What is the Ontario Employer Health Tax and who pays it?

What counts as Ontario remuneration

EHT applies to total remuneration, generally salaries, wages, bonuses, taxable benefits, and most other forms of employment income, paid to employees who report for work at your permanent establishment in Ontario or who are attached to one even if they work remotely. A business with employees spread across provinces only pays EHT on the portion of payroll connected to its Ontario establishment, not on its entire national payroll.

This distinction matters for businesses with a head office in Ontario and remote staff elsewhere, or the reverse, an Ontario-based remote employee attached to an out-of-province office. Getting the attribution wrong in either direction either overstates or understates the EHT owed, so it is worth confirming how each employee's location should be classified rather than defaulting to where the head office happens to sit.

The exemption most small employers rely on

Eligible private-sector employers can exempt the first portion of their Ontario payroll from EHT entirely, an amount that stood at $1,000,000 as at the time of writing; confirm the current exemption amount with Ontario's Ministry of Finance, since it has been adjusted in the past and could change again. Only payroll above that exemption amount is subject to tax, which means a genuinely small employer with modest payroll may owe no EHT at all.

Public sector employers, and some other categories such as certain trusts, generally do not qualify for this exemption and pay EHT on their full Ontario payroll from the first dollar. This distinction is worth confirming if your business structure is anything other than a straightforward private corporation or proprietorship.

Why the exemption gets shared, not multiplied

If a group of employers is associated, generally corporations under common control or a corporation and the individual who controls it, they must share a single exemption amount among the whole group rather than each entity claiming its own full exemption. This mirrors the same associated-employer logic that applies to the GST/HST small supplier threshold, covered in our answer on when you have to register for GST/HST, though the two rules are separate and apply to different taxes.

An owner who splits payroll across two related corporations specifically to claim two full exemptions will not achieve that result once the CRA or Ontario's Ministry of Finance identifies the corporations as associated. The group files an allocation schedule showing how the shared exemption is split among the associated employers, and that allocation needs to be consistent and defensible rather than adjusted opportunistically each year.

Registration and the annual return

An employer must register for EHT once its Ontario payroll is expected to exceed the exemption amount for the year, rather than waiting until the payroll has already crossed the line. Once registered, employers file an annual return due March 15 following the calendar year, reconciling the actual EHT owed against whatever instalments were paid during the year.

• Employers whose annual Ontario payroll is expected to exceed $1.2 million must generally pay EHT by monthly instalments rather than waiting for the annual return.
• Smaller employers below that instalment threshold can typically remit once a year along with the annual return itself.
• New employers should confirm which category they fall into as soon as payroll is forecast for the year, rather than after several months of payroll have already gone unremitted.

What a late registration or late return actually costs

Ontario charges interest on unpaid EHT from the date it was due, and penalties can apply on top of interest where an employer fails to file the annual return or pay the amount owing on time. As with most payroll-related taxes, the cost of catching up after the fact, interest accruing over months while a filing sat unaddressed, is generally far higher than the cost of registering and remitting correctly the first time.

A business that discovers it should have registered in a prior year can generally still come forward and correct the filing, but doing so voluntarily before Ontario identifies the gap independently is usually treated more favourably than waiting to be contacted. Reconstructing several years of Ontario payroll after the fact, to calculate what should have been remitted, is also considerably more work than it would have been to file correctly each year as payroll grew.

Multi-jurisdiction employers need to track establishment carefully

A business with a permanent establishment in Ontario and another in a different province needs a consistent method for attributing each employee's remuneration to the correct establishment, generally based on where the employee reports for work or, for remote staff, which establishment they are considered attached to. This attribution should stay consistent from year to year rather than shifting based on which allocation produces a lower EHT bill in a given year, since Ontario can review how the attribution was determined.

How EHT fits alongside other payroll costs

EHT is separate from CPP, EI, and income tax withholding, and it is entirely an employer cost with no employee-side deduction or matching withholding involved. For a growing business, it is one more line item that appears once payroll crosses a certain size, alongside WSIB premiums where applicable; our answer on what an employee really costs an employer in Ontario puts EHT into the broader context of total payroll cost once a business is large enough to owe it.

Businesses approaching the exemption threshold for the first time sometimes do not realize EHT applies until a return is late, since there is no automatic notice the moment payroll crosses the line. Forecasting Ontario payroll growth for the coming year, rather than reacting after the exemption has already been exceeded, avoids that scramble.

How we track EHT for growing clients

We monitor a client's Ontario payroll against the current exemption threshold as part of our regular bookkeeping and payroll work, so registration happens before the deadline rather than after a late return has already accrued penalties. Our CFO and business advisory services help growing businesses forecast when payroll costs like EHT and WSIB will start applying, so hiring decisions account for the full cost rather than just the posted salary.

Source: CRA — Payroll.