Ontario EHT exemption: $1 million, shared by associated employers

How much EHT does the $1 million exemption save?

As of October 2026, an eligible employer pays no EHT on the first $1 million of its total Ontario remuneration for the year, as long as that payroll is not over $5 million ontario.ca. The amount was $450,000 for 2014 to 2018 and $490,000 for 2019, rose to $1 million for 2020 and was made permanent in 2021. Ontario adjusts it for inflation every five years, and the next adjustment was pushed from 2024 to January 1, 2029 ontario.ca.

The rate comes from payroll before the exemption is taken off, then applies only to the part above the exemption ontario.ca.

A standalone eligible employer that owes EHT after the full exemption has payroll over $1 million, so it sits in the 1.95% band. The exemption is worth up to $19,500 a year ($1,000,000 at 1.95%). A client with $1,800,000 of Ontario payroll pays 1.95% on $800,000: $15,600.

What the $5 million cutoff costs an employer that crosses it

The cutoff is a cliff, not a phaseout. An employer with Ontario payroll over $5 million can't claim any exemption, and neither can any member of an associated group whose combined Ontario payroll is over $5 million ontario.ca.

Going from $4.9 million to $5.1 million of payroll adds $200,000 of wages and $23,400 of EHT. If a client expects to cross the line, Ontario says not to claim the exemption on instalments at all. If it crosses partway through the year, it raises its instalments from the following month until the exemption already claimed is paid back ontario.ca.

Registered charities are the exception: a charity that is an eligible employer keeps the exemption even with payroll over $5 million, and claims it per qualifying campus ontario.ca. A non profit that is not a registered charity loses it above $5 million like any other employer.

Which employers count as associated for EHT?

EHT borrows the associated corporation rules in s.256 of the federal Income Tax Act and extends them to individuals, partnerships and trusts, each treated as a corporation with one class of voting shares. A sole proprietor owns all the shares of the business, and partners or trust beneficiaries own shares in proportion to their share of income or loss ontario.ca. For the five s.256(1) tests themselves, see associated corporations.

Two differences from federal practice catch accountants. The federal election to opt out of association for the small business deduction does not apply to EHT, so a client can't elect its way into a second exemption. And employers associated at any time in the year are associated for the whole year, so a company bought on April 1 joins the buyer's group for all of that year ontario.ca.

Ontario's own rulings follow the federal tests closely. In one, an individual who owned 51% of a company was held to control it even though the minority owner made every decision, so it was associated with his other company. In another, spouses who each owned 100% of a separate company were not associated by share ownership, with control in fact left to an audit ontario.ca.

Acquisitions changed in 2025. Until December 31, 2024, the buyer's and seller's groups combined payrolls in the year of sale. From January 1, 2025, only employers actually associated with each other that year combine, which can mean two allocation forms with an overlapping claim for the company sold ontario.ca.

How should an associated group split the exemption?

The group gets one $1 million exemption, shared under an allocation agreement, and no member can claim more than its allocated share. Each member's rate is still set by its own Ontario payroll, not the group total ontario.ca. That second rule is where the allocation choice saves money.

Worked example: Aco has $2,400,000 of Ontario payroll, Bco $600,000 and Cco $300,000. The group total is $3,300,000, under $5 million, so the group has $1,000,000 to share. Aco and Bco pay 1.95%; Cco, at $300,000, pays 1.465%.

Plan 2 looks tidy because two companies owe nothing, but it costs $1,455 more: every exemption dollar given to Cco saves 1.465% instead of 1.95%, and $300,000 at the 0.485 point gap is $1,455. Put the exemption on members in the 1.95% band first.

How is the exemption prorated for a part year member?

A member that started or stopped operating, amalgamated or went bankrupt during the year prorates both the exemption and the $5 million threshold by its days as an eligible employer with an Ontario permanent establishment. The group threshold follows the member with the most eligible days, and the group total can never exceed $1 million ontario.ca.

These caps limit what each part year member can take; they don't add a second exemption. A member that ceases operations can't claim on its final return, but if the group allocates it a share after year end, it can file an amended return ontario.ca.

Why one missing name on Form 013-2262 voids the whole group's exemption

One member files the Associated Employers Exemption Allocation form (013-2262) for the group by the annual return due date of March 15 forms.mgcs.gov.on.ca. It lists every member, including members with no allocation and no payroll. If any associated employer is left off, or the form isn't sent, the entire group is denied the exemption ontario.ca.

Small members still file. A member of an associated group whose combined Ontario payroll is over the exemption amount must file an annual return, even if its own payroll is tiny ontario.ca. Due dates and instalments are on the EHT annual return page.

During the year, members claim their share by holding back instalments: none are due until year to date remuneration passes the allocated exemption. Don't claim it on instalments if the group will be over $5 million, or if no member operated the full year, because the prorated amount is worked out at year end ontario.ca. Employers that claimed on instalments before becoming associated must catch up on the next instalment due date to avoid penalties and interest ontario.ca.