Ontario is thought to have one of the best healthcare systems in the world, providing qualified residents access to various emergency and preventative medical services free of charge. While this may be true, access to high-quality care across the province, and Canada, does indeed come at a price.

It is true that residents can see a general medical practitioner or make an emergency trip to the hospital and not pay a dime out of pocket. Still, it’s taxpayer money and government subsidies that make this possible. 

Employer health tax was introduced in 1990 to assist in funding the Ontario Health Insurance Plan (OHIP). OHIP is a government-run insurance plan that gives qualified residents access to free healthcare-related services. OHIP is funded by a health premium paid by Ontario residents through the personal income tax system that requires all employed residents, businesses, and the Government of Canada to pay their share.

If you’re looking to expand into Canada and hire Ontario-based talent, we’ll tell you everything you need to know about statutory deductions in Canada, the Ontario Employer Health Tax, and how it will impact you. 

What is a Health Tax?

Let’s start with the basics, what is EHT? 

EHT tax stands for Employer Health Tax, which is a payroll tax that applies to any payout made to an employee. This includes bonuses, salaries, hourly wages, and stock options. EHT is automatically deducted from an employee's paycheck, with the amount varying from province to province. 

The Government of Ontario governs, implements policies, and collects all provincial taxes. In Ontario, the amount deducted depends on the total amount of remuneration your particular company doles out to employees who reside in the province. 

EHT rules apply to:

  • Individuals or sole proprietorships
  • Partnerships
  • Corporations
  • Trusts
  • Government organizations

Ontario employers with remuneration exceeding a certain amount are responsible for registering for the EHT tax. All eligible employers must file the return. 

EHT is payable by employers on remuneration paid to:

  • Employees who report for work at a permanent establishment in Ontario.
  • Employees and former employees who do not work at a permanent establishment but are paid through a permanent establishment of the employer in Ontario.

If you are an eligible employer with an Ontario payroll system in place, you are required to pay these taxes, though certain exceptions can apply. 

The Ontario government implemented the EHT in 1990 to supplement the Ontario Health Insurance Plan (OHIP) funding. Ontario is one of five provinces in Canada that implements an employer health tax. The other provinces are Manitoba, Quebec, British Columbia, and Newfoundland. 

How Is Remuneration Defined?

Remuneration encompasses any payments, benefits, or allowances mandated by sections 5, 6, or 7 of the Income Tax Act to be considered part of an employee's income from an office or employment. This also applies if the employee is a resident of Canada.

Apart from regular salary and wages, remuneration can encompass various other elements like taxable allowances, benefits, payments for occasional work, and supplemental amounts provided by an employer to top up benefits.

The term "taxable total Ontario remuneration" refers to the remuneration remaining after deducting any available exemptions provided by the employer.

Employers will need to factor in payments made to former employees when calculating the total remuneration for the year. This includes taxable benefits given to retired employees, even if they are reported on a T4A form.

In addition to the items mentioned above, the following items are included in remuneration:

  • Bonuses
  • Advances
  • Vacation pay
  • Commissions
  • Signing bonuses
  • Payments to clergy 

Amounts paid to employees as an allowance for personal or living expenses or other purposes are considered taxable benefits and subject to EHT. 

These include:

  • Car allowance
  • Clergy’s housing allowances

Additional items that are subject to EHT include but are not limited to: 

  • Tips and controlled gratuities
  • Gifts and awards
  • Director’s fees
  • Insurance plans and policies
  • Stock options benefits 
  • Termination pay

It's important to note that this is not inclusive of every employer-related item that is considered taxable. There are also certain exclusions that may apply. 

For example, let’s take a closer look at registered charities. Employers are exempt from paying EHT on the remuneration of employees who do not work at a permanent establishment of the employer and work outside of Canada for a continuous period of at least 183 days.

Why Is Ontario EHT Necessary?

The EHT tax was introduced with the purpose of providing the government with additional revenue to fund health care in Ontario, otherwise known as the Ontario Health Insurance Plan (OHIP). OHIP pays for services that are medically necessary, including visits to your family doctor and specialists, as well as basic and emergency health care services. 

OHIP is a government-run health plan for Ontario. It is funded by money from taxes paid by Ontario residents and businesses. Employers indirectly contribute to the OHIP through a payroll levy – the Employer Health Tax, which is administered by the Ministry of Finance.

Who Is Responsible for Paying the EHT?

In most cases, when an employer-employee relationship exists, the Employer Health Tax Act mandates the employer to remit a tax based on the entire remuneration provided to their employee or employees.

Employers required to pay EHT include those who:

  • Physically report for work at your permanent establishment in Ontario.
  • Are attached to your permanent establishment in Ontario.
  • Do not report to work at any of your permanent establishments (for example, they work from home) but are paid from or through your Ontario permanent establishment.

A permanent establishment involves a fixed place of business in Ontario. This could include an office space or a headquarters, among other things. 

If your Ontario payroll exceeds your permitted tax exemption limit, you will have to pay EHT.

Engaging an Employer of Record like Borderless when hiring in Ontario can help you understand all the requirements of EHT to remain compliant with provincial labor regulations. 

Who is Exempt from Paying EHT?

Eligible employers, as defined under the EHT Act, who have an annual payroll below the defined exemption amount do not have to pay EHT.

Due to the unique circumstances brought about by the coronavirus (COVID‑19) pandemic in Ontario, the provincial government raised the EHT exemption for 2020 from $490,000 to $1 million. This increase was made permanent through the 2020 Ontario Budget.

The EHT exemption is typically adjusted for inflation every five years, with the next adjustment originally scheduled for 2024. However, in light of the doubled exemption threshold in 2020, the government has shifted the next scheduled inflation adjustment to January 1, 2029.

As an example, if you qualify as an eligible employer and have an annual Ontario payroll of $1,800,000, you would apply the EHT tax exemption to the initial $1,000,000 and be required to remit EHT on the remaining $800,000 of your annual payroll.

Eligible Employers

Ontario provides EHT relief for eligible employers through a tax exemption. Employers can include those who work in government, corporations, individuals, partnerships, non-incorporated associations, small businesses, or trusts. 

You may be eligible to claim the tax exemption if:

  • You are an eligible employer as defined under the EHT Act.
  • You pay income taxes.
  • Your Ontario payroll for the year (including the payroll of any associated employers) is less than $5 million or you are a registered charity.
  • You are not under the control of any level of government.
  • Your board of directors does not include any municipal representatives.

In most cases, if the members of the employer's board of directors are elected, and there is no legal, regulatory, or governmental mandate for government representation on the board, the employer qualifies for the tax exemption. 

Eligible employers typically include: 

  • Private-sector employers.
  • Crown corporations are subject to tax under Part I of the Income Tax Act (Canada).
  • Organizations that receive financial assistance from any level of government but are not under the government control and have no municipal-appointed representatives on their board of directors.

Only one annual exemption is available for an associated group of employers:

  • Employers that have any association throughout the year must consider the combined Ontario remuneration of each associated entity to determine their eligibility for claiming the exemption.
  • If the total combined Ontario remuneration of all associated employers surpasses $5 million, these employers are ineligible to claim an exemption.

Non-Eligible Employers

Non-eligible employers typically include the following:

  • Public sector employers, encompassing federal, provincial, and municipal governments, universities, colleges, school boards, and hospitals.
  • Crown agencies that are not subject to tax under Part I of the Income Tax Act (Canada).
  • Employers exempt from income tax under specific 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). This includes municipal and provincial corporations, as well as certain trusts.
  • Any entity, be it a corporation, board, authority, commission, office, or organization, where a majority of the directors are appointed or chosen by the federal or provincial government.
  • Any entity, be it a corporation, board, authority, commission, office, or organization, where the municipality has the authority to appoint or choose one or more director(s) or officer(s), even if this power has been delegated to another entity.

For a comprehensive list of eligible employers, please consult the definition of "eligible employer" as outlined in Section 1 of the EHT Act.

Claiming the Exemption

The EHT exemption is typically applied by deducting the allowed exemption amount from the tax installments made throughout the year. Eligible employers do not have to make tax installments until the total remuneration for the year surpasses the employer's allocated exemption amount.

No exemption amount should be taken by an employer if:

  • The employer expects to exceed its $5 million exemption threshold.
  • The employer is a member of an associated group of employers whose total combined payroll costs exceed $5 million for the year.
  • No employer in the group operated for the full year, as a prorated exemption will need to be calculated at year-end.

The full details of claiming the EHT exemption can be found on the Government of Canada’s website. 

What Are the Rates for EHT in Ontario?

You may be wondering, did payroll taxes go down in 2023? The answer is no. 

However, the rate at which companies are taxed still varies on a progressive scale:

  • 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%

How to Calculate EHT 

Your Employer Health Tax (EHT) is determined by multiplying your Annual Ontario Payroll by your applicable tax rate. This rate is determined based on your Ontario payroll before any tax exemption is applied. 

For instance, if an employer has an Ontario payroll of $175,000 without any tax exemption, the applicable tax rate would be 0.98%. In this case, the EHT payable for the year would amount to $1,715.

The tax rate you use is based on your Ontario payroll level before deducting any tax exemption. Keep in mind that if you or your associated group of employers have an annual payroll exceeding $5 million, you will not be exempt from paying EHT meaning you will have to pay taxes on the full amount. 

How to Register for an EHT Account

It is your responsibility as an employer to register for an EHT account with the Ontario Ministry of Finance if you are:

  • Not eligible for the tax exemption or;
  • You qualify for the tax exemption, but your payroll exceeds your allowable exemption.

To register for an account, the following information is required:

  • Legal name
  • Trade name
  • Business address
  • Mailing address
  • Telephone and fax numbers
  • Name of a contact person or an authorized representative
  • Payroll start date
  • Payroll frequency
  • Federal business number (BN)
  • Employer type (for example, associated, multiple accounts, or public sector employer)

As an employer paying Ontario-based employees and contractors, you can register by:

  • Going online
  • Calling 1-866-ONT-TAXS (1-866-668-8297) to make an appointment with a Ministry of Finance representative
  • Using a self-help workstation at a ServiceOntario center

How to File an EHT Return

You are required to file an EHT annual return if:

  • Your annual Ontario payroll is greater than your tax exemption (or prorated portion of your exemption for partial-year eligible employers)
  • You:
  • Are not eligible for the tax exemption and have an Ontario payroll
  • Remitted EHT installments for the year
  • Are a member of an associated group and the group’s total Ontario payroll exceeds the EHT exemption amount
  • Received a personalized return

The government will mail you a personalized annual return with an addressed return envelope. 

Once it is received, file your annual EHT return and payment either:

For Out-of-Province Employers

If you are an employer from another province and plan to establish a presence in Ontario for a period of less than 24 months, it is crucial to get in touch with the Ministry. 

Please reach out at 1-866-668-8297 to review the necessary steps to register your account.

How Can an Employer of Record Help?

Managing local employment compliance, taxes (including EHT), benefits, payroll, and more for your Ontario-based employees can be challenging, particularly if you’re just beginning to expand into the market. 

An employer of record platform can help you understand the legal requirements of hiring an employee in Canada, along with the necessary costs of employment. An Employer of Record (EOR) can assist you in understanding and managing the intricate local requirements for payroll deductions in Ontario.

An Employer of Record (EOR) takes care of all the necessary tasks to ensure compliance when bringing new workers on board. This includes managing the onboarding process, enrolling employees in benefit programs, ensuring compliance with termination requirements, and more.

An EOR also handles all essential payroll deductions, including income tax withholding. Engaging in an EOR helps you sidestep potential penalties for noncompliance and ensures accurate calculation of Ontario’s employer health tax.

Why Borderless?

Borderless serves as an Employer of Record (EOR) with specialized knowledge of Canada's federal and provincial employment laws. By acting as a legal entity, we enable you to hire employees in compliance with regulations. Our expertise in Ontario's taxation requirements allows you to dedicate more time and attention to identifying the ideal candidates for your roles.

We take care of various employer responsibilities, from ensuring accurate Ontario Employer Health Tax (EHT) payments to creating valid employment contracts for your workforce. Speak with us today to discover how we can facilitate hiring from over 170 countries around the globe!

Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.