Ontario passes legislation amending the Employer Health Tax Act

On November 6, 2024, Bill 216, the Building Ontario For You Act (Budget Measures), 2024 (“Bill 216”), received Royal Assent. Bill 216 makes several amendments to various statutes in Ontario, including the Employer Health Tax Act (the “EHTA”). The EHTA governs the application and calculation of Employer Health Tax (the “EHT”), which is a payroll tax on employee remuneration (including, but not limited to, salaries and wages, bonuses, taxable allowances and commissions). The purpose of the EHT is to subsidize public healthcare.

Currently, the Ontario government allows eligible employers to benefit from an EHT exemption on the first $1 million of their payroll. This exemption amount was increased from $490,000 in response to COVID-19, and was made permanent in 2021, in order to reduce the tax burden on small businesses. An employer is liable for EHT once the exemption amount is exceeded. Employers with a payroll exceeding $5,000,000 are not eligible for the exemption.

The amendments will modify some of the exemption rules for eligible employers under the EHTA. We have summarized the amendments to the EHTA below.

Changes to the Employer Health Tax Act

Effective November 6, 2024, the manner by which the exemption amount for associated employers (two or more employers who are “eligible employers” under the EHTA at any time in the year, and who are associated with each other at any time of the year through ownership and/or relationship connections) is determined for years beginning after December 31, 2024, will change.

Associated employers are required to enter into an agreement to share the $1 million tax exemption for an applicable year. Now, the exemption amount of an associated employer will be the lesser of (a) the sum of each amount allocated to the employer under the tax exemption agreement of the associated employers; and (b) the amount that would be the employer’s exemption amount for the year, if that employer was not an associated employer. If the combined total Ontario payrolls for the members of the associated group exceed $5,000,000, none of the members of the associated group are entitled to an EHT exemption.

Additionally effective January 1, 2025:

• The exemption to the requirement that tax payable in a year be paid in instalments for employers who paid or will pay, during one month in the year, the total Ontario remuneration for the year will be removed.
• The deadline to deliver the employer’s annual return to the Minister of Finance will be March 15 of the following year (as opposed to the current rule of a prescribed date applicable to the taxpayer).
• A mechanism will be established to allow taxpayers to request that the Minister of Finance reassess the tax payable in respect of a year, and to allow the Minister of Finance to refund any amount that the Minister of Finance determines to be an overpayment of tax. The request must be made in writing within 90 days after the assessment in which the overpayment was assessed.

If you have any questions about any of the amendments to the EHTA, do not hesitate to contact any member of our DLA Piper Canadian Tax Service Group or Employment and Labour Law Service Group.