The Ontario Employer Health Tax is a provincial payroll tax that employers pay on wages, salaries, and taxable benefits given to employees who report to a permanent establishment in Ontario. Eligible private-sector employers exempt the first $1 million of annual Ontario payroll, so most small businesses owe nothing. Once payroll crosses that line, the tax applies at a flat rate between 0.98% and 1.95%, chosen from a nine-tier scale based on your gross Ontario payroll. Nothing comes out of employee paycheques; the whole bill sits with you.
Who Owes the Tax
Any employer paying remuneration to employees who report to, are attached to, or are paid from an Ontario permanent establishment is potentially on the hook. That covers corporations, sole proprietors, partnerships, trusts, and non-incorporated associations.
Whether you actually owe anything depends on whether you qualify as an “eligible employer” under the Employer Health Tax Act. Eligible employers get the $1 million exemption. Non-eligible employers pay from the first dollar of payroll.
Most private-sector businesses are eligible. The test looks at whether your board of directors is elected independently, without a legislative or government requirement for government representation. Private businesses, crown corporations that pay federal income tax, and government-funded organizations that are not government-controlled generally qualify. Registered charities qualify and get extra latitude described below.
Government bodies and government-controlled entities usually do not qualify. If municipal appointees sit on your board by law, or a level of government controls the entity directly, you pay on your entire Ontario payroll with no exemption.
The $1 Million Exemption and the $5 Million Ceiling
Eligible employers subtract $1 million from their total Ontario remuneration before applying the tax rate. The exemption is fixed through 2028 and is scheduled to be adjusted for inflation starting January 1, 2029. Payroll under $1 million means zero EHT owing.
There is a hard ceiling. Employers with annual Ontario payroll over $5 million lose the exemption entirely and pay tax on every dollar. Registered charities are the exception; they keep the exemption regardless of payroll size.
Between $1 million and $5 million, you pay tax only on the amount above $1 million. A business with $2 million in Ontario payroll pays tax on $1 million of it.
Associated Employer Rules
Legally associated businesses share a single $1 million exemption for the whole group, not one each. Ontario’s association rules follow the framework of section 256 of the federal Income Tax Act, extended to cover individuals, partnerships, and trusts alongside corporations.
Each year, associated employers must sign a written agreement allocating the exemption among group members. If the group’s combined Ontario payroll exceeds $5 million, everyone loses the exemption, even members whose own payroll sits well below that threshold. A federal election to not be associated for the small business deduction does not carry over to the EHT. Schedules 9 and 23 of the federal T2 return are useful reference points when figuring out whether you are associated with another business.
Rates and How to Pick Yours
The rate depends on your total Ontario payroll before the exemption is subtracted. Once you have the rate, you apply it to the taxable amount after the exemption. Getting these two steps in the right order is where employers most often trip up.
- Up to $200,000: 0.98%
- $200,000.01 to $230,000: 1.101%
- $230,000.01 to $260,000: 1.223%
- $260,000.01 to $290,000: 1.344%
- $290,000.01 to $320,000: 1.465%
- $320,000.01 to $350,000: 1.586%
- $350,000.01 to $380,000: 1.708%
- $380,000.01 to $400,000: 1.829%
- Over $400,000: 1.95%
These are flat rates, not marginal rates. A single rate from the table applies to your entire taxable amount, based on where your gross payroll lands.
Worked Examples
A private employer with $1.3 million in total Ontario payroll uses the 1.95% rate because gross payroll is over $400,000. After the $1 million exemption, taxable payroll is $300,000. The tax owing is $300,000 × 1.95% = $5,850.
A non-eligible employer with $175,000 in Ontario payroll gets no exemption. Gross payroll falls in the first tier, so the rate is 0.98%. The tax owing is $175,000 × 0.98% = $1,715.
Same payroll can produce very different bills. An eligible employer with $250,000 in payroll owes nothing because the exemption swallows the whole amount. A non-eligible employer with $250,000 uses the 1.223% rate and owes $3,057.50.
What Counts as Remuneration
Remuneration for EHT includes any payment, benefit, or allowance that must be reported as employee income under sections 5, 6, or 7 of the federal Income Tax Act. That reaches well past base salary.
Included: wages, salaries, bonuses, commissions, vacation pay, signing bonuses, advances on future earnings, flat-rate car allowances, stock option benefits, controlled tips paid through the employer, and the interest benefit on below-market employee loans. Cash and near-cash gifts such as gift certificates count, and so do performance-based incentive awards.
Non-cash gifts and awards get a partial break. Up to $500 (including HST) for occasions such as birthdays or weddings is exempt, plus a separate $500 for employment-related accomplishments like outstanding service. Amounts above those thresholds are taxable.
Excluded: employer contributions to registered pension plans, private health services plans, group sickness or accident insurance, group term life insurance, deferred profit sharing plans, supplementary unemployment benefit plans, and retirement compensation arrangements. Counselling for mental or physical health, re-employment, or retirement is also outside the base. Reasonable per-kilometre car allowances are excluded (flat-rate ones are not). Direct tips paid by customers without passing through the employer are excluded, as are pensions paid to retired employees and certain reasonable allowances for clergy housing or travelling salespeople under the federal Income Tax Act.
Sorting these correctly matters. Including exempt contributions inflates your payroll figure and can lead to overpayment; missing taxable benefits invites reassessment and penalties.
Registering
You register with the Ontario Ministry of Finance once your Ontario payroll is expected to exceed your exemption amount. Have your legal business name, federal Business Number, the date you first paid or will pay Ontario employees, your projected total annual Ontario remuneration, and the address where your payroll records are kept. If you are part of an associated group, you also need the other members’ names and Business Numbers along with your agreed allocation of the exemption. Registration is done through the ONT-TAXS online portal at ontario.ca, which also handles ongoing filings and payments.
Filing Deadlines and Payments
Filing frequency depends on payroll size. Employers with total Ontario remuneration of $1.2 million or less file one annual return and pay any tax owing by March 15 of the following year. Employers over $1.2 million make monthly installment payments due by the 15th of the following month, and still file an annual return by March 15.
You can pay through the ONT-TAXS portal, online banking with most major financial institutions, or by mail. If your payroll crosses the $1.2 million threshold partway through a year, installment obligations adjust, so a running payroll total is worth keeping.
Penalties for Late Filing and Payment
A late filing triggers an automatic penalty if the amount owing is $1,000 or more. For a first occurrence, the penalty is 5% of the outstanding amount on the due date, plus 1% for each complete month the return stays unfiled, up to 12 months.
If you have been penalized for late filing in any of the previous three years and the Ministry of Finance has issued a demand for the return, the penalty doubles: 10% of the amount owing plus 2% per complete month, up to 20 months. Interest also accrues on overdue amounts, and it compounds. Filing on time with an estimate and correcting later is almost always cheaper than filing late with a precise number.
Closing an EHT Account
If your business stops operating in Ontario, amalgamates with another entity, or simply no longer has Ontario employees, you have to notify the Ministry of Finance and file a final return. The final return is due 40 days from the date you stopped paying Ontario employees, and any outstanding tax is paid with it.
For amalgamations starting in the 2026 tax year, the final return is due within six months of the amalgamation date or by March 15 of the following year, whichever comes first. A change in shareholders or ownership alone does not trigger a new filing obligation, because the legal entity is the same.