Tax exemption

Ontario provides EHT relief for small eligible employers through a tax exemption.
Details of this exemption include:

• Employers with annual Ontario payroll over $5 million cannot claim any exemption.
• The Ontario government has increased the EHT exemption due to the special circumstances caused by the coronavirus (COVID-19) in Ontario.  For 2020 to 2028, eligible employers are exempt from EHT on the first $1,000,000 of total Ontario remuneration each year.
• For 2019, eligible employers are exempt from EHT on the first $490,000 of total Ontario remuneration each year.
• For 2014 to 2018, eligible employers are exempt from EHT on the first $450,000 of total Ontario remuneration each year.
• Eligible employers which are registered charities can claim the exemption even if their payroll exceeds $5 million. 
• Only one annual exemption is available for an associated group of employers
  • Employers that are associated at any time during the year must take into account the total Ontario remuneration of each associated entity in determining whether they can claim the exemption.
  • When the combined total Ontario remuneration of all the employers which are associated exceeds $5 million, these employers cannot claim an exemption.

This exemption will be adjusted for inflation every five years using the Ontario Consumer Price Index. Given the doubling of the EHT exemption was made permanent in the 2020 Ontario budget, the government moved the next scheduled adjustment for inflation from 2024 to January 1, 2029.

See tax exemption examples, at the end of the Associated Employers and the Tax Exemption chapter.

Eligible employers

Employers may be governments, corporations, individuals, partnerships, non-incorporated associations, or trusts.

Generally, if the members of the employer's board of directors are elected and there is no legislative, regulative or government requirement to have government representation on the board, the employer is eligible for the tax exemption.

Eligible employers generally include:

• private-sector employers
• crown corporations subject to tax under Part I of the Income Tax Act (Canada), and
• organizations which receive financial assistance from any level of government but are not under the control of government, and have no municipal appointed representatives sitting on their board of directors.

Non-eligible employers

Non-eligible employers generally include the following:

• public sector employers, including federal, provincial and municipal governments, universities, colleges, school boards and hospitals
• crown agencies who are not subject to tax under Part I of the Income Tax Act (Canada),
• employers exempt from income tax under paragraphs 149(1)(a) to (d.6), (h.1), (o) to (o.2), (o.4) to (s.2), and (u) to (z) of the Income Tax Act (Canada); for example, municipal and provincial corporations and certain trusts
• any corporation, board, authority, commission, office or organization where a majority of the directors are appointed or chosen by the federal or provincial government, or
• any corporation, board, authority, commission, office or organization where the municipality has the power to appoint or chose one or more director(s) or officer(s), even if the power has been delegated to another entity.

A complete list of eligible employers is available.  Please refer to the definition of "eligible employer" under the EHT Act section 1.

Claiming the exemption

The EHT exemption is normally claimed by reducing tax instalments made during the year by the exemption amount allowed. Eligible employers are not required to remit tax instalments until the year's remuneration to date exceeds the employer's allocated exemption amount for the year.

No exemption amount should be taken by an employer if:

• the employer expects to exceed its $5 million exemption threshold, or
• is a member of an associated group of employers where the total combined payroll exceeds $5 million for the year, or
• no employer in the group operated for the full year, as a prorated exemption will need to be calculated at year end.

Adjustments

Employers who take the tax exemption up-front may find that changes that occur during the year, for example, the remuneration for the employer exceeding the $5 million exemption threshold, or a change to their organizational structure, may cause the exemption amount available to them to change.  If this happens, the instalments should be adjusted to reflect the changes.  If the exemption threshold has been exceeded, the employer should increase its instalments in the following month until the exemption already claimed has been repaid.

Final adjustments to the exemption amount taken during the year should be made at the time of filing the annual return.

Multiple account employers

A multiple account employer is an employer that has more than one EHT account number set up for the same legal entity.

A multiple account employer that is an eligible employer and whose total Ontario remuneration is less than the exemption threshold can allocate the exemption to any of its multiple accounts, as long as it does not exceed the total exemption amount allowed for the employer for the year.

Part-year employers

An eligible employer that commenced or ceased operations, amalgamated, or filed for bankruptcy after the beginning of the year must prorate the $5 million exemption threshold and the $1 million exemption amount, based on the number of days in the calendar year that the part-year employer is an eligible employer and has a permanent establishment in Ontario.

In the event of bankruptcy, the proration calculation does not include the date of bankruptcy.

If all or any members of your associated group were part-year employers, you must prorate the exemption threshold and exemption amounts. The exemption threshold amount for the group will be determined by the member who had the greatest number of days as an eligible Ontario employer with Ontario payroll and a permanent establishment in Ontario for that year. Even if the associated group combined were eligible employers from January 1 to December 31, the exemption threshold and exemption amounts must be prorated.

Members of an associated group that amalgamate during the year should contact their local Ministry of Finance tax office for further information.

Amalgamations

When two or more corporations amalgamate and there are no other associated employers, the newly amalgamated corporation is required to prorate the exemption threshold and the exemption amount from the date of the amalgamation.

The predecessor corporations must also prorate the exemption threshold and the exemption amount. The predecessor and successor corporations prorate based on the number of days in the calendar year that the corporations were eligible employers and have a permanent establishment in Ontario.

Members of an associated group that amalgamate during the year should contact the Ministry of Finance to request a final return form and have their account updated.