- What is Employer Health Tax (EHT)?
- What is a permanent establishment?
- What is considered remuneration?
- What is taxable Ontario remuneration?
- Who is an employee?
- Who is an employer?
- How is EHT calculated?
- What tax rate do I use?
- What are the tax rates?
- Is retiring allowance / severance pay taxable?
- We are an employer based outside Ontario and we will be employing salespeople in Ontario. Do we have to pay EHT?
- Who is an associated employer?
- Who is eligible for the tax exemption?
- Can each member of an associated group claim the $400,000 tax exemption?
- If my payroll is below the exemption amount, do I still have to file an annual return?
- We pay our entire payroll in one month. What should we do?
- What if I sell, close or amalgamate my business during the year?
- When are returns and taxes due?
- Why was a late filing penalty assessed when I mailed my instalment / return before the 15th?
- How do I change my address?
- I did not receive my statement. How can I file my instalment?
- What tax rate do I use to calculate my instalment? Is this different from my annual return?
- I received an annual return even though I am not required to file. What should I do?
- How do I make corrections to my account? I forgot to report directors' fees when I filed my annual return.
- I just realized that I should have been filing EHT returns. What should I do?
- I do not agree with my Notice of Assessment. What should I do?
What is Employer Health Tax (EHT)?
Employer Health Tax is a payroll tax (payable by employers) on remuneration paid to employees who:
- report for work at a permanent establishment of the employer in Ontario
- are attached to a permanent establishment of the employer in Ontario, or
- do not report for work at a permanent establishment of the employer, but who are paid from or through a permanent establishment of the employer in Ontario.
What is a 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.
Please refer to Information Bulletin - Permanent Establishment.
What is considered remuneration?
In general, remuneration means employment income (box 14 of Canada Revenue Agency's T4 slip) that is taxable under sections 5, 6 or 7 of the Income Tax Act (Canada).
Examples of remuneration include:
- salaries and wages
- tips and gratuities paid through an employer
- bonuses
- commissions 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
- advances of salaries and wages, and
- stock option benefits.
Please refer to Information Bulletin - Remuneration.
What is taxable Ontario remuneration?
Taxable Ontario remuneration is the remuneration after the exemption, if any, is deducted.
Who is an employee?
An employee is an individual:
- employed by an employer
- who holds office from an employer and receives payment for carrying on the duties of the office, or
- who was formerly an employee in the ways outlined above.
For EHT purposes, the Ministry of Finance considers many factors in the determination of employer-employee relationships, including common law principles and Canada Revenue Agency rulings.
Please refer to Information Bulletin -How to Identify an Employer-Employee Relationship.
Who is an employer?
An employer is someone who pays remuneration to an employee. Examples of an employer include: an individual, a corporation, a government, a university, a school board, a hospital, a non-profit organization, a charity, a trust, a partnership, a joint venture or an unincorporated association.
Please refer to Information Bulletins:
- How to Identify an Employer-Employee Relationship
- Truck Owner-Operator – How to Identify an Employer-Employee Relationship
- Placement Agencies and their Workers – How to Identify an Employer-Employee Relationship
- Commissioned Real Estate Salespersons – How to Identify an Employer-Employee Relationship.
How is EHT calculated?
The amount of EHT payable is calculated by multiplying the employer's taxable Ontario remuneration for the year by the applicable tax rate.
What tax rate do I use?
The tax rate is based on the employer's (entity's) annual total Ontario remuneration paid, before the applicable exemption.
The tax rate of an associated employer is based on the total Ontario remuneration amount of the legal entity.
The tax rate of a multiple accounts employer is based on the combined annual total Ontario remuneration of all the EHT accounts held by the legal entity.
There are nine graduated tax rates, ranging from .98% to 1.95%.
Please refer to the Employer Health Tax - Guide for Employers.
What are the tax rates?
| Total Ontario remuneration | Rate |
|---|---|
| Up to $200,000.00 | 0.98% |
| $200,000.01 to $230,000.00 | 1.101% |
| $230,000.01 to $260,000.00 | 1.223% |
| $260,000.01 to $290,000.00 | 1.344% |
| $290,000.01 to $320,000.00 | 1.465% |
| $320,000.01 to $350,000.00 | 1.586% |
| $350,000.01 to $380,000.00 | 1.708% |
| $380,000.01 to $400,000.00 | 1.829% |
| Over $400,000.00 | 1.95% |
Is retiring allowance / severance pay taxable?
No, retiring allowance/severance pay is not considered to be income from office or employment and is not taxable for EHT purposes.
Employers often refer to the total amount paid to an employee upon termination as severance pay; however, this amount could include taxable items. For example, pay in lieu of notice is considered employment income and is subject to EHT.
Please refer to Information Bulletin - Salary Continuance, Termination Pay, Severance Pay and Retiring Allowances.
We are an employer based outside Ontario and we will be employing salespeople in Ontario. Do we have to pay EHT?
EHT is payable if the employees:
- physically report for work at a permanent establishment of the employer in Ontario
- are attached to a permanent establishment of the employer in Ontario, or
- do not report for work at a permanent establishment of the employer but are paid from or through a permanent establishment of the employer in Ontario.
Please refer to Information Bulletins:
Who is an associated employer?
Associated employers are connected by ownership or by a combination of ownership and relationship of the owners, either through blood, marriage or adoption. The associated corporations rules under section 256 of the Income Tax Act (Canada) are used to determine whether employers are associated. Although these rules refer to corporations, their application for EHT purposes is extended to include individuals, partnerships and trusts.
Please refer to Information Bulletin - Associated Employers.
Who is eligible for the tax exemption?
Eligible employers for the tax exemption generally include:
- 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 l of the Income Tax Act (Canada).
Non-eligible employers include:
- public sector employers, including federal, provincial and municipal governments, universities, colleges, school boards and hospitals
- Crown agencies not subject to tax under Part l of the Income Tax Act (Canada), and
- 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.
Can each member of an associated group claim the $400,000 tax exemption?
No, if you are associated with other employers on December 31, you must enter into an agreement with the members of the group to allocate the tax exemption. Beginning with the 2010 return, only one member of the group must complete the Associated Employers Exemption Allocation form and submit it to the ministry by March 15th of the following calendar year. If the agreement is not filed, no exemption is allowed.
Prior to the 2010 return, all members of an associated group were required to complete the form and file a copy with their returns.
If my payroll is below the exemption amount, do I still have to file an annual return?
No, an eligible employer whose payroll for the year does not exceed the allowable or allocated exemption amount is not required to file an annual return.
We pay our entire payroll in one month. What should we do?
Employers who pay their entire total Ontario remuneration in one month (i.e., yearly remuneration paid once a year) must file a special return within 15 days following the month that the payroll was paid. Eligible employers are required to file a special return if their Ontario payroll in one month exceeds their available exemption amount.
What if I sell, close or amalgamate my business during the year?
Employers who cease to have a permanent establishment, 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 (or date of amalgamation), for the part of the calendar year that payroll was paid. Final payment of any outstanding liabilities must be remitted with the final return.
A change in the ownership of shares is not considered a change in legal entity, and does not trigger any change to the EHT account. No final return is necessary in such circumstances.
When are returns and taxes due?
Annual return
The annual EHT return and any tax owing are due on or before March 15th of the following year. For example, the annual return for 2011 is due March 15, 2012. Where March 15th falls on a weekend, annual returns and payments will be accepted as being made on time if received on the next business day.
Final return
If you close your Ontario location, or amalgamate, or no longer have employees in Ontario, you must file a final return within 40 days of the business closure or amalgamation. Final payment of any tax owing must be sent with the final return.
Special return
If you pay your total Ontario remuneration once a year in one month, you must file a special return and remit the EHT within 15 days following the month in which the payroll was paid.
Why was a late filing penalty assessed when I mailed my instalment / return before the 15th?
Late filing penalties are assessed for instalments and returns that are not received by the ministry on or before the due date. When mailing instalments or returns, employers should allow enough time to make sure that they are received by the ministry on or before the due date.
How do I change my address?
You can change your address online using ONT-TAXS online or through ServiceOntario. You can also call the ministry at 1 866 ONT-TAXS (1 866 668-8297).
I did not receive my statement. How can I file my instalment?
If you are a monthly filer and you do not receive your statement, you should call the ministry at 1 866 ONT-TAXS (1 866 668-8297).
You may send your payment with a letter stating the following information:
- Business Number (BN), name and address
- the period covered
- the amount of taxable Ontario remuneration, and
- the amount of tax due.
A replacement instalment remittance form may be faxed to you, but the faxed instalment remittance form cannot be used by financial institutions to process payments. The completed instalment remittance form can be faxed back to the ministry to avoid a late-filing penalty and the payment can be mailed in. However, interest charges will apply if the payment is not received by the due date. If the due date falls on a weekend or holiday, the due date for the instalment is the next business day.
What tax rate do I use to calculate my instalment? Is this different from my annual return?
The rate may be different for instalments versus that used for the annual return. Instalment tax rates are based on the employer's payroll from the prior year.
New employers in their first and second year of operation should estimate their annual payroll for the current year and use that amount to determine their instalment tax rate.
The tax rate to be used on the annual return is based on the actual remuneration paid by the employer during the year. Since the tax payable on the return may differ from the tax paid on the instalments during the year, a debit or credit balance may arise at year-end.
I received an annual return even though I am not required to file. What should I do?
You should call the ministry at 1 866 ONT-TAXS (1 866 668-8297) to update your tax roll information. You can also complete the return and send it to the ministry.
How do I make corrections to my account? I forgot to report directors' fees when I filed my annual return.
To correct financial information reported on your EHT account, you can:
- call the ministry at 1 866 ONT-TAXS (1 866 668-8297)
- file an amended return for the period in question, or
- send a letter to the ministry detailing the required adjustments.
Financial information must be corrected within four years from the return's due date.
I just realized that I should have been filing EHT returns. What should I do?
The ministry has a voluntary disclosure policy under which any individual, corporation or their authorized representative, who voluntarily discloses a violation of a statute administered by the ministry, be allowed to settle any related debt by making full payment including interest. The disclosure must be voluntary and initiated by the individual, corporation or their representative.
Please refer to Information Bulletin - Voluntary Disclosure.
I do not agree with my Notice of Assessment. What should I do?
The ministry has established procedures for all taxpayers to follow when they disagree with a Notice of Assessment. Taxpayers may exercise their right to an impartial review by filing a Notice of Objection [PDF - 468 KB] with the Objections and Appeals Branch of the Ministry of Finance at PO Box 699, Stn A, Oshawa ON L1K 8S6. A Notice of Objection must be filed within 180 days of the issue date of the Notice of Assessment.
