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Professional Corporation? Beware of EHT in 2018


May 10th. 2018

Employer Health Tax (EHT) is a payroll tax levied on employers in Ontario based on remuneration paid to employees.  Employers are required to pay EHT if their Ontario payroll is greater than their allowable exemption amount.  The EHT exemption limit for Ontario employers is currently $450,000.  

 

A partnership structure commonly incorporates the use of Professional Corporations (PCs) and certain PCs were entitled to the full EHT exemption.  Consequently, many PCs previously did not have an obligation to remit this tax.  However, new rules have come into effect beginning January 1, 2018, which are aimed at reducing the multiplication of the EHT exemption limit.

 

Recent changes to the EHT Act have eliminated the EHT exemption for any employer that is a “designated member” of a partnership.  Generally, a “designated member” is a Canadian Controlled Private Corporation (CCPC) that provides services “directly or indirectly in any matter whatever” to the partnership and a shareholder of that CCPC holds a direct or indirect interest in the partnership.

 

The elimination of the EHT exemption for such designated members means many PCs will now be required to register and remit EHT on the salaries they pay. 

 

Note that employers with annual payroll over $600,000 are required to make monthly EHT instalments.  The annual EHT return and any related tax owing is due by March 15 of the following year.

 

Please contact us if you have any questions or need assistance.


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