What is Employer Health Tax and does it change when I buy?

EHT rarely features in purchase negotiations and it changes the operating cost of a business after closing. For a buyer who already owns one Ontario employer, the acquisition can increase the tax payable on a payroll that has not changed at all.

How the tax works

It is levied on total Ontario remuneration paid by an employer, with an exemption amount that shelters the first tranche of payroll and a rate applied above it. A small employer below the threshold may pay nothing. The obligation sits with the employer, not the employee, and is separate from payroll deductions remitted to the CRA.

Association is the trap

Associated employers are entitled to one exemption between them, allocated among the group. A buyer who owns an existing Ontario business and acquires another may find both are associated for this purpose, so the two payrolls draw on a single exemption rather than one each. Nothing about either business changed; the group position did.

Share purchase versus asset purchase

In a share purchase the corporation continues as the registered employer with its own account and filing history. In an asset purchase the buyer is the employer for remuneration it pays from closing, and the seller remains responsible for its own period. Either way, the association question looks at the group — which is why it is a planning point rather than a transaction mechanic.

Model it before you commit

Work out the EHT payable on the combined payroll after acquisition, not the figure in the target’s historical statements. On a labour-intensive business the difference between one exemption and two is a real annual cost, and it belongs in the model alongside the purchase price rather than discovered at the first filing.