Individuals Say Goodbye to MSP, but Businesses Say Hello to EHT
On January 1, 2019, British Columbia implemented its Employer Health Tax (EHT) as part of the province’s efforts to eliminate Medical Service Plan (MSP) premiums. Employers with annual BC remuneration exceeding CAD $500,000, and charities and not-for-profit organizations (NPOS) with annual BC remuneration exceeding CAD $1,500,000 are subject to EHT. Unlike the MSP, where employers could opt to pay their employees’ premiums, the EHT is mandatory for all employers who do not meet the exemption criteria. It is also important to note that unlike Canadian corporate income tax, EHT is not based on the profitability of the employer. As a result, in years that the business incurs losses and has BC remuneration in excess of CAD $500,000, it is still expected to pay EHT.
Income of employees and former employees who either work for, or are paid through, a permanent establishment in BC is subject to EHT. This tax applies to all payments, benefits or allowances that must be included in the income of an employee under the Income Tax Act. However, certain employer paid contributions, such as registered pension plans and deferred profit sharing plans, will not be subject to EHT. The following tables provide the EHT rates that would apply for employers with BC remuneration and for charities and NPOS.
Regardless of a business that is carried on through a partnership, corporation, trust, or government, if the business pays BC remuneration during a calendar year that exceeds CAD $500,000 then the remuneration paid to its employees is expected to be subject to the EHT. If an individual is self-employed and carries on their business as a sole proprietor, any profits earned through the operation of the business should not be subject to the EHT. Independent contractors that are hired by a business are not employees of the business and therefore amounts paid to independent contractors will not be subject to the EHT. However, whether an individual is an employee or an independent contractor is a question of fact that should be determined based on precedent of court cases. Employers with BC remuneration greater than CAD $500,000 but under CAD $600,000 and charities and NPOS with BC remuneration greater than CAD $1.5 million but less than CAD $1.6 million for calendar year 2018 were required to register by December 31, 2019 and file and pay the EHT via one annual payment through the employer’s etaxbc account.
Employers with BC remuneration greater than CAD $600,000 and Charities and NPOS with BC remuneration greater than CAD $1.6 million for calendar year 2018 were also required to make quarterly instalment payments by June 15th, September 15th, and December 15th, 2019, and March 31st, 2020. These employers should have registered by May 15, 2019. The 2019 EHT return is due by March 31, 2020.
Given the Canadian federal income tax changes targeting private businesses in recent years, it is even more important for companies impacted by these rules to consider the changing Canadian tax environment on their compensation strategies.