The Employer Health Tax (EHT) is a payroll-based tax imposed on employers in certain Canadian provinces to help fund healthcare services. It varies widely by jurisdiction in terms of applicability, rates, exemptions, and filing requirements. Understanding the nuances of EHT across Canada is crucial for businesses to remain compliant and effectively manage payroll expenses.
This guide covers the EHT systems in provinces where it applies, outlines key differences, and provides actionable insights for employers.
What Is the Employer Health Tax (EHT)?
Definition and Purpose
The EHT is a provincial tax designed to ensure that employers contribute to the funding of public healthcare. While not all provinces impose this tax, it plays a significant role in jurisdictions like Ontario and British Columbia.
Provinces with Employer Health Tax
Ontario
Current Rates and Thresholds
In Ontario, EHT is calculated based on total annual payroll:
- Exemption Threshold: Employers with payroll under $1,000,000 are generally exempt.
- Tax Rate: For payroll exceeding $1,000,000, the tax rate is 0.98%.
Eligibility and Exemptions
Employers must register for EHT if their payroll exceeds the exemption threshold. Special rules apply to charities, which may have higher exemption limits.
Calculation and Filing
- Calculation: Subtract the exemption from total payroll and apply the rate.
- Filing: Employers must file an annual return by March 15 and make quarterly installment payments if their payroll exceeds a certain threshold.
Special Considerations
- Associated Employers: Groups of related employers must share the $1,000,000 exemption.
- Taxable Remuneration: Includes wages, salaries, bonuses, and taxable benefits.
British Columbia
Current Rates and Thresholds
British Columbia’s EHT applies to employers with annual payrolls exceeding $500,000:
- Exemption Threshold: No tax on payroll up to $500,000.
- Tax Rate: 2.925% on payroll exceeding $500,000.
Filing Requirements
Employers in BC must register for EHT and pay quarterly installments if their payroll exceeds $600,000. The annual return is due by March 31.
Special Rules
Non-profits and charities may have unique thresholds and exemptions.
Quebec
Although Quebec does not have an EHT, it imposes a similar tax known as the Health Services Fund (HSF), which applies to all employers:
- Rates: Ranges from 1.65% to 4.26%, depending on payroll size.
- Exemptions: Small businesses and certain sectors may qualify for reduced rates.
Newfoundland and Labrador
Newfoundland and Labrador also imposes a Health and Post-Secondary Education Tax (HAPSET):
- Exemption Threshold: Payrolls under $1.3 million are exempt.
- Tax Rate: 2% on payroll exceeding the threshold.
Provinces Without Employer Health Tax
Some provinces, such as Alberta, Saskatchewan, and Manitoba, do not impose an EHT. Employers in these provinces are not subject to this type of tax but still contribute to healthcare funding through other means, such as general corporate and personal income taxes.
Compliance and Filing Requirements
Registration
Employers must register for EHT in provinces where it applies once their payroll exceeds the exemption threshold.
Record-Keeping
Detailed payroll records are essential for calculating and remitting EHT. These records must include:
- Employee salaries and wages.
- Bonuses, commissions, and taxable benefits.
- Contributions to retirement plans or other taxable compensations.
Deadlines
EHT filing deadlines vary by province. Annual returns are typically due in the first quarter of the year, and larger employers may need to remit quarterly installments.
Penalties for Non-Compliance
Failing to comply with EHT requirements can result in significant penalties and interest charges:
- Late Filing Penalties: Based on the amount of unpaid tax.
- Interest: Applied to outstanding balances from the due date.
Interprovincial Employers
Employers operating in multiple provinces must apportion their payroll appropriately and comply with the rules in each jurisdiction. For example:
- An employee working in BC and Ontario may require separate EHT calculations based on time worked in each province.
- Payroll systems should be set up to track and report such distinctions.
Potential Changes and Future Considerations
Legislative Updates
Provinces periodically review their EHT structures to adjust thresholds, rates, or exemptions. Businesses should stay informed about these changes to avoid surprises.
Economic Impacts
EHT affects payroll costs and can influence hiring decisions, especially for employers near exemption thresholds. Strategic workforce planning can help mitigate the impact.
Frequently Asked Questions
Conclusion
Navigating the Employer Health Tax in Canada requires a clear understanding of provincial differences in rates, exemptions, and compliance requirements. By staying informed and maintaining accurate payroll records, businesses can effectively manage their EHT obligations while avoiding penalties. For tailored advice, consult a tax professional familiar with EHT regulations in your province.
