Employer Health Tax Ontario: Rules for Registered Charities

Ontario's Employer Health Tax is a payroll tax, and a registered charity with staff in Ontario is an employer like any other. What sets charities apart is an exemption that survives no matter how large the payroll grows and, for charities operating from more than one site, an exemption for each qualifying charity campus. Both are routinely underused, because they depend on registrations the charity has to make itself.

How the Employer Health Tax Works

EHT is charged on total Ontario remuneration: salaries, wages, bonuses, taxable benefits and most other amounts an employer with a permanent establishment in Ontario pays to employees who report for work there. The rate is graduated, reaching 1.95 per cent once payroll passes $400,000. Eligible employers, meaning private-sector employers with total Ontario payroll under $5 million, can claim an exemption on the first $1 million each year. The $1 million figure has been fixed by statute for 2020 through 2028, and the next scheduled inflation adjustment takes effect on January 1, 2029.

An employer whose payroll exceeds its available exemption registers for an EHT account with the Ministry of Finance and pays tax on the excess at the top rate of 1.95 per cent.

Why Registered Charities Get Special Treatment

For EHT purposes a registered charity is one registered with the CRA under the Income Tax Act. An unregistered nonprofit, and a registered Canadian amateur athletic association, do not qualify. The charity must also be an eligible employer; organizations with a municipal representative on the board, or under government control, generally are not.

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A registered charity can still be associated with another employer. What the special rules do is take its payroll out of the $5 million test the other associated employers apply, and keep its exemption separate rather than shared through the group's allocation. A charity affiliated with a hospital, a university or a corporate foundation is often folded into a group allocation by its own accountants when it should not be.

The Qualifying Charity Campus Rules

Since January 1, 2017, a registered charity with two or more qualifying charity campuses may claim an exemption amount for each one. A charity campus is a location, or set of locations, in a single building, on one property or on contiguous properties.

A place counts as a location only if it meets all four of the Ministry's criteria: it is a permanent establishment in Ontario, the charity has the exclusive right to occupy it at all times, it is used and occupied solely by the charity, and it is used and occupied for carrying out the charity's charitable activities. Space shared with other organizations, or a client's home that the charity has leased to the client, fails those tests. A campus then qualifies for its own exemption only if the charity has registered it with the Ministry of Finance, with the required documentation for each location, and only if at least one location in the campus is publicly advertised. A campus that is not advertised still qualifies if one of its locations is an emergency shelter, a group home or an intensive support residence.

The exemption for each campus is the lesser of the payroll of employees who report for work there and the $1 million exemption, prorated for the days the campus qualified. A charity with a head office paying $1.3 million and a second site paying $600,000 claims $1 million for the first and $600,000 for the second, and pays tax on $300,000. Without the campus registration it has one $1 million exemption and pays tax on $900,000.

Registration, Instalments and the Annual Return

A charity registers for an EHT account once its Ontario payroll exceeds the exemption it can claim, and registers each qualifying campus separately with the Ministry. Employers with Ontario payroll over $1.2 million remit monthly instalments by the 15th of the following month. Every employer that owes tax, and every employer the Ministry sends a return to, files an annual return by March 15 of the following year reconciling instalments with the tax owed. A registered charity has a further obligation: since January 1, 2017 it must file an EHT annual return for each qualifying charity campus every year. The tax rate is set by the combined Ontario payroll of all its campuses before any exemption is taken.

Our post on the required government filings for an Ontario nonprofit lays out the full calendar, and our ONCA resources cover the corporate side for Ontario-incorporated charities.

The Mistakes We See

Four come up repeatedly. A charity assumes charitable status means no EHT at all, and meets the tax on the excess above $1 million during an audit. A charity with three sites never registers them as campuses and claims one exemption instead of three. A nonprofit that is not a registered charity claims the charity rules; our guide on how to register a nonprofit in Ontario explains the difference. And a charity is folded into a group's exemption allocation when it should stand alone.

If your charity has Ontario payroll approaching $1 million, operates from more than one location, or is affiliated with a larger organization, we can review your EHT position and register the campuses you are entitled to. Call us at 416-488-5888, email us at ask@charitylawgroup.ca, or schedule a free meeting with our legal team. Our Toronto and Ontario charity lawyers work with charities across the province on provincial compliance.

Frequently Asked Questions

Here are answers to the questions we hear most often about the Employer Health Tax.

Are registered charities exempt from the Employer Health Tax?

Not entirely. A registered charity claims the $1 million exemption regardless of payroll size, and one exemption per qualifying campus, but pays EHT on Ontario remuneration above its total exemption.

What is a qualifying charity campus?

A location or group of locations in one building or on contiguous land where the charity's employees report for work, registered with the Ministry of Finance, and either publicly advertised or housing an emergency shelter, group home or intensive support residence.

When is the EHT annual return due?

March 15 of the year following the tax year. Employers with payroll over $1.2 million also remit monthly instalments during the year.

This article provides general information about Ontario's Employer Health Tax and is not legal advice. Speak with a charity lawyer about your organization's specific circumstances.

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