Backgrounder | Employer Health Tax (Payroll Tax)

As part of their budget released Feb. 20, 2018, British Columbia’s provincial government announced the implementation of the Employer Health Tax (EHT). The proposed EHT is a payroll tax that came into effect on January 1, 2019. It is intended to fund the elimination of the Medical Services Plan (MSP) premiums effective January 1, 2020.[1] MSP will continue to be levied through 2019 at a reduced rate until it is eliminated next year.  

MSP premiums are paid by individual taxpayers while the proposed EHT will be levied on an employer’s total payroll. For businesses not exempt from the tax, these actions would represent a tax burden that has been transferred from individuals to businesses.

How will the Employer Health Tax work?

The tax will not apply to employers with a payroll under $500,000. For those with a payroll between $500,000.01 and $1,500,000, the tax will be calculated as 2.95% x (BC Payroll – $500,000). Employers with a payroll over $1.5 million will pay the maximum rate of 1.95%.

Annual BC Payroll Annual Tax Tax as a percent of Payroll
$500,000 or less $0 0.00%
Between $500,000.01 – 1,500,000  2.95% x (BC Payroll – $500,000) Notch rate amount
 over $1,500,000     1.95% of BC Payroll 1.95%

Tax Rates for Payroll Ranges[2]

Associated Companies

Associated employers with a combined B.C. remuneration of between $500,000.01 and $1,500,000, you must share the $500,000 exemption. If the combined B.C. remuneration of the associated employers is greater than $1,500,000, there is no exemption available to any of the employers.

Reasons for the Tax Changes

The provincial government claims that MSP Premiums are unfair and regressive taxes because they charge all people an equal dollar amount regardless of income. The government states that by eliminating MSP premiums individuals will save up to $900 and families will save up to $1,800 per year. As of January 1st, 2018, the first step in eliminating MSP premiums came into effect with a 50% reduction in premiums.[3]   

Effects on Provincial Tax Revenue

The provincial government estimates that the MSP premiums 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. The government is looking to make up the difference through a combination of other tax measures to be announced at a later time.[4]

How Does this Tax Compare to Other Provinces?

Without accounting for other comparisons in tax:

  1. British Columbia is the only province/territory in Canada that levies MSP premiums.[5]
  2. Other provinces/territories with general payroll taxes are Ontario, Québec, Manitoba, Newfoundland and Labrador, the Northwest Territories, and Nunavut.[6]
  3. B.C.’s EHT will match Ontario with the lowest rate at 1.95 per cent. Québec’s payroll taxes, by comparison, are 4.26 per cent.[7]

Who Does This Tax Capture?

  1. The EHT will capture businesses, charities, non-profits, school boards, hospitals, universities, and local governments. However, for charities and non-profits the tax will not kick in until payroll exceeds $1,500,000.
  2. The provincial government claims that 85% of businesses will not be affected due to their payroll being under the $500,000 lower cap. 5% have payrolls over $1.5 million and will have to pay the full amount.[8]
  3. The EHT is a payroll tax, calculated on employment income, including bonuses, commissions, tips paid through employers, employer RRSP contributions and many taxable benefits.[9]

Registration, Important Dates, and FAQs

  1. To register your business for the Employer Health Tax, please see the following instructions. May 15, 2019 is the deadline to register if you are required to pay instalments in the 2019 calendar year.
  2. June 15, 2019 – First instalment payment due date.
  3. December 31, 2019 – Deadline to register for all other taxable employers.
  4. March 31, 2020 – Deadline to file and pay your first return
  5. FAQs on the Employer Health Tax can be found here.

[1] British Columbia Budget and Fiscal Plan 2018/19 – 2020/21. Page 74. URL: http://bcbudget.gov.bc.ca/2018/bfp/2018_Budget_and_Fiscal_Plan.pdf.

[2] Government of BC. “Employer Health Tax Overview.” URL: https://www2.gov.bc.ca/gov/content/taxes/employer-health-tax/employer-health-tax-overview.

[3] Ibid, page 77.

[4] Ibid, page 78.

[5] British Columbia Budget 2018. “Backgrounder: Eliminating MSP Premiums.” URL: http://bcbudget.gov.bc.ca/2018/backgrounders/2018_Backgrounder_2_MSP.pdf.

[6] Hemingway, Alex. Vancouver Sun, “Relax. Employer health taxes haven’t sunk businesses in other provinces.” URL: http://vancouversun.com/opinion/op-ed/alex-hemingway-relax-employer-health-taxes-havent-sunk-businesses-in-other-provinces

[7] Ibid.

[8] Fayerman, Pamela. Vancouver Sun. “B.C. Budget 2018: Business community outraged over payroll health tax.” URL: http://vancouversun.com/health/local-health/b-c-budget-2018-business-community-outraged-over-payroll-health-tax.

[9] Go2HR. “Employer Health Tax – What is it and how much will your business pay.” URL: https://www.go2hr.ca/legal/employer-health-tax-what-is-it-and-how-much-will-your-business-pay.