The Ontario government passed Supporting Small Businesses Act, 2013 (formerly Bill 105). The changes mean 88 percent of private-sector employers in Ontario effective January 1, 2014, are now be exempt from paying the Employer Health Tax (also know as a payroll tax or EHT). The exemption increases from $400,000 to $450,000 of Ontario payroll, saving most employers up to $975 every year. This change cuts costs and reduces paperwork for businesses so they can reinvest in their company or hire more staff. Commencing in 2019 the exemption is adjusted for inflation every five years;
New subsection 2.1(7) of the Act provides for an exemption threshold of $5 million. As before, only one annual exemption is available for an associated group of employers. This means private sector employers with annual payrolls over $5 million will lose the exemption. In addition, if the combined total Ontario remuneration of all associated employers exceeds $5 million, none of the employers are eligible to claim the exemption. Registered charities with all payroll sizes will be able to continue to claim the exemption.
An employer that is associated with a registered charity is not required to include the payroll of the charity in determining the $5 million threshold.
Where there is an employer-employee relationship, and the employer pays the employee, the payroll is subject to EHT. The Employer Health Tax Act requires all employers who have a permanent establishment in Ontario to remit EHT on total Ontario remuneration paid to employees. The tax is payable in monthly or quarterly instalments or on an annual basis depending on the total annual amount of tax payable.
The rates of payment vary from .98% on total remuneration less than $200,000 up to 1.95% for remuneration in excess of $450,000. The tax rate is based on the total Ontario remuneration of the employer. Note that total Ontario remuneration is the amount of Ontario remuneration before deducting any tax exemption.
For total Ontario remuneration greater than $600,000: you must remit monthly instalments and file an annual return on or before March 15th of the following calendar year.
For total Ontario remuneration $600,000 or less: you do not have to remit monthly instalments. You must file your annual return and pay EHT on or before March 15th of the following calendar year.
To provide greater Employer Health Tax (EHT) relief to small businesses, the Ontario government has tabled legislation to increase the exemption for the Employer Health Tax starting January 1, 2014, and ending in 2018. Starting in 2019, the exemption amount would be adjusted for inflation every five years using the formula set out in the Employer Health Tax Act.
If enacted, Bill 105, Supporting Small Businesses Act, 2013 would increase the exemption for private-sector employers, including small businesses, charities and not-for-profit organizations, with an annual payroll of $450,000 or less for the 2014 to 2018 calendar years. The current limit is $400,000.
This means that more than 60,000 employers would pay less Employer Health Tax, including over 12,000 that would no longer pay the tax. Those organizations would also save the cost of filing an Employer Health Tax return.
The exemption would be eliminated for employers with payroll over $5 million and is prorated based on the number of days the employer had a permanent establishment in Ontario in the year. New subsection 2.1 (8) provides that the exemption threshold for a group of associated employers is the highest exemption threshold that would be determined for any of the employers if they were not associated with one another.
This means the cost of providing additional Employer Health Tax relief to smaller employers would be largely offset by additional tax paid by larger employers.
The exemption amount for an employer that is a registered charity is determined without reference to its total Ontario remuneration paid. New subsection 2.1 (10) provides that, in determining the aggregate of the total Ontario remuneration for a group of employers who are associated with a registered charity, the remuneration paid by the charity is not included. New subsection 2.1 (11) authorizes the minister to make regulations providing for special rules that apply to employers who are registered charities and employers who are associated with registered charities.
Bill 105 is in force on the day it receives royal assent.
Penalties and interest
To ensure fairness and encourage compliance, provisions in the Act permit the Ontario Minister of Finance to assess penalties on employers.
An employer who does not file an instalment statement or the return by the due date may be charged a penalty. An instalment statement is considered delivered on the date it is received by the ministry, or on the date it is received by a financial institution in Ontario. A return is considered delivered on the date it is submitted in ONT-TAXS online or received by the ministry. Annual, final and special returns are not accepted at financial institutions.
Interest is charged on any outstanding balance on the employer’s account at the rate set by the ministry.
In addition to these penalties, persons convicted of serious offences under the EHT Act may be liable to substantial fines and/or imprisonment imposed by the courts.
Important note: Your corporation may be dissolved if you are in default of your obligations under the EHT Act.
Employers liable for EHT must keep records and books of accounts containing information confirming that the employer is complying with the EHT Act and Regulations. Businesses may keep their records in a form that is made by any technological process that reproduces an exact copy of the original record. You are required to keep records and books of accounts in Ontario or at such other place as may be approved by the Minister of Finance. Failure to comply with these requirements, as well as failure to produce records or information requested by the ministry, is an offence.
Auditors may carry out audits at your place of business to ensure that you are in compliance with the EHT Act and Regulations.
For more information on how to register among other things, consult the Ontario Ministry of Finance website. For more information on fines and penalties, click here.
First Reference Managing Editor
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