employees who are Indians, as defined by the Indian Act
- Pension/annuity/superannuation payments
- Certain allowances (such as reasonable travel allowances)
- Severance pay/retiring allowances
EHT Exemption
The following section speaks to eligible employers under the Employer Health Tax Act that pay income taxes and are not under the control of any level of government. There are special rules and additional considerations for certain kinds of businesses – such as associated employers, part-year employers, amalgamations, and registered charities.
Employers with an annual Ontario payroll amount under $5 million can claim a tax exemption for EHT. If the annual Ontario payroll amount is over $5 million, the employer is not eligible for any exemption.
The current exemption amount at the time of this article’s publication is $1 million; the exemption amount is adjusted for inflation every 5 years and will be adjusted again on January 01, 2029[4].
Employers that qualify for the tax exemption and that have an annual Ontario payroll amount under the exemption amount of $1 million will not pay EHT. Employers that qualify for the exemption but have an annual Ontario payroll amount greater than the exemption amount will only pay this tax on payroll over and above the exemption amount[5].
Compliance Matters
Employers that are subject to EHT must register for an EHT account[6]. Employers with an Ontario remuneration amount over $400,000 (calculated before taking any exemption into account) have an EHT rate of 1.95%[7].
Out-of-province employers with an establishment in Ontario lasting less than 24 months need to contact the Ontario Ministry of Finance to discuss any special requirements for their EHT account[8].
The annual deadline for filing an EHT return is March 15th. Employers should expect to receive their personalised return via mail; the return can be filed online, in person, or by mail[9].
In addition to filing an annual return, businesses with an Ontario payroll amount over $1.2M must make monthly installments. These payments can be made online, in person, by mail, or through the employer’s banking institution[10].
Various penalties, interest charges, and fines apply in cases of non-compliance. Such instances include when an employer fails to file their returns, files their returns late, does not retain accurate records, makes false/fraudulent claims, or violates regulations.
How PEO Canada Can Help
- We help our clients monitor their payroll and we send an email alert once they reach the threshold eligible for EHT filling
- We provide guidance on how to register for EHT Account with Ontario Ministry of Finance
- Once our clients grant us authorisation, we oversee the administration of their EHT accounts on their behalf
- We liaise with Ontario Ministry of finance with respect to our clients’ EHT accounts
- We respond to questions and provide our clients with any information they require with respect to EHT and/or their EHT account
Want to learn more about how PEO Canada can help you navigate your employer responsibilities and mitigate risk? Let’s get in touch!
[1] Employer Health Tax | Ontario.ca
[2]Remuneration – Inclusions | Employer Health Tax | Ontario.ca
[3] Remuneration – Exclusions | Employer Health Tax | Ontario.ca
[4] Employer Health Tax exemption | Ontario.ca
[5] Employer Health Tax exemption | Ontario.ca
[6] Register for an Employer Health Tax Account | Ontario.ca
[7] Tax rates and how to calculate Employer Health Tax| Ontario.ca
[8] Register for an Employer Health Tax Account | Ontario.ca