Ontario Employer Health Tax

What EHT is and who pays it

The Ontario Employer Health Tax (EHT) is a provincial payroll tax imposed under the Employer Health Tax Act on employers who pay remuneration to employees who report for work at a permanent establishment in Ontario, who are attached to one, or who are paid from or through an Ontario permanent establishment. The tax funds the Ontario health care system, replacing the former Ontario Health Insurance Plan (OHIP) premium in 1990. EHT is administered directly by the Ontario Ministry of Finance, not by the CRA, and has its own registration, return, and remittance process separate from federal payroll filings.

For most small businesses the practical answer is short: an eligible private employer with Ontario payroll of $1 million or less, and no associated employers, pays no EHT.

EHT rates

The rate is set by the employer's own total Ontario remuneration before the exemption. It is then applied to the payroll left after the exemption. Associated employers' payroll counts toward the $5 million exemption test below, but not toward the rate.

The rates are not brackets. One rate applies to the whole taxable amount, so an employer with payroll over $400,000 pays 1.95% on everything above its exemption. In practice the graduated rates only bite for employers with no exemption to claim, either because they are not eligible or because their associated group allocated the exemption elsewhere: an employer with $175,000 of payroll and no exemption pays $175,000 × 0.98% = $1,715.

The $1 million exemption

• Amount. Eligible employers are exempt on the first $1,000,000 of total Ontario remuneration each year. It was $450,000 for 2014 to 2018 and $490,000 for 2019, was raised to $1 million for 2020 as COVID-19 relief, and the increase was made permanent in 2021.
• Indexation. The exemption is adjusted for inflation every five years using the Ontario Consumer Price Index. Because of the doubling, the next adjustment moved from 2024 to January 1, 2029.
• Who is eligible. Eligibility depends on the Act's employer categories and the $5 million Ontario payroll test, including associates. Many private employers and qualifying non-profit organizations are eligible; being income-tax-exempt does not automatically disqualify every organization. Governments, specified public-sector entities and employers exempt under the particular Income Tax Act paragraphs listed by Ontario are excluded. Registered charities have special rules below. Ontario exemption criteria.
• The $5 million cliff. An employer, or associated group, with more than $5 million of annual Ontario payroll gets no exemption at all, not a reduced one.
• New or closing businesses. An eligible employer that starts or ends operations partway through the year prorates both the $1 million exemption and the $5 million threshold by the days it was an eligible employer with a permanent establishment in Ontario. For example, an employer that first becomes an eligible employer with an Ontario permanent establishment in July generally has a part-year exemption; incorporation date alone does not establish the eligible period.
• Registered charities. A registered charity can claim the exemption even with payroll over $5 million, and a charity with two or more qualifying charity campuses may claim an exemption for each campus. An associated group does not count a registered charity's payroll when testing the $5 million limit.

Associated employers share one exemption

Only one exemption is available to an associated group, and the group decides how to split it.

• The test. Employers are associated using the associated-corporation rules in section 256 of the Income Tax Act (Canada), extended to individuals, partnerships and trusts. A sole proprietor is treated as owning all the shares of a notional corporation. See Associated Corporations Rule.
• No opting out. Employers are associated if they are associated at any time in the year, even if they operate completely independently. The federal election not to be associated for the small business deduction does not apply to EHT.
• The form. One member of the group completes the Associated Employers Exemption Allocation Form for the whole group and submits it with its annual return, online through ONT-TAXS. If any associated employer is left off the form, or the form is not submitted, every employer in the group is denied the exemption.

A common owner-manager case: you own an operating corporation with $700,000 of payroll and a second corporation with $450,000. Neither is over $1 million alone, but together they are at $1,150,000, so the group must file and allocate the $1 million between them, leaving $150,000 taxable. Each corporation's own payroll is over $400,000, so whichever one carries that $150,000 pays 1.95%, or $2,925.

Do you need to register and file?

You must register for an EHT account with the Ministry of Finance if you are not eligible for the exemption, or if you are eligible but your payroll exceeds your allowable exemption. A member of an associated group also has to register and file as an associated employer when the group's combined Ontario payroll exceeds the exemption, and in some other cases, for example if it opted out of being associated for the federal small business deduction or bought or sold another employer during the year. Register online through ONT-TAXS, by calling 1-866-668-8297, or at a ServiceOntario self-help workstation.

You must file an annual return if any of these apply:

• your annual Ontario payroll is greater than your exemption amount (or your prorated exemption, for a part-year employer)
• you are not eligible for the exemption and have Ontario payroll
• you remitted EHT instalments for the year
• you are a member of an associated group whose combined Ontario payroll exceeds the exemption
• you received a personalized return

The annual return and any balance are due March 15 of the following year. A business that closes files a final return within 40 days of the closure date. A late annual return costs 5% of the amount owing when that is $1,000 or more, plus 1% for each complete month it is late, up to 12 months, and interest runs on any unpaid balance at a rate the Ministry sets quarterly.

Monthly instalments over $1.2 million

An employer whose total Ontario remuneration for the year is more than $1,200,000 pays monthly instalments. Everyone else pays once, with the annual return.

The exemption is used up first. Track cumulative payroll through the year; once it passes $1.2 million, remit the tax on everything above the exemption by the 15th of the following month, then tax each later month's payroll the same way. A new employer in its first or second year uses its estimated payroll for the year to decide whether instalments apply.

Worked examples

$2.5 million payroll. A Toronto corporation has 2026 Ontario payroll of $2.5 million, paid evenly at about $208,333 a month, and no associated employers. Exempt portion: $1,000,000. Taxable portion: $1,500,000. Because total payroll exceeds $400,000, the 1.95% rate applies.

Cumulative payroll passes $1 million in May and $1.2 million in June, so the first instalment is due July 15, 2026: ($1,250,000 − $1,000,000) × 1.95% = $4,875. Each month from July to December then costs $208,333.33 × 1.95% = $4,062.50, due on the 15th of the following month. The instalments total $4,875 + 6 × $4,062.50 = $29,250, and the corporation files the annual return by March 15, 2027.

$1.8 million payroll. A Hamilton software consulting firm has $1,800,000 of 2026 Ontario payroll ($150,000 a month) and no associated employers. It claims the full $1,000,000 exemption, leaving $800,000 taxable. The rate is 1.95% because total payroll before the exemption is over $400,000, so EHT is $800,000 × 1.95% = $15,600 for the year. Payroll passes $1.2 million in September, so the first instalment, $350,000 × 1.95% = $6,825, is due October 15, followed by $2,925 a month for October, November and December.

What counts as remuneration

Remuneration is everything sections 5, 6 or 7 of the Income Tax Act (Canada) require an employee to include in income:

• salary, wages, bonuses, commissions and casual labour payments
• taxable benefits and taxable allowances, including the automobile standby charge and operating benefit
• directors' fees and other office-holder fees
• stock option benefits when options are exercised
• pay in lieu of notice on termination

It does not include:

• payments to self-employed individuals or independent contractors
• pensions paid to retired employees
• severance pay based on length of service
• employer contributions to registered pension plans, private health services plans and supplementary unemployment benefit plans

For an owner-manager, a salary or bonus from your corporation counts toward EHT payroll: the Ministry treats the sole shareholder who works for their own corporation as its employee. Dividends do not count, because they are not employment income under sections 5 to 7, and neither do a sole proprietor's or partner's own drawings. A management fee paid to an employee is remuneration, but one paid to another company or to a self-employed person generally is not.

Common mistakes

• Registering late. Registration is required as soon as payroll exceeds your allowable exemption, or from the start if you are not eligible for one.
• Forgetting stock option benefits and taxable benefits. EHT remuneration includes non-cash taxable benefits reported on T4 slips.
• Ignoring the associated employer rule. A corporation with a low Ontario payroll may still exceed $1 million once the payroll of associated employers is added, and a missing name on the allocation form costs the whole group its exemption.
• Treating the rates as brackets. The rate is picked by total payroll before the exemption and applies to the entire taxable amount; above $400,000 of total payroll that is 1.95% on everything past the exemption.
• Ignoring the $5 million cliff. A growing business crossing $5 million in total Ontario payroll loses the full exemption, not just the portion above $5 million.
• Claiming a full-year exemption in the first year. A corporation that commenced operations partway through the year prorates the $1 million by days.
• Counting owner drawings or dividends as payroll, or leaving out salary paid to the owner-manager. Only employment remuneration counts, but it counts whoever receives it.

Related concepts

• Payroll Account (RP)
• Associated Corporations Rule
• Taxable Employee Benefits
• WSIB Premiums