British Columbia Budget 2018 included the announcement of a new payroll tax called the Employer Health Tax (the “EHT”). While legislation and full details on the EHT are expected to be released in the fall of 2018, the BC Government has released preliminary details about the EHT. The EHT is expected to come into effect on January 1, 2019; employers should be aware that the EHT may result in a significant new tax liability for 2019 and future years.

The EHT is intended to replace the existing Medical Services Plan (“MSP”) premiums, which will be phased out on January 1, 2020. Both the EHT (paid by employers) and the MSP (paid by individuals or, in some cases, their employers) will be in effect during the 2019 year.

Who will the EHT apply to and what are the filing requirements?

• The EHT will generally apply to employers with an annual “BC payroll” in excess of $500,000 determined on a calendar year basis. The EHT will apply to BC Payroll, which is:
  payments to employees who report to work at a permanent establishment of the employer in British Columbia, and
• payments to employees who do not report to work at a permanent establishment of the employer, but are paid from or through a permanent establishment in British Columbia.

BC payroll does not include any payment to employees who report for work at a permanent establishment of an employer that is outside British Columbia.

Employers who are liable for the EHT will be required to file an annual online EHT return; the first return will be for the 2019 year and the filing deadline for that 2019 year return will be March 31, 2020. Employers with BC payroll in excess of $600,000 will be required to make quarterly instalment payments.

Special rules and limits apply to registered charities and not-for-profit employers (see below).

How will my EHT liability be calculated?

Generally, employers with BC payroll between $500,000 and $1,500,000 will be required to pay the EHT at a rate of 2.925% on BC payroll in excess of $500,000. For example, an employer with an annual BC payroll of $1,000,000 in 2019 will calculate their EHT liability as follows:

2.925% x ($1,000,000 – $500,000) = $ 14,625.

For employers with BC payroll in excess of $1,500,000, EHT will apply to the entire BC payroll at a rate of 1.95%. For example, an employer with an annual BC payroll of $2,000,000 will calculate their EHT liability as follows:

1.95% x $2,000,000 = $ 39,000.

Employers with an annual BC payroll below $500,000 will not be liable for the EHT and will not need to file an annual EHT return. The information released by the Government to date does not describe how the BC payroll of related or associated companies will be aggregated for the threshold exemptions.

Special rules and limits will apply to the calculation of EHT for charities and not-for-profit employers.

Registered charities and not-for-profit employers

For registered charities and not-for-profit employers with BC payroll, the basic exemption limit is increased to $1,500,000. For organizations with multiple locations, this limit is applied on a location-by-location basis such that EHT will not apply to locations with BC payroll below $1,500,000.

A registered charity or not-for-profit employer with an annual BC payroll of $2,000,000 in 2019 will calculate their EHT liability as follows:

2.925% x ($2,000,000 – $1,500,000) = $ 14,625

For registered charities and not-for-profit employers with BC payroll in excess of $4,500,000, EHT will apply to the entire BC payroll at a rate of 1.95%. For example, an employer with BC payroll of $5,000,000 will calculate their EHT liability as follows:

1.95% x $5,000,000 = $ 97,500

Charities and not-for-profit employers with BC payroll in excess of $1,600,000 at a single location will be required to make quarterly instalment payments.

Conclusion

Employers with BC payroll should be aware that the introduction of the EHT may result in a significant new tax liability for 2019 and future years. EHT may impact various important business decisions such as:

• timing and form of compensation to employees and shareholders
• employee vs. contractor relationships
• incorporation of an existing sole proprietorship or partnership business

More information from the Government of British Columbia on the EHT can be found here.

The determination of BC payroll can be complex. Once the legislation is released, we will be available to provide advice on all matters pertaining to the EHT, including the calculation of your business’s BC payroll amount and EHT remittance and tax return filing requirements.

Please contact your advisor at D&H Group LLP if you have any questions about the new EHT.