Tax Alert—B.C. Employer Health Tax: Effective January 1, 2019

January 09, 2019


British Columbia’s Bill 44, Budget Measures Implementation (Employer Health Tax) Act, 2018, received Royal Assent on November 8, 2018. As a result of passing the bill into law, the Employer Health Tax (EHT) took effect January 1, 2019 and registration for the EHT is now open.

The EHT is a new annual employer payroll tax introduced to replace Medical Services Plan premiums. B.C.’s NDP government proposed the tax in the February 2018 Budget and further implementation details were released in July 2018. Bill 44 provides final implementation details, which include defining key terms (such as ‘B.C. remuneration’ and ‘permanent establishment’), clarifying treatment under special circumstances (e.g., non-resident employers, employers with payroll in more than one province, associated employers), outlining administration and enforcement rules, and providing an appeals process.

Employers other than charitable or non-profit employers (including associated employers)

The EHT applies to employers who pay B.C. remuneration in excess of $500,000 during a calendar year. If the B.C. remuneration is:

  • $500,000 (exemption amount) or less during a calendar year, no EHT is payable by the employer for that calendar year
  • Greater than $500,000 and not more than $1,500,000 (notch rate amount) during a calendar year, the employer must pay EHT equal to 2.925% of the amount by which the B.C. remuneration exceeds $500,000
  • Greater than $1,500,000 during a calendar year, the employer must pay EHT equal to 1.95% of the total B.C. remuneration paid by the employer during the calendar year

For an employer who has a permanent establishment in B.C. for only part of the calendar year, both the exemption amount and the notch rate amount must be prorated.

Where employers are associated with one another at the end of the calendar year, the $500,000 exemption amount must be shared between the entire associated group. However, it is possible to choose the allocation of the exemption amount between associated employers in the group. If the B.C. remuneration of the associated group is greater than $1,500,000, the $500,000 exemption is not available, and each employer in the group pays 1.95% of the respective employer’s B.C. remuneration.

The definition of an associated group applies Section 256 of the Canadian Income Tax Act (ITA) with modifications that extend association rules to include individuals, partnerships, and trusts by deeming them to be a corporation with one class of voting shares and deeming share ownership as follows:

  • Sole proprietors—the individual owns all the shares of the corporation
  • Partnerships—each partner owns shares in the same proportion in which he or she shares the income or loss of the partnership
  • Trusts—each beneficiary owns shares in the same proportion in which he or she shares the income or loss of the trust

In cases where the modified rules associate an employer with a charitable or non-profit employer, the employer is not required to share the exemption with the charitable or non-profit employer.

Unlike the ITA, which allows corporations to elect out of the association rules in certain circumstances, employers cannot elect out of association rules for EHT purposes.

The associated employer rules also include an anti-avoidance rule to deem employers to be associated with each other at the end of the calendar year where it is reasonably considered that either the separate existence of two or more employers at the end of the calendar year or the transfer of a business in whole or in part from one employer to another employer in a calendar year was undertaken or arranged primarily for the purpose of reducing the amount of EHT by any one of the employers for the calendar year.

The EHT is deductible from business income for income tax purposes.

B.C. remuneration

B.C. remuneration includes all remuneration paid by the employer to:

  • its employees who report for work at a permanent establishment of the employer in B.C.;
  • its employees who do not report for work at a permanent establishment of the employer, if the remuneration is paid from or through a permanent establishment of the employer in B.C.; and
  • any of its former employees who, when last employed by the employer, either reported for work at a permanent establishment of the employer in B.C., or did not report for work at a permanent establishment of the employer but were paid from or through a permanent establishment of the employer in B.C.

Where an employee reports for work at a permanent establishment of the employer in B.C. and also outside of B.C. at any time during a calendar year, all remuneration paid to the employee during the calendar year is regarded as B.C. remuneration.

However, if the commissioner is satisfied that an employee reported for work at a permanent establishment of an employer outside B.C. for all or substantially all of the calendar year, none of the remuneration paid to the employee is regarded as B.C. remuneration for that calendar year.


Generally, remuneration includes all payments, benefits, and allowances received or deemed to be received by an individual that are required under sections 5, 6, or 7 of the ITA, or would be required if the individual were resident of Canada. Without limitation, these include salaries and wages, bonuses, taxable benefits, commissions, stock option benefits, and other similar amounts. For a definitive determination of items included in employment income, consult the ITA. The Canada Revenue Agency (CRA) Employer’s Guide–Payroll Deductions and Remittances is also a good source of information.

Remuneration paid by employers who are status First Nations individuals carrying on business on a reserve is not subject to the EHT. Remuneration paid to status First Nation individuals working for a business situated on a reserve is also excluded from the EHT.

Reporting for work at permanent establishment

An employee reports for work at a permanent establishment of the employer if the employee comes to the permanent establishment in person to work or otherwise can reasonably be considered to be attached to the permanent establishment.

Permanent establishment

Generally, an employer’s permanent establishment is any fixed place of business, including, without limitation, an office, agency, branch, factory, farm, gas or oil well, mine, timberland, warehouse, or workshop.

The final legislation also includes a detailed list of deeming provisions for permanent establishments. Many of the provisions for B.C. EHT purposes are similar to B.C.’s definition of permanent establishment for the allocation of provincial income for income tax purposes; however, there are differences that could broaden the scope of taxation for EHT purposes.

Under the deeming rules, a permanent establishment could be:

  • The place designated in the corporation’s charter, articles of incorporation, constitution, or bylaws as being its head office or registered office
  • The jurisdiction where the employer carries on business through an employee or agent having general authority to contract for that employer
  • The jurisdiction where the employee or agent of the employer has a stock of merchandise owned by that employer and fills orders received by the employee or agent from the stock of merchandise
  • Land or premises owned or leased by the employer
  • The place where and during the time when the employer uses substantial machinery or equipment;
  • In the case of an insurance corporation, each jurisdiction in which the corporation is registered or licensed to do business
  • Where the employer does not otherwise carry on business in Canada in the calendar year, any place where the employer produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves, processes, or constructs, in whole or in part, any thing in Canada, whether or not the employer exports that thing before selling it
  • Where the employer has no fixed place of business, the principal place in which the employer conducts business, and in each place from which the employer carries on or transacts a substantial portion of the business

Non-resident employers

The final rules provide guidance for “non-resident employers” (employers without a deemed permanent establishment in B.C.) who send their employees to provide services in B.C. under an agreement for the benefit of a B.C. resident person. For the period services are provided in B.C., such employees will be deemed to report for work at a permanent establishment of the B.C. resident and deemed to be employed by that B.C. resident. For the period, the B.C. resident will also be deemed to have paid remuneration to the employee in an amount equal to the remuneration paid by the non-resident employer to the employee in respect of the services provided by the employee for the benefit of the B.C. resident. The employee’s remuneration will be regarded as B.C. remuneration, unless it can be supported that an employee is reporting for work at a permanent establishment of the employer outside B.C. for all or substantially all of the calendar year.

Note that non-resident employers include out-of-province employers as well as out-of-country employers.

Charitable or non-profit employers

Special rules apply to charitable and non-profit organizations. EHT for these organizations is calculated on a by-location basis. Each qualifying location is eligible for a $1,500,000 exemption.

For each qualifying location with B.C. remuneration:

  • Of $1,500,000 (exemption amount) or less, the EHT for the location will be zero
  • Greater than $1,500,000 and not more than $4,500,000 (notch rate amount), the EHT for the location will be calculated as 2.925% x (total payroll for the location - $1,500,000)
  • Greater than $4,500,000, the EHT will be calculated as 1.95% x (total payroll for the location)

Both the exemption amount and the notch rate amount must be prorated for an employer who has a permanent establishment for only part of the calendar year.

The EHT Act provides further details on qualifying locations and B.C. remuneration for charitable or non-profit employers.

A charitable or non-profit employer does not include an organization within the government reporting entity as defined in the Budget Transparency and Accountability Act.


Employers subject to EHT are required to file and pay their EHT online using eTaxBC. Registration is now open to receive an EHT account number and must be completed by May 15, 2019, if instalments are required in 2019; otherwise by December 31 of the first year in which the liability arises.

Employers with an EHT liability of more than $2,925 for the previous year are required to make instalment payments on June 15, September 15, and December 15 each year, based on the lesser of:

  • 25% of the previous year’s tax; or
  • 25% of the current year’s estimated tax.

For 2019, instalments are required if the above threshold is likely to be met for the 2019 calendar year, with the first instalment due June 15, 2019. Employers will need to file their annual EHT return and pay any balance due by March 31 in the year following the calendar year.

If an employer ceases to have a permanent establishment in B.C., the annual return should be filed within 90 days of that date.

Penalties can be charged for failure to file a return by the due date, calculated as 5% of the EHT outstanding on the due date, plus an additional 1% for every month that the return is late. Penalties may also be imposed for repeated failure to file a tax return, failure to provide information and/or records, interfering with inspection or audit, and/or gross negligence.

Interest may be imposed on penalties, unpaid instalments, unpaid taxes, and/or excess refunds.

Our comments

The B.C. EHT imposes another tax on affected B.C. businesses. Many businesses voiced concerns to the B.C. government about the impact of the EHT on B.C.’s tax competitiveness. However, through the passing of Bill 44, the government has effectively moved ahead with plans to replace Medical Services Plan premiums with the EHT.

Although the EHT rate is capped at 1.95%, the remuneration subject to the tax is not capped, which could represent a significant cost for affected companies as their B.C. remuneration increases. And, though the EHT will not apply to employers with payrolls below the $500,000 threshold ($1,500,000 for charitable or non-profit employers), this threshold is arguably low, which will impact many small businesses. Managing costs and identifying cost-saving opportunities will therefore be a must for business owners.

While hiring independent contractors could reduce payroll costs, businesses should be aware that the commissioner may deny any resulting tax benefit should the transaction be considered an avoidance transaction. Hiring contractors should be arranged for bona-fide purposes other than to obtain a tax benefit, and independent contractor/employee criteria should be carefully reviewed to reflect the proper characterization of worker status.

For private companies, shareholders may want to consider paying dividends and reducing employment remuneration. However, due to the interplay of factors such as CPP, RRSP, and new income-splitting rules, any changes in shareholder remuneration strategy should be discussed with your BDO tax advisor.

Where companies do business outside of B.C., revisiting the organization’s global and national payroll and service delivery models for mobile employees could also help reduce costs. For companies with inbound international assignees to B.C. and/or with assignees from other provinces to B.C., the EHT may increase total assignment costs—B.C., Canadian, and foreign employers should review the impact the EHT will have on its global mobility programs.

While Bill 44 provides detailed implementation guidelines, more clarification will likely be needed. Employers may ask the B.C. Ministry of Finance for a technical interpretation for further guidance.

Take action

Additional clarifications included in the final legislation provide little relief from the EHT for B.C. employers. Companies should:

  • Familiarize themselves with the new B.C. EHT rules
  • Review and assess what the impact will be on their business, including revisiting their payroll and service delivery models, so that they can make plans and adjust
  • Plan for their upcoming EHT liability, register with the eTaxBC service, make instalments during the year (if required), file the annual return, and pay any remaining balance due by March 31 of the following year

BDO can help

Please contact us today for a deeper discussion on the B.C. EHT, and for practical assistance with registration and instalment payments.

Partner, Expatriate Tax Services & Leader, Immigration Services

Partner, Canadian Tax

The information in this publication is current as of January 8, 2018.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.