Employer Health Tax - Guide for Employers

3.1. Permanent establishment¶

A permanent establishment includes an office, agency, branch, factory, farm, warehouse, mine, workshop or any other fixed place of business where day-to-day business activities are carried out. We may use the term "location" to describe a permanent establishment in this guide. For further information, see Information Bulletin entitled Permanent Establishment.

3.2. Employer-employee relationship¶

3.2.1. Where there is an employer-employee relationship, and the employer pays the employee, the payroll is subject to EHT. An employer includes:¶

• an individual
• corporation
• charity
• non-profit organization
• trust
• partnership
• association, or
• government (including federal, provincial, municipal, university, school board, hospital).

3.2.2. An employee is an individual who:¶

• is employed by an employer
• holds office from an employer and receives an amount for carrying out the duties of the office
• was formerly an employee as described above.

For EHT purposes, the ministry considers many factors in the determination of employer-employee relationships, including common law principles and CRA rulings. For further information, see Information Bulletin entitled How to Identify an Employer-Employee Relationship.

3.3. Remuneration¶

Remuneration includes all employment income payments, benefits and allowances which are taxable under sections 5, 6, or 7 of the Income Tax Act (Canada), or would be required to be included if the employee were a resident of Canada.

We may use the word "payroll" to mean the same as remuneration in this guide.

Examples of payroll include salaries and wages, gratuities paid through an employer, bonuses, commission and other similar payments, vacation pay, taxable allowances and benefits, directors' fees, payments for casual labour, amounts paid by an employer to top up benefits, and advances of salaries and wages.

Employers must include amounts paid to former employees in their calculation of remuneration for the year. For example, taxable benefits provided to retired employees should be included even though they are reported on a T4A.

Employers must include stock option benefits received by employees and former employees for shares of the employer corporation or a connected corporation of the employer (e.g., a corporation with which the employer does not deal at arm's length).

For EHT purposes, an exemption on stock option benefits is provided to eligible research and development-intensive (R&D) employers.

• For non Canadian-controlled private corporations, the exemption is available on employee stock options granted before May 18, 2004, if the options are exercised after May 2, 2000 and by December 31, 2009.
• For Canadian-controlled private corporations, the exemption is available on employee stock options granted before May 18, 2004, if the subject shares are disposed of or exchanged by the employee after May 2, 2000 and by December 31, 2009.

For R&D employers, all employee stock option benefits from options granted after May 17, 2004 are subject to EHT.

For further details on stock option benefits, please write to:

Ministry of Finance
Advisory Services and Program Policy Branch
Income Tax Related Programs Section
Employer Health Tax
33 King Street West, 3rd Floor
Oshawa ON  L1H 8H5

3.3.1. Total Ontario remuneration¶

Total Ontario remuneration for an employer means payroll for:

• employees who report for work at the employer's Ontario location, and
• employees who do not report for work at any location of the employer but who are paid from the employer's Ontario location.

An employee reports for work at a location of an employer if the employee comes to the location in person to work, or is reasonably regarded as attached to the location.

If an employee reports for work at locations of the employer in Ontario and also outside Ontario during a year, all of the payroll for the employee is subject to EHT. However, if the employee reported for work at the location outside Ontario for all or substantially all of the year, none of the payroll for the employee is subject to EHT. All or substantially all generally means 90 per cent or more.

For further information, see Information Bulletins entitled Remuneration and Permanent Establishment.

3.4. Tax exemption¶

In general, eligible employers are exempt from EHT on the first $400,000 of Ontario payroll each year. Only one exemption is available for an associated group of employers. The entire tax exemption amount may be allocated to one member of the associated group or it may be shared among the associated employers (see the definition of Associated employers).

3.4.1. Eligible employers¶

Eligible employers for the tax exemption generally include the following:

• private sector employers
• organizations that receive financial assistance from any level of government but are not under the control of government, and
• Crown corporations subject to tax under Part I of the Income Tax Act (Canada).

3.4.2. Non-eligible employers¶

Non-eligible employers include the following:

• public sector employers, including federal, provincial and municipal governments, universities, colleges, school boards and hospitals
• Crown agencies not subject to tax under Part I of the Income Tax Act (Canada)
• employers exempt from income tax under paragraphs 149(1)(a) to (d.6), (h.1), (o) to (o.2), (o.4) to (s.2), and (u) to (z) of the Income Tax Act (Canada); for example, municipal and provincial corporations and certain trusts.

An eligible employer is not required to remit tax instalments until the cumulative remuneration exceeds the employer's allocated exemption amount for the year. It is the employer's responsibility to contact the Ministry of Finance if the employer's Ontario payroll for the year exceeds its allowable exemption amount. This will ensure that annual returns and instalment statements are issued.

For further information, see Information Bulletin entitled Tax Exemption.

3.4.3. Multiple account employers¶

A multiple accounts employer has more than one EHT account set up for payroll centres or types. A multiple accounts employer can allocate the exemption to any of its accounts to the extent that the employer does not exceed its allowable exemption for the year.

3.4.4. Part-year employers¶

An employer that is eligible for only part of the year, including the first or last year of business in Ontario, the year of bankruptcy, amalgamation or change in eligibility status, must prorate the exemption amount. Prorate by the number of days in the calendar year that the employer had a location in Ontario with payroll, and was eligible for the exemption.

3.4.5. Amalgamation¶

When two or more corporations amalgamate, they must advise the ministry and a new account will be issued to the new amalgamated corporation. The previous account extensions will be closed and final returns issued. The previous corporations must file final returns within 40 days of amalgamation and remit any outstanding liabilities. They will be entitled to a prorated exemption for the final year. The new amalgamated corporation is entitled to a prorated exemption from the date of the amalgamation.

3.4.6. Associated employers¶

Associated employers are connected by ownership or by a combination of ownership and relationship of the employers, either through blood, marriage or adoption. The rules for associated corporations, under section 256 of the Income Tax Act (Canada), are used to determine if employers are associated for EHT purposes. Although these rules refer to corporations, they are extended under the EHT Act to include sole proprietorships, partnerships, trusts and joint ventures.

Eligible employers who are members of an associated group of employers are required to enter into an agreement to allocate the tax exemption for the year.

Beginning with the 2010 return, only one member is required to complete and submit the Associated Employers Exemption Allocation form. You can submit the information using ONT-TAXS online or mail the completed form by the return due date to: Ministry of Finance, 33 King Street West, PO Box 620, Oshawa ON L1H 8E9. The exemption for all members of the group may be denied if a completed form is not received.

For further information, see Information Bulletin entitled Associated Employers.

6.1. Instalment and filing requirements chart effective January 1, 2000¶

Note 1: Eligible employers do not need to pay monthly instalments until the cumulative Ontario payroll exceeds the allocated exemption amount.

Note 2: Employers with Ontario payroll of $600,000 or less are not required to remit monthly instalments. However, they may choose to pay monthly instalments for their convenience.

Note 3: Total payment of EHT is required by March 15^th of the next calendar year with the filing of the annual return. For example, EHT owed on payroll for 2011 (January 1, 2011 to December 31, 2011) must be paid with the filing of the 2011 Annual Return on or before March 15, 2012.

Note 4: The first instalment for the year is due February 15^th and the last instalment is due January 15^th of the following year. Where the 15^th falls on a weekend, payments will be accepted as being made on time if received on the next business day.

Note 5: An employer who pays the total Ontario remuneration during one month (i.e., yearly remuneration paid once a year) is not required to make monthly instalments. The employer must file a special return within 15 days following the month in which the payroll was paid. If the employer makes a second remuneration payment in the same year, the employer should immediately contact the Ministry of Finance for direction on how to remit the additional EHT.

6.2. Instalment statement¶

Before the instalment due date, employers will receive the Account Summary - Employer Health Tax which includes the EHT Instalment Statement (bottom portion). Payroll and payment information can be submitted by using ONT-TAXS online or by completing the Instalment Statement form and returning it with the required payment. The top portion contains employer account information and should be kept by the employer.

If an employer is required to make instalment payments (i.e., annual payroll over $600,000) and does not receive an Instalment Statement form in time to meet the due date, the employer can submit the instalment and payment in ONT-TAXS online for the period or provide a letter and the payment to the Ministry of Finance stating the following:

• account number, name and address
• BN and extension
• the period covered
• the amount of taxable Ontario remuneration, and
• the amount of tax owing.

This letter and payment must be received by the ministry by the due date.

6.3. Calculating instalment amounts¶

EHT instalment amounts are based on the actual payroll for the month. The instalment tax rate is based on the previous year's payroll. The tax amount due for the year and the tax amount paid by instalments are both based on the calendar year.

Most employers who pay monthly instalments must use a tax rate of 1.95%. If you are not eligible for the tax exemption and you choose to remit monthly payments, you can find your tax rate from the table.

After the end of each calendar year, you should total your annual payroll and use this amount to determine your tax rate. You will use this tax rate to calculate your monthly instalment amounts in the upcoming year.

A multiple accounts employers must base the tax rate on the total of the previous year's remuneration for the legal entity. For EHT purposes, a legal entity may be a corporation, a trust, a sole proprietorship, a partnership, an association, a joint venture or an individual.

A new employer must estimate the legal entity's annual remuneration for the first and second years to determine the instalment tax rates for the first two years.

6.4. Impact of the tax exemption on instalments¶

The instalment example below shows an eligible employer claiming the full exemption amount of $400,000. The employer's total Ontario remuneration exceeds $600,000; therefore, the employer must remit monthly instalments once its payroll exceeds $400,000.

An associated employer, whose available exemption amount is less than $400,000, must adjust the available exemption amount accordingly.

6.5. Instalment example:¶

* Employers in the monthly filing category must pay instalments by the 15^th of each month, starting February 15^th of the year until January 15^th of the following year. Each monthly instalment is calculated using the previous month's Ontario payroll.

** The first $400,000 of Ontario payroll is exempt from EHT. An employer is not required to remit instalments until the cumulative payroll for the year exceeds the employer's available exemption amount for the year. In the above example, the employer would remit the first instalment by June 15^th.

7.1 Annual return - due March 15¶

The annual return ensures that an employer's combined payments (i.e., instalments plus any annual return payment) equal the tax due for the year.

The annual return and any tax owing are due on or before March 15^th of the following year. For example, the annual return for 2011 is due on or before March 15, 2012. Where the 15^th falls on a weekend, annual returns and payments will be accepted as being made on time if received on the next business day. You can submit your annual return using ONT-TAXS online or mail it to: Ministry of Finance, 33 King Street West, PO Box 620, Oshawa ON L1H 8E9.

The annual return must be signed by the employer, an authorized officer of the employer or a third party agent. The third party authorization form entitled Authorizing or Cancelling a Representative [PDF - 407 KB] must be provided to the ministry if you wish to designate a representative. Annual returns are not accepted at financial institutions.

Note: Filing returns for multiple accounts employers
A separate annual return must be filed for each of the accounts. To calculate the tax owing for each account, the rate based on the entire legal entity's payroll must be used.

After your annual return is processed, a Notice of Assessment is sent to tell you if any amount is owing or refundable.

7.2. Final return - due 40 days after business closure date¶

Employers who close their Ontario location, who have amalgamated, or who no longer have employees in Ontario must advise the Ministry of Finance. A final return must be filed within 40 days of the business closure date, for the part of the calendar year that payroll was paid. Final payment of any tax owing must be sent with the final return. You can submit your final return using ONT-TAXS online or mail it to: Ministry of Finance, 33 King Street West, PO Box 620, Oshawa ON L1H 8E9.

A change in the ownership of shares is not considered a change in legal entity, and does not trigger any change in the EHT account. No final return is necessary.

Bankruptcy: Trustees in bankruptcy and other insolvency administrators must notify the ministry of their appointment within ten days of the appointment date. The information may be provided in writing, or by fax, to: Ministry of Finance, Collections Branch, Insolvency Unit, 33 King Street West, 6th Floor, Oshawa ON L1H 8H5; fax number 905 436-4524.

The bankrupt employer is required to file a pre-bankruptcy return for the year and any outstanding returns for the previous year, within 40 days of the date of bankruptcy or insolvency appointment.

7.3. Special return - due 15 days following the month in which the remuneration is paid¶

Employers who pay their entire Ontario payroll in one month must file a special return 15 days following the month in which the payroll is paid. Eligible employers are required to file a special return if their Ontario payroll in one month exceeds their available exemption. You can submit your special return using ONT-TAXS online or mail it to: Ministry of Finance, 33 King Street West, PO Box 620, Oshawa ON L1H 8E9.

13.1. Notice of objection¶

If you are still dissatisfied with an assessment after discussing it with ministry staff, you may file a Notice of Objection [PDF - 392 KB] with the ministry's Objections and Appeals Branch, PO Box 699, Stn A, Oshawa ON L1H 8S6. You must send the Notice of Objection to the branch within 180 days from the date of the Notice of Assessment. The Objections and Appeals Branch will review the objection and notify you of a decision in writing.

Note
Payment of an assessment must be made within the specified time, even if an objection is filed.

13.2. Notice of appeal¶

The minister's decision on the objection may be appealed to the Superior Court of Justice. The Notice of Appeal [PDF - 258 KB] must be received by the ministry (c/o Director, Objections and Appeals Branch) and filed in the Superior Court of Justice within 90 days from the date that the minister's decision was mailed. For further information, see the publication entitled Ontario Taxes and Programs Objection and Appeal Procedurs.

Note
You can obtain Notice of Objection and Notice of Appeal forms from the ministry website.