Mohammad Hossain, CPA, CGA
If you are an Ontario employer and if you have annual payroll over one million dollars, then you have to pay Employer Health Tax (EHT). You have to file and pay your EHT on annual basis. Following are key steps you need to consider.If you are an Ontario employer and if you have annual payroll over one million dollars, then you have to pay Employer Health Tax (EHT). You have to file and pay your EHT on annual basis. Following are key steps you need to consider.
- Register for EHT with Ministry of Finance Ontario. This is a one-time step. You will pay penalty for late EHT filing because you forgot to register your company first.
Between January and February, you will receive the following from Ministry of Finance of Ontario:
- EHT filing forms. The form looks like as Exhibit 1.
- An instruction sheet which explains “how to complete your EHT return” (looks like Exhibit 2), and
- A form for “Associated Employers Exemption Allocation” only if you have more than one company under the same ownership. The form looks like as in Exhibit 3.
The filing and payment should be made by March 15 for the remuneration paid in the prior calendar year. The filing of EHT is based on calendar year.
Supporting Documents
It is better to keep T4 Summary from your payroll software. This document shows the total Ontario remuneration paid in a calendar year.
How to Calculate EHT (One Company)?
Suppose you have only one company (for example, Elfreda Movers Inc.) This means you do not need to file the form in Exhibit 3. Suppose, in 2021, you have total payroll of $1,439,746 (supported by T4 Summary). Of this payroll amount, $1,000,000 is exempted for EHT purposes (reference below).
So, you will deduct $1,000,000 from your payroll amount with a difference of $439,746. You have to pay EHT at prescribed rate (as below) on $439,746.
Because your total Ontario remuneration paid was over $400,000, you have to pay EHT at 1.95%. Your EHT comes up as $ 8,575.05. Detailed calculation is in the following exhibit.
Employer Health Tax (EHT) | 2021 | |
Elfreda | ||
Ontario Remuneration (Per T4 Summary) | a | $1,439,746.00 |
Exemption | b | -$1,000,000.00 |
Taxable Ontario Remuneration (Net) | c = a – b | $439,746.00 |
EHT Rate | d | 1.95% |
EHT Payable (January – December, 2021) | e = c x d | $8,575.05 |
How to File (One Company)?
Because you have only one company, you will only file the form in Exhibit 1. In Voucher 2 (middle section) of the form you will just write the total HST payable amount (here, $8,575.05).
In Voucher 1 (bottom section) of the form you will carefully write all the amounts you found in the prior calculation). See Exhibit 4 for the completed form. Make sure you check “No” to “Associated Employer” question and sign the form.
After completing the form, you will send Voucher 1 with the cheque to Minister of Finance. Make sure you write your company’s business number in the memo section on the cheque.
Keep the following two sections of the form for your record.
How to Calculate EHT (More than One Company)?
Suppose you have two companies under the same ownership. This means you are required to file the form in Exhibit 3. Suppose, in 2021, you have total payroll of $1,439,746 in one company (Elfreda in our example) and $362,366 in the other company (suppose the name of the company is Santamonica Movers Inc.) So, the total payroll for both the companies is $1,802,112. Of this payroll amount, $1,000,000 is exempted for EHT purposes (reference below). That means, both the companies will share the total exemption amount.
How to File (One Company)?
Because you have only one company, you will only file the form in Exhibit 1. In Voucher 2 (middle section) of the form you will just write the total HST payable amount (here, $8,575.05).
In Voucher 1 (bottom section) of the form you will carefully write all the amounts you found in the prior calculation). See Exhibit 4 for the completed form. Make sure you check “No” to “Associated Employer” question and sign the form.
After completing the form, you will send Voucher 1 with the cheque to Minister of Finance. Make sure you write your company’s business number in the memo section on the cheque.
Keep the following two sections of the form for your record.
How to Calculate EHT (More than One Company)?
Suppose you have two companies under the same ownership. This means you are required to file the form in Exhibit 3. Suppose, in 2021, you have total payroll of $1,439,746 in one company (Elfreda in our example) and $362,366 in the other company (suppose the name of the company is Santamonica Movers Inc.) So, the total payroll for both the companies is $1,802,112. Of this payroll amount, $1,000,000 is exempted for EHT purposes (reference below). That means, both the companies will share the total exemption amount.
Let’s see how you will allocate the exemption amount. A simple way to do it is “proportionate allocation”. You can allocate $1,000,000 based on the proportion of the payroll by the two companies. If you see row (b) of the following table, see that Elfreda’s allocated exemption is $798,921. Elfreda’s payroll is 79.89% of the total payroll of the two companies. So, exemption amount for Elfreda is 79.89 percent of $1 million. The exemption for Santamonica will be the remaining amount ($201,079).
You can calculate the exemption amount in any other way, even you can just assign a number or just use the whole exemption for one company. One thoughtful approach can be to find which company can save more in tax if exemption amount is allocated more to that company. Your accountant can help determining this.
Employer Health Tax (EHT)
|
2021 | |||
Proportionate Allocation
|
||||
Elfreda | Santamonica | Total | ||
Ontario Remuneration (Per T4 Summary) | a | $1,439,746.00 | 362,366 | 1,802,112 |
Exemption (Proportionate) | b | -$798,921.00 | -201,079 | -1,000,000 |
Taxable Ontario Remuneration (Net) | c = a – b | $640,824.00 | 161,287 | 802,112 |
EHT Rate | d | 1.95% | 1.71% | |
EHT Payable (January – December, 2021) | e = c x d | $12,496.08 | $2,754.79 | $15,250.87 |
So, the taxable amount for EHT for Elfreda is $640,824 (see row (c)). Because Elfreda’s total Ontario remuneration paid was over $400,000, you have to pay EHT at 1.95%. Your EHT comes up as $12,496.08. xc c x
Santamonica will pay EHT at 1.708 percent because it’s total Ontario remuneration was between $350,000 and $380,000 (reference below). So, it’s EHT payable will be $2,754.79.
Total EHT payable for both the companies will be $15,250.87.
How to File (More than One Company)?
Because you have more than one company, you will file the form in Exhibit 1 separately for each of the companies. Follow the methods explained for “one company” for the second company also. Only difference is you check “Yes” to “Associated Employer” section in the Voucher 1 (bottom section of the form).
After completing the forms, you will send two Voucher 1 with the cheques to Minister of Finance. Make sure you write your company’s business number in the memo section on the cheques.
Additional Filing (More than One Company)
If you have more than one companies then you have to file Associated Employers Exemption Allocation form (in Exhibit 3) for both the companies. This form is nothing but reporting of how much exemption each company is claiming. Exhibit 5 and 6 shows how to file this form.
With this EHT filing is complete. Remember that, there might by change in the procedure between the time we are writing this blog and the time you are filing the EHT return. So, look for possible changes. If you think this article can help your fellow colleagues, then feel free to share.
Exhibit 1
Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
Exhibit 6