B.C.'s new NDP government has proposed an Employer Health Tax (EHT) in their first budget that was released on Tuesday Feb 20, 2018. This announcement is accompanied by the proposed elimination of the Medical Services Plan premiums (MSPP) effective January 1, 2020. MSPPs are levied on individual taxpayers while the proposed EHT will be levied on a businesses' payroll. The proposed EHT is to come into effect on January 1, 2019.
How the Employer Health Tax will work
The EHT will be a tax imposed on employers based on the size of their payroll. Small businesses with an annual BC payroll of $500,000 or less will be exempt from this levy. The tax rate will start at 0.98 percent for annual payrolls in excess of $500,000 and will gradually increase to 1.95 percent for B.C. payrolls in excess of $1,500,000 per year. The chart below shows the proposed tax rates for defined payroll ranges.
| Annual BC Payroll | Annual Tax | Tax as a percent of Payroll |
|---|---|---|
| $500,000 or less | $0 | 0.00% |
| $750,000 | $7,313 | 0.98% |
| $1,000,000 | $14,625 | 1.46% |
| $1,250,000 | $21,938 | 1.76% |
| $1,500,000 | $29,950 | 1.95% |
| $29,250 plus 1.95% of payroll | ||
| over $1,500,000 | over $1.5 million | 1.95% |
Details of payment schedules will be announced with draft legislation, as well as rules for aggregating the payrolls of related businesses prior to applying the payroll ranges and tax rates.
Several provinces such as Manitoba, Ontario, Quebec and Newfoundland and Labrador levy a similar payroll tax. Each province varies in the payroll range and tax rates. For 2017, the tax rates range from a top rate of 1.95 percent in Ontario to a top rate of 4.26 percent in Quebec.
The government states that by eliminating MSPPs individuals will save up to $900 and families will save up to $1,800 per year. The BC government estimates that the MSPPs provided a total of $2.6 billion in revenue in the last fiscal year, while the new EHT is estimated to provide about $1.9 billion in revenue in the first year of implementation.
BDO can help
While very small businesses will benefit from the payroll exemption, for other businesses this tax represents another tax burden that has been transferred to businesses from individuals. Once the draft legislation has been introduced, one of our trusted Tax advisors at BDO Canada can help you to minimize the impact of this tax on your business. Learn more about BDO's Domestic Tax Services today.
The information in this publication is current as of February 26, 2018.
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