The 2018 provincial budget announced the elimination of medical service plan premiums and the establishment of a new tax known as the Employer Health Tax (“Health Tax”), which will go into effect on January 1, 2019. Once the Health Tax comes into place the provincial government expects to generate $1.9 billion of revenue annually. Below is a discussion of this Health Tax and what it could mean for your business.

Analysis

The Health Tax applies to all businesses (partnerships, corporations and other entities) who have B.C. payroll which is defined to include:

• Any payment to employees who report to work at a permanent establishment of their employer in B.C.; and
• Any payment to employees who do not report to work at a PE of their employer in B.C. but are paid from or through a P.E. in B.C.

Furthermore, payroll used in the Health Tax calculation will include employment income and benefits as considered under the Income Tax Act. This means that bonuses, commissions, vacation pay, director fees and employer paid RRSP contributions would be included in the calculation. In summary, any items that would be reported on a T4 – statement of renumeration would be considered (including taxable benefits).

Contributions to the following types of plans will not be included in the Health Tax calculation:

• Registered pension plans
• Retirement compensation agreement
• Deferred profit-sharing plans
• Extended health plans
• Pension, annuity or superannuation by an employer to a retired employee

The gradual rate of tax for businesses would be as follows:

For example, a business with a payroll of $1,250,000 would have a Health Tax bill as follows:

On a wage bill of $1,250,000, an employer would have to pay a Health Tax of $21,938. As a percentage of payroll this amounts to 1.76%. As payroll rises so does the tax as a percentage of payroll, topping out at a rate of 1.95% (for payroll of $1,500,000 and above). It is important that businesses budget for this additional amount going forward.

Other Considerations

• Sole proprietors – any profits earned through the operation of their business is not subject to the Health Tax.
• Self-employed individuals who carry on business through a corporation –any payroll (as defined above) paid to the owner will be subject to the Health Tax. Dividends paid out of after-tax profit will not be considered payroll and will not be subject to the Health Tax.
• Independent Contractors are not employees of the business and any amounts paid to them will not be subject to the Health Tax.

Registration and payment

Registration for filing and paying Health Tax will start in January 2019 and there is a requirement to file and pay online. In addition, quarterly installments will be required on:

• June 15th,
• September 15th,
• December 15th and,
• March 31st (due date to file the Health Tax return)

Further information on this Health Tax is expected to be released in the fall of 2018. If you have any questions, please feel free to contact us.