This time around I’d like to deal with Ontario’s Employer Health Tax or EHT. This is one of those “additional taxes” that can sneak up on a small business and create havoc if not detected. The reason I say this is that small businesses are exempt from this tax and don’t have to register until their annual payroll hits the $450,000.00 exemption threshold. Once reached the business needs to register and start remitting. For us as bookkeepers it means tracking payroll on an ongoing basis and flagging the need to register and pay. The government will not notify companies that they have reached the payroll exemption limit. It’s up to the company to monitor. Missing this one involves penalties and interest.
New companies and even growing companies may need to estimate their annual payroll to stay on top of EHT obligations.
For those of you not familiar with this tax, let’s look at it a bit more. This tax is administered by the Ontario Ministry of Finance. It covers not only Ontario companies that have reached the payroll threshold but associated companies as well. In other words, associated companies need to combine their payroll numbers to see if they have reached and surpassed the exemption amount.
Companies are considered associated for this tax if there is a connection by ownership and/or through relationships such as marriage, adoption or blood relation. The whole business of determining association status is somewhat complex and should be researched through the government’s website for those of you with “closely held” companies.
Income for all employees needs to be considered for the EHT, including director’s fees, vacation pay, bonuses and casual labour. Employees to be considered are those who report to work or are attached to a permanent establishment in Ontario or who are paid from or through this establishment.
Employers affected by EHT can include individuals, corporations, non-profits, partnerships, trusts, etc. In the case of associated companies, the payroll numbers need to be combined and only one $450,000.00 exemption is allowed for the entire group. The associated companies need to reach an agreement and MUST file a form as to who gets what portion of the exemption.
Just to further muddy the waters, employers including associated employers with payrolls over $5 million are no longer eligible for the $450,000.00 exemption. This rule does not apply to registered charities. For the rest of us, the EHT remittance rate is approximately 1% to 2% of payroll above the exemption amount. The remittance schedule and due dates will depend on the amount of money involved.
Needless to say, there is a lot to be considered when it comes to this tax. The Ontario government website on Employer Health Tax is a great place to do your homework on this. To find it is easy – as they say, just Google it.
Enjoy your summer.