Organizations with British Columbia (BC) remuneration have started calculating—and, in some cases, paying— the province’s new Employer Health Tax (EHT), which became effective January 1, 2019. The EHT in BC is part of the provincial government’s efforts to phase out Medical Services Plan (MSP) premiums, shifting some of the burden of subsidizing the provincial healthcare system from individuals to employers. MSP premiums were reduced by 50 per cent for 2018 and 2019 calendar years, and will be eliminated by 2020. As a result, employers who pay MSP premiums for employees and their families will have to pay both the EHT and MSP (at the 50 per cent reduced rate) premiums in 2019.
Who Has to Pay The BC EHT?
The BC EHT applies to employers with BC remuneration over the threshold of $500,000 for regular employers or $1,500,000 for charitable and non-profit organizations.
To calculate the BC EHT, use the total of all assessable remuneration paid to employees and former employees, i.e., taxable income under sections 5, 6 and 7 of the Income Tax Act:
- who report for work at the employer’s permanent establishment or physical locations in BC; and
- who are not required to report to work at a permanent establishment or physical location of the employer but are paid from or through a permanent establishment in BC.
This brings up the question of province of employment for employers that operate in multiple jurisdictions. Use the following criteria to determine the remuneration of which employees should be included in your calculations:
- When an employee is required to physically report to work at the employer’s permanent or deemed establishment, the employee’s province of employment is the province where that establishment is located.
- When an employee is not required to physically report to work at the employer’s permanent or deemed establishment (for example, remote worker according to the employment
contract), and the employee does not have the authority to contract on behalf of the employer, then the employee’s province of employment is the province where the business is located and from where their salary is paid.
- Where the employee’s reporting manager is located has no impact on determining where the employee reports to work, the permanent establishment or the province of taxation.
- The province of residence (where the employee resides) is not a factor in determining the province of employment.
- The location from where a third-party service provider processes the employer’s payroll is not a factor in determining the province of employment.
For example, Charles works from his own home in the province of Alberta and does not physically report to work at an establishment of the employer. If the payroll department is in BC, Charles would be treated as a BC employee for the purpose of calculating income taxes as well as his remuneration included in the employer’s liability towards the BC EHT. Although the CRA will reconcile the income taxes paid when Charles files his personal income tax return as a resident of Alberta, no reconciliation would be made for any employer taxes.
What are the Rates?
- Regular Employers The taxation rates for regular employers with BC remuneration are as follows:
- $500,000 or less do not pay the EHT.
- Between $500,000.01 and $1,500,000 (notch rate amount) pay the tax as calculated: 2.925% x (BC remuneration – $500,000)
- Greater than $1,500,000 pay the tax as calculated: 1.95% x total BC remuneration If you are associated with other employers and the combined BC remuneration of the associated employers is between $500,000.01 and $1,500,000, you must share the $500,000 exemption.
If the combined BC remuneration of the associated employers is greater than $1,500,000, there is no exemption available to any of the employers.
If you are an employer with a permanent establishment in BC for only part of the calendar year, you must prorate the exemption and notch rate amounts.
- To prorate the exemption amount: $500,000 x number of days with a permanent establishment in BC / 365 days
- To prorate the notch rate amount: $1,500,000 x number of days with a permanent establishment in BC / 365 days For more information, see the EHT overview from the Government of BC: https://www2.gov.bc.ca/gov/content/taxes/employer-health-tax/employer-health-tax-overview.
Charitable or Non-Profit Employers
The taxation rate for charitable or non-profit employers with BC remuneration are as follows:
- $1,500,000 (exemption amount) or less do not pay the EHT
- Between $1,500,000.01 and $4,500,000 (notch rate amount) pay the tax as calculated: 2.925% x (BC remuneration – $1,500,000)
- Greater than $4,500,000 pay the tax as calculated: 1.95% x total BC remuneration
The exemption amount is prorated, for a period in a calendar year, if you don’t have a permanent establishment in B.C.
Note: Employers associated with a charitable or non-profit employer are not required to share the exemption with the charitable or non-profit employer.
For more information, see the EHT for Charitable or NonProfit Employers from the Government of BC: https://www2.gov.bc.ca/gov/content/taxes/employer-health-tax/employer-health-tax-overview/eht-charitable-nonprofit
BC EHT Calculator
To help you estimate the EHT applicable to your organization, the Government of BC provides a free calculator: https:// forms.gov.bc.ca/taxes/employer-health-tax-calculator/
How Do You Register?
Employers with remuneration above $500,000 in a calendar year must register for EHT through their eTaxBC account. If you are an employer that must make instalments, you must register by May 15, 2019. All other employers will need to register by December 31, 2019.
The first instalment due date is June 15, 2019. You are required to pay instalments if the EHT amount you must pay was greater than $2,925 for the previous calendar year. Instalment payments are required in the 2019 calendar year, based on the amount of tax that would have been payable if the EHT were in force January 1, 2018.
Here are some resources to help:
- See the EHT Overview from the Government of BC, which includes examples and links to further resources: https://www2.gov.bc.ca/gov/content/taxes/employer-health-tax/employer-health-tax-overview
- Watch the archived version of the Canadian Payroll Association’s webinar on the BC EHT: payroll.ca/learning
- Contact Canadian Payroll Association’s Payroll InfoLine (members only): InfoLine@payroll.ca
Need Help With Your Payroll Solution?
Need help making these changes to your payroll system? Contact Accsys Solutions. We are happy to help!
This article is an an excerpt from Dialogue Magazine, which is received by members of the Canadian Payroll Association.