15 Nov New Employer Health Tax
By Grant T. Smith
I want to speak to you about the forthcoming changes to BC’s medical service plan because the plan changes the new Employer Health Tax (“EHT”) and the changes happen on January 1, 2019.
This is coming and it affects your business. It is time to investigate so you are prepared for January.
What is it?
The EHT is a health tax paid by employers and based on the size of payroll paid to employees, or former employees, in a calendar year.
Who has to register?
- Employers with BC remuneration greater than $500,000
- Employers include: individuals, corporations, partnerships, trusts and governments
- If you are associated with other employers, the exemption amount is shared
- Non-profit and registered charitable employers with remuneration greater than $1,500,000
- Employers with BC remuneration of less than $500,000 do not pay the tax and need not register
What is the applicable tax rate?
- For remuneration between $500,00.01 and $1,500,000 you pay the “reduced rate” calculated as:
- 2.925% x (Your total BC remuneration – $500,000)
- the reduction is to remove the exempt amount
- If your BC remuneration is greater than $1,500,000 the tax is calculated as:
- 1.95% x your total BC remuneration
Let us test the calculations to see how they apply, and I will use four different amounts of remuneration. I will choose levels that test the fairness of the transition amounts.
- Small employer whose payroll is $500,000
- Midsize employer whose payroll is $500,100
- Larger midsize whose payroll is $1,500,000
- Large employer whose payroll is 1,500,100
|BC Remuneration||Rate||Tax Payable|
|$500,100||2.925% x (500,100 – 500,000)||$2.93|
|$1,500,000||2.925% x (1,500,000 – 500,000)||$29,250.00|
|$1,500,100||1.95% x (1,500,100)||$29,250.00|
This simple test suggests the formulas used are consistent and fair, so far as the calculation goes.
How to register
- You register by using eTaxBC. They tell me the registration process will take between 10 and 20 minutes. Good luck.
- If you must pay an instalment for the health employment tax in the calendar year 2019 (more on this below), registration is required by May 15, 2019. All other employers who must register, have until 31 December 2019. For clarity, do not register if your BC remuneration is below $500,000.
- Instalments are required for employers who have BC remuneration over $600,000 and the first instalment will be due June 15 2019.
- The instalment amount (which assumes that act was in force for 2018) is the lesser of:
- 25% of what would have been the previous year’s tax,
- 25% of the estimated tax for 2019.
What parts of payroll are subject to EHT?
When you calculate Remuneration for EHT, include:
- Salaries and wages
- Bonuses, commissions and other similar payments
- Advances of salaries and wages
- Vacation pay
- Gratuities or tips paid through an employer
- Other taxable allowances and benefits paid to or on behalf of an employee
- Directors’ fees
- Amounts paid by an employer to top up benefits (e.g. maternity or paternity leave)
- Stock option benefits
- Employer-paid contributions to an employee’s Registered Retirement Savings Plan (RRSP)
- Employer-paid group life insurance premiums
- Employer-paid contributions to employee trusts and employee profit sharing plans
When you calculate Remuneration for EHT, exclude:
- Employer-paid contributions or premiums to
- Registered pension plan
- Private health services plan
- Supplementary unemployment benefit plan
- Deferred profit sharing plan
- Retirement compensation arrangement
- Pensions, annuities or superannuation benefits paid by employers to a retired employee
- Contributions by an employer to a plan or trust if the value of the employer’s contribution has already been included as remuneration
- Remuneration paid by employers who are status First Nations individuals carrying on business situated on a reserve
- Remuneration paid to status First Nations individuals working for a business situated on a reserve
Wow, that is a lot of information. So, how can Clearline help?
- We can help you understand anything that is unclear, like “association”.
- We can help you plan to minimize the impact on your business.
- We can help you with registration and to ensure that you stay compliant with new taxes.