If you own a business in Ontario, you may be wondering whether you have to pay the Ontario Employer Health Tax. Well, it depends on current government regulations and the amount of your annual payroll, among other things.
Some Ontario small businesses are exempt from paying the EHT, but it is vital to be certain of what your obligations are, because filing the right taxes is your responsibility as a Canadian business owner. The Ontario Health Tax Act was created in 1990 to provide partial funding for the Ontario Health Insurance Plan, and if you don’t pay, you could find yourself in violation of tax law, leading to severe penalties.
Paying your taxes correctly and on time is part of keeping your business up and running! Let’s take a look at what you need to know about paying the Ontario Employer Health Tax.
Which businesses need to pay the Employer Health Tax?
Any Ontario business that supports an employer-employee relationship is potentially subject to the Ontario EHT. This means that if your employee works at your permanent location in Ontario, if you pay a remote employee and your permanent business address is in Ontario, and if the amount of money you pay for work or service is over the tax exemption limit, you will have to pay the EHT.
If your annual payroll is over $5 million, you have to pay the EHT. You are, however, exempt from paying EHT on the first $1 million of your payroll. This amount was adjusted unexpectedly in 2020 due to COVID, and it is scheduled for a further adjustment on January 1, 2029. Government tax regulations do change, sometimes without warning, and a certified business tax accountant like T2inc can keep you informed of the latest updates to tax laws.
Which businesses are exempt from paying Ontario Employer Health Tax?
If your business payroll is less than $5 million, you are currently exempt from paying the Ontario Employer Health Tax.
Your Ontario business will also need to fit the following criteria to be exempt:
- You pay income taxes
- You are a private-sector employer, government, corporation, individual, partnership, non-incorporated association, or trust
You may be exempt even if you receive government financial assistance, as long as you are not controlled by any level of government, including having municipal representatives on your board of directors.
Registering for an EHT account
You need to register your business for an EHT account if you are not eligible for the tax exemption, or if you are eligible but your payroll exceeds your allowable exemption.
To register your Ontario business for the EHT you will need the following information:
- Trade name
- Legal name
- Business address
- Mailing address
- Telephone and fax numbers
- Name of contact person or authorized representative
- Payroll start date
- Payroll frequency
- Federal business number (BN)
- Employer type (for example, associated, multiple accounts, or public sector employer)
Calculating the EHT
To calculate the amount of EHT owed, multiply your Ontario annual payroll (after deducting your tax exemption) by your tax rate (based on the level of your Ontario payroll before deducting any tax exemption).
For example, if you are an eligible employer with an Ontario payroll of $2, 500,000 per year, you can claim the EHT tax exemption on the first $1,000,000 and pay EHT on the remaining $1,500,000, calculated using a tax rate of 1.95%.
A full list of tax rate percentages based on annual payroll is available from the Ontario Government. To make sure you make an accurate calculation, you could also ask a corporate accountant for assistance. The team at T2inc would be happy to help you save time and money!
Paying the EHT
Once you have registered your business for the EHT, the Ontario government will mail you an annual return with an addressed return envelope.
Ministry of Finance
33 King St W
PO Box 620
Oshawa ON L1H 8E9
Keeping records and books
The Ontario government stipulates that accurate filing of the EHT requires continual record-keeping and bookkeeping activities. Ontario business owners are responsible for keeping their corporate taxation documents accurate and up to date to confirm that they are complying with the EHT Act and Regulations. Remember, choosing a good corporate accountant can help.
T2inc can help you file the Ontario EHT
While there are some basic rules for determining whether you have to pay the EHT, including the amount of your annual payroll, various details always apply when calculating business tax. For example, taxable remuneration can also include bonuses, taxable benefits and stock options.
Other factors affecting your eligibility include the structure of your business, the location of your main offices, and your relationship with your employees.
Avoid the risk of filing a false return and facing an audit! Contact the tax accountants at T2inc to find out if your business has to pay the Ontario Employee Health Tax.