The year 2018 saw a number of policy changes impacting Canadian businesses and individuals (read more about those here), but one new tax imposed on British Columbian businesses deserves closer scrutiny: the new “employer health tax” (or “EHT”).
Employer Health Tax – What is it?
Our provincial government has decided to transfer the burden of paying MSP health premiums from individuals to businesses, by way of a new payroll tax (the EHT). This new tax comes into effect on January 1, 2019.
Who is Impacted?
Any employer (including proprietorships, corporations, partnerships, trusts, and governments) with a payroll greater than $500,000 in any calendar year will have to pay EHT (note that the payroll threshold for charitable or non-profit employers is $1,500,000 in any calendar year).
How Does it Work?
- Employers with remuneration of $500,000 or less in a calendar year don’t pay the EHT ($1,500,000 for charities and non-profit employers)
- Employers with remuneration of $500,001 – $1,500,000 pay the EHT at a rate of 2.925% on amounts over the $500,000 exemption threshold
- 2.925% x ($Remuneration – $500,000)
- Employers with remuneration greater than $1,500,000 pay the EHT at a rate of 1.95% on the full amount of their payroll
- 1.95% x $Remuneration
How Much Will This Cost?
Employers in the second group above will pay $292.50 for each $10,000 of payroll in excess of the $500,000 exemption. Using an employer with $1,000,000 of annual payroll as an example:
- 2.925% x ($1,000,000 – $500,000) = $14,625 of EHT
Employers with payroll in excess of $1,500,000 will pay $195 for each $10,000 of payroll. Using an employer with $2,000,000 of annual payroll as an example:
- 1.95% x $2,000,000 = $39,000 of EHT
Are Dividends Included in the Calculation of EHT?
No, dividends paid to shareholders (i.e. owner/managers) are not included in the calculation of EHT.
How do I Register?
Employers who exceed the $500,000 threshold are required to register for an EHT account using the government’s eTaxBC online service.
The deadline to register is May 15, 2019 for employers who will have instalment requirements in the year (any employer with $600,000 or more in payroll for the year will have to pay instalments); employers with payroll in the $500,000 – $600,000 range must register by December 31, 2019.
How and When Do I File an EHT Return?
Employers must file an annual EHT return with the B.C. Government by March 31 of each year, using the eTaxBC online service. Any outstanding amounts owing will be due at that time.
This new tax will add significant operating costs and an additional administrative burden not only to medium and large businesses but also to the provincial government: with almost $20 billion in payroll costs in 2018, the B.C. government faces an annual EHT expense of almost $400 million.
Time will tell if the new scheme improves upon the old MSP system, but near-term confusion is virtually guaranteed. Further details of the new tax can be found on the B.C. Government website here, but feel free to contact us directly if you would like to discuss how the new tax will affect you and your business.