Ontario budget 2013: Employer health tax changes 


May 2013

Tax Bulletin

On May 2, 2013, the Ontario government unveiled its 2013 Budget (the "Budget"). Entitled "A Prosperous and Fair Ontario," the Budget focused on deficit reduction and initiatives that the Government believes will stimulate economic growth and assist those in need. Although the tax measures contained in the Budget are relatively few in number, proposed changes to the provincial Employer Health Tax (the "EHT") may have a material impact on those that carry on business in Ontario.

In highly simplified terms, the EHT is a tax levied on employers, which is computed on the basis of the total remuneration paid by an employer to or on behalf of its employees who (i) report for work at a "permanent establishment" of the employer in Ontario, or (ii) are not required to report for work at a "permanent establishment" of the employer in Ontario but whose remuneration is paid from or through a "permanent establishment" of the employer in Ontario. Currently, however, an exemption from EHT is available to private sector employers in respect of up to the first $400,000 of total Ontario remuneration paid per year (the "EHT Exemption"). (Associated groups of employers must agree on a basis to share the EHT Exemption.) According to the Budget documents, the EHT Exemption is meant to reduce paperwork for small businesses and lessen their cost of hiring employees.

The Budget proposes to increase the EHT Exemption to $450,000, beginning January 1, 2014. Thereafter, the EHT Exemption will be adjusted every five years to account for the effects of inflation (on the basis of increases in the Ontario Consumer Price Index). Using projected inflation rates, the Government estimates that the EHT Exemption will increase to $500,000 in 2019.

Although the increased EHT Exemption is likely to be warmly received by many employers, the Budget also offered less welcome news for larger businesses. Beginning January 1, 2014, the Budget proposes that the EHT Exemption be eliminated entirely for private sector employers, including associated groups, with annual Ontario payrolls of over $5 million per year. (Registered charities will continue to be permitted to claim the EHT Exemption under the Budget proposals, irrespective of the size of a particular charity's payroll.)

The Government estimates that, while small businesses will save up to $975 per year, and approximately 12,000 small employers will no longer have any EHT liability, as a consequence of the EHT changes proposed in the Budget, more than 5,000 large employers and associated groups of employers will be required to remit up to $7,800 per year in additional EHT as a consequence of the proposed EHT amendments. These changes reflect a desire of the Government to shift the EHT burden to larger entities, although the Budget papers project that, on a cumulative basis, the proposed EHT changes will actually cost the Government approximately $5 million in each of the 2014-15 and 2015-16 fiscal years.

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2013