Understanding Employer Health Tax (EHT) in Ontario and BC: A Guide for Businesses

Understanding Employer Health Tax (EHT) in Ontario and BC: A Guide for Businesses

Sebastien Prost, CPA

The Employer Health Tax (EHT) is a payroll tax imposed by the provinces of Ontario and British Columbia on employers. This tax is levied to fund their respective provincial health care programs, ensuring that medical services are provided to residents without direct charges at the point of care. In both provinces, EHT is calculated as a percentage of the total payroll, with the rates and exemption thresholds varying between Ontario and BC.

In Ontario, EHT was introduced in 1990 and is paid by employers who have a permanent establishment in the province. The tax is applicable to employers with an annual payroll above a certain exemption limit, which is adjusted periodically. Employers with payrolls below this threshold are exempt from EHT, providing relief to small businesses. Employers are required to calculate their EHT liability and file an annual return with the Ontario Ministry of Finance.

British Columbia’s EHT, introduced more recently, mirrors the intent of Ontario’s tax, but with its own set of rates and exemption thresholds. BC’s approach also aims to distribute the tax burden fairly among businesses of various sizes while ensuring that health care funding is sustained. Employers in BC must register, calculate, and remit EHT based on their payroll, similar to the process in Ontario, but must adhere to the specific requirements set out by the BC Ministry of Finance.

Overview of Employer Health Tax

The Employer Health Tax (EHT) is a payroll tax levied on employers in Ontario and British Columbia to fund provincial health services. It is vital for employers to understand the tax’s components and its impact on their financial responsibilities.

Definition and Purpose

Employer Health Tax (EHT) refers to a provincial tax that employers in Ontario and British Columbia must pay based on the total remuneration paid to employees and former employees. In Ontario, it helps fund the health care system, whereas in British Columbia, it replaced the Medical Services Plan (MSP) premiums that were previously paid by residents.

The primary purpose of the EHT is to generate revenue for provincial health services. Employers are responsible for calculating and remitting the tax to the provincial government. The rate and exemption threshold can vary among provinces, with specific rules governing what constitutes taxable remuneration.

EHT in Ontario

The Employer Health Tax (EHT) is a payroll tax imposed on employers operating in Ontario. It plays a crucial role in funding the province’s health services.

Current Rates and Thresholds

For 2023, the EHT rate varies from 0.98% to 1.95%, depending on the employer’s total annual Ontario payroll. Businesses with a payroll under $1,000,000 are usually exempt. Here are the specific rates:

  • $1,000,000 or less: Exempt
  • Over $1,000,000 up to $1,400,000: Between 0.98% and 1.95% depending on income (see the Ontario government’s website for more details)
  • Over $1,400,000: 1.95%

The $1,000,000 exemption does not apply to employers with more than $5,000,000 in annual payroll meaning that the full amount of payroll would be subject to the EHT.

Eligibility and Exemptions

Employers are eligible to pay EHT if they have employees working at a permanent establishment in Ontario or employees who are paid from or through a permanent establishment in the province. Private-sector employers with an annual Ontario payroll over $1,000,000 must pay EHT. Various exemptions apply, including:

  • Public sector entities
  • Registered charities
  • Employers with annual payrolls under the exemption threshold

Calculation and Payment

Employers calculate EHT based on total remuneration paid to employees. Remuneration includes salaries, wages, bonuses, and many benefits. Employers with an annual payroll above $1,000,000 must make installment payments, either monthly or quarterly, based on their remuneration. The annual tax return is due March 15 of the following year.

Special Rules for Ontario Employers

Ontario has special rules to accommodate different types of employers and circumstances:

  • Associates: Groups of associated employers must share the exemption threshold.
  • Status Changes: When a business’s status changes, such as becoming associated or disassociated, or when there is an acquisition or merger, special rules and calculations apply for EHT.
  • Successor Employers: Successor employers may have specific rules for calculating their EHT obligations.

EHT in British Columbia

In British Columbia, the Employer Health Tax (EHT) is a payroll tax that funds the province’s health services. This tax is applicable to employers with a payroll over a certain threshold and varies according to the total payroll amount.

Current Rates and Thresholds for BC

The EHT rate in British Columbia for businesses with payrolls between $500,000 and $1,500,000 is 2.925% but must be calculated net of the $500,000 exemption. For BC employers with an annual payroll over $1,500,000, the EHT rate of 1.95% applies on the full amount of the payroll as the $500,000 exemption does not apply. Employers with payrolls of $500,000 or less are exempt from the EHT.

The threshold level is:

  • $500,000 for private-sector employers.
  • $1,500,000 for registered charities and non-profit organizations.

Calculation and Payment in BC

Employers must calculate their EHT based on the total remuneration paid to employees who report to work at a permanent establishment of the employer in BC. It includes all forms of cash and non-cash compensation such as:

  • Salaries and wages.
  • Bonuses.
  • Commissions.
  • Vacation pay.

Payments must be made in instalments throughout the year if the total EHT exceeds $2,925 annually, coinciding with the employer’s remittance frequency for BC’s provincial revenue agency.

Special Rules for British Columbia Employers

Several special rules apply to specific situations in BC, such as:

  • Associated Employers: If two or more corporations are associated during the year, the EHT threshold is shared between them.
  • Successor Employers: When a business acquires the status of successor employer, the EHT implications on payroll must be carefully considered to ensure compliance.

Compliance and Enforcement

Employer health tax (EHT) compliance in Ontario and BC mandates adherence to specific regulations, and enforcement relies on systematic audit and review processes. Non-compliance triggers penalties and interest charges.

Audit and Review Process

In both Ontario and BC, the Ministry of Finance can audit employers at any time to verify EHT compliance. These audits may include the examination of records, books, and supporting documents within a four-year period from the date the tax became payable. If discrepancies are found or tax is unpaid:

  • Records may be corrected.
  • Additional tax may be assessed.
  • Employers may be guided to prevent future discrepancies.

Penalties and Interest for Non-Compliance

In BC, employers who fail to comply with EHT obligations may face penalties and interest. Specific non-compliance instances include:

  • Failing to register for EHT.
  • Late filing or failure to file returns.
  • Underpayment of taxes due.
Non-Compliance Type
Penalty/Interest
Late Filing
5% of unpaid tax plus 1% per month, max 12 months
Underpayment
Prime plus 3 percent

 

Interest compounds daily and penalties are calculated based on the period of non-compliance and the amount of tax owing.

Interjurisdictional Employers

Interjurisdictional employers in Ontario and British Columbia face particular responsibilities regarding Employer Health Tax (EHT). They must allocate payroll accurately between provinces and comply with differing jurisdictional regulations.

Potential Changes and Impacts

The section provides insights into recent legislative proposals and their potential effects on businesses in the context of the Employer Health Tax (EHT).

Legislative Updates

In Ontario, proposed adjustments to the EHT include increasing the exemption threshold. Small businesses might benefit from this, as it could result in lower tax liabilities. For BC, new legislation may alter the current rate, potentially leading to an increment in the tax burden for certain businesses depending on their payroll size.

Economic Effects on Businesses

Economically, changes to the EHT can significantly influence businesses. For instance:

  • Increased Rates: Businesses may see a rise in operational costs, which could result in budget reallocations or reductions in workforce.
  • Exemption Thresholds: A higher exemption limit enables small businesses to deploy capital towards growth or improvement strategies, possibly enhancing their competitive position.

Businesses must stay informed on these developments to manage their finances effectively and align with regulatory compliance.

Frequently Asked Questions

This section provides critical information on the Employer Health Tax (EHT) in Ontario and British Columbia, including calculations, rates, remuneration subjects, exemptions, obligations, and filing requirements.

How is the Employer Health Tax calculated in British Columbia?

In British Columbia, the Employer Health Tax is calculated by multiplying the total B.C. remuneration paid to employees by the applicable tax rate. The rate varies depending on the employer’s total B.C. remuneration.

What are the current rates for the Employer Health Tax in Ontario for 2023?

For 2023, the Employer Health Tax rates in Ontario varies between 0.98% and 1.95% depending on the amount of annual payroll.

Which types of remuneration are subject to the Employer Health Tax in Ontario?

In Ontario, the Employer Health Tax applies to various types of remuneration, including salaries, wages, bonuses, commissions, and other similar payments paid to employees or former employees.

Are there any exemptions to the Employer Health Tax in BC?

Certain exemptions apply to the Employer Health Tax in BC. These include payroll costs below the exemption threshold, registered charities, and qualifying public institutions such as schools and hospitals, subject to specific criteria.

How can employers in Ontario determine their total EHT obligation?

To determine their total Employer Health Tax obligation, Ontario employers must first calculate their total annual payroll for all employees, then apply the applicable EHT rate to this amount after considering any allowable exemptions such as the small employer threshold.

What are the filing requirements for the Employer Health Tax in British Columbia?

Employers must file an Employer Health Tax return and pay any EHT owing within three months of the end of the calendar year if their annual B.C. remuneration exceeds the payroll threshold. Those with monthly tax remittances are required to file and pay more frequently.

Sebastien Prost, CPA

Written by Sebastien Prost, CPA

Seb Prost, a CPA with over 10 years of experience in taxation and accounting, offers a unique blend of insights from his time at the CRA and his experience in public practice. Originally from QC and now based in Nelson, BC, he specializes in guiding Canadian startups, SaaS companies and other online businesses for all of their accounting and taxation needs.

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