Changes effective January 1, 2019
Effective January 1, 2019, a new Employer Health Tax (EHT) is being introduced in British Columbia as part of the province’s efforts to eliminate the Medical Service Plan (MSP) premiums paid by all individual residents. The EHT involves payroll changes to employees and former employees who report to work at a permanent establishment in BC, as well as to employees who are paid through a permanent establishment in BC. It is estimated that, once the EHT is implemented, the MSP premiums will be fully eliminated by January 2020.
If you are an employer with BC remuneration greater than the $500,000 exemption amount in a calendar year, you must register for the EHT. Specific taxation rates are as follows:
- Employers with remuneration of $500,000 or less are exempt from EHT.
- Employers with remuneration between $500,001 and $1,500,000 (notch rate amount) pay a reduced tax of 2.925 percent of the portion of BC remuneration that is above the $500,000 exemption.
- Employers with remuneration greater than $1,500,000 will pay tax at 1.95 percent of total BC remuneration.
The exemption and notch rate amount are pro-rated for the number of days in the calendar year an employer is a part-year employer. The notch rate is the threshold amount where, once the total remuneration exceeds this threshold, an employer no longer will receive the reduced rate. Once an employer’s total remuneration exceeds the notch rate amount, it will be subject to the EHT on its total remuneration. Remuneration includes all payments, benefits or allowances that must be included in the income of an employee under sections 5, 6 or 7 of the Income Tax Act (Canada). Generally, when you calculate your employer health tax remuneration you include the same amounts you include when calculating your source deductions under the Income Tax Act (Canada).
The $500,000 exemption amount is shared among associated employers using modifications to the association rules found in Section 256 of the Income Tax Act (Canada). Key modifiers to the rules are that they have been extended to include individuals, partnerships and trusts. As well, where two employers that are otherwise not associated with each other are each associated with the same employer, those employers are considered to be associated with each other and cannot elect out of the association rules.
Registration and filings
Employers with remuneration above $500,000 in a calendar year must register for EHT. Registration begins on January 7, 2019 and should be completed through their eTaxBC account. Employers who are required to make installments will need to register by May 15, 2019. All other employers will need to register by December 31, 2019. The first EHT return is due on March 31, 2020 and subsequent returns will be due on March 31 of the following calendar years.
Employers owing more than $2,925 in EHT in the previous calendar year will be required to remit installment payments on June 15, September 15 and December 15 based on the lesser of 25 percent of the previous year’s tax and 25 percent of the current year’s estimated tax. Installments will also be required in the 2019 calendar year and employers can determine whether they are required to make these payments by calculating the amount of EHT that would have been payable had the tax come into effect on January 1, 2018. Payments can be remitted through eTaxBC and through your financial institution. The remaining tax payable is due with the employer health tax return by March 31 of the following calendar year.
Charitable and non-for-profit employers
Charitable employers (i.e. a charity registered with the Canada Revenue Agency) and non-for-profit employers are required to calculate the EHT for each of their qualifying locations and each qualifying location may be eligible for a $1,500,000 exemption.
If you are a charity or non-for-profit employer with BC remuneration greater than the $1,500,000 exemption in a calendar year, you must register for the employer health tax. Specific taxation rates are as follows:
- Charity or non-for-profit employers with remuneration of $1,500,000 or less are exempt from EHT.
- Charity or non-for-profit employers with remuneration between $1,500,001 and $4,500,000 (notch rate amount) per location pay a reduced tax of 2.925 percent of the portion of BC remuneration that is above the $1,500,000 exemption.
- Charity or non-for-profit employers with remuneration greater than $4,500,000 per location will pay tax at 1.95 percent of total BC remuneration.
The province of BC has issued legislation which discusses the above changes in greater detail. For further information, or to find out how these changes may affect you, contact one of our firm’s tax specialists.