When our Firm sees a spike in Ontario Employer Health Tax (“EHT”) files, we know that something is up.  And this may not bode well for employers that have traditionally viewed Ontario’s relatively low-rate EHT as an unimportant tax, delegating its compliance to payroll providers, staff members, and others.

Background

Ontario’s EHT is an employer liability payroll tax imposed on total Ontario remuneration paid to current and former employees.  With the  employer’s “exemption amount” (recently raised to $1,000,000 for most “eligible employers” until 2029), the effective rate is exceedingly low.  For example, a payroll of $2,000,000 would give rise to less than $20,000 in annual EHT.  Not really enough to keep anyone up at night and definitely not enough to build a fabulous law practice out of!

That lack of sizzle tends to make EHT compliance somewhat of a poor cousin to others, larger taxes like the GST/HST or Corporate Income Tax.  That is a real danger because EHT has an enforcement bite.

Recent Enforcement Action

Recent file experience has seen a renewed focus on EHT audits – perhaps as provincial governments try and begin to recover COVID spending, seeking EHT non-compliance as an area ripe for audit.  Audits bring penalties and interest, which is usually daily compounding.  The rate in Ontario right now is 10.2%.

Worse, Ontario seems to have been following up its assessments with “search warrants” (yes, “search warrants”), aimed at obtaining Provincial Offences Act fines for things like failing to deliver Annual Returns, Monthly Statements and pay applicable Installments.  In the “worst case” this can look like a +$5 million problem (i.e., five years of non-compliance X $500 fine per day of non-compliance for each of the five missed Annual Returns X daily compounding interest). Because these fines also call for “minimum” fines, even the “best case” scenario can be $500,000 problem – WOW!

Probably not something anyone would have contemplated when first advised that the maximum EHT rate would be less than 2% of total payroll.  But now clearly a call-out for proper EHT Compliance!

Ontario Fines for Non-Delivery of Annual Returns – Fines for the non-delivery of Ontario EHT Annual Returns, which are usually due March 15^th of each year, are not less than $50 and not more than $500 for each day or part of a day on which the offence occurs or continues.

BC Fines for Non-Delivery of Annual Returns – Penalties for the repeated failure to file a BC EHT Annual Returns, which are due March 31^st of each year, can include up to 10% of the amount unpaid, and if the matter involves the making or participation in false or deceptive statements, fines of up to 200% of the applicable EHT.

The Bottom Line

Taxpayers with a less-than-stellar compliance record for Canada’s provincial EHT rules need to action that now, or risk huge problems down the road.  Most provinces will have special programs that may allow taxpayers coming forward to pay tax voluntarily and to do so with minimum penalties, and potential immunity from quasi-criminal prosecution — but only if coming forward first (i.e., before the government calls).

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