Province joins likes of Manitoba, Newfoundland and Labrador, Ontario, Quebec
Beginning this month, employers in British Columbia will have to adjust to a new payroll tax.
On Jan. 1, the provincial government implemented the employer health tax (EHT). It applies to employers whose annual B.C. payroll exceeds $500,000.
For employers whose payroll is between $500,000.01 and $1.5 million, the tax rate is 2.925 per cent on the amount of payroll that exceeds $500,000. For payroll over $1.5 million, it is 1.95 per cent on the entire B.C. payroll. Different rules apply for registered charities and non-profits.
With the EHT, B.C. joins other provinces that have long levied similar taxes, including Manitoba, Newfoundland and Labrador, Ontario, and Quebec.
In Manitoba, a health and post-secondary education tax levy applies to employers with a permanent establishment in the province whose total annual payroll is more than $1.25 million. The province implemented the tax in 1982.
The tax rate depends on how much an employer’s annual Manitoba payroll exceeds $1.25 million. If it is between $1.25 million and $2.5 million, the rate is 4.3 per cent on the amount of payroll that is over $1.25 million. If total annual payroll is more than $2.5 million, the tax rate is 2.15 per cent on their total Manitoba payroll.
Newfoundland and Labrador’s health and post-secondary education tax (HAPSET), which has existed since 1990, applies to all employers with a permanent establishment in the province if their annual payroll is more than $1.3 million. The tax rate is two per cent on the amount of payroll that exceeds $1.3 million.
Ontario has levied an EHT since 1990 on employers with a permanent establishment in the province. The tax rate varies from 0.98 per cent to 1.95 per cent, depending on the size of the employer’s total Ontario payroll.
As of Jan. 1, Ontario exempts the first $490,000 of total Ontario payroll from the EHT; however, the exemption does not apply to all. Those excluded include private-sector employers whose payroll exceeds $5 million and public-sector employers.
The oldest health-related payroll tax in Canada is in Quebec. Its health services fund (HSF) has existed since 1970. The contribution rate is based on the employer’s total annual Quebec payroll. For 2019, a rate of 4.26 per cent applies for private-sector employers with an annual payroll of $6 million or more, and all public-sector employers.
Employers with annual payrolls below $6 million are eligible for reduced rates. For employers in the primary and manufacturing sectors where more than 50 per cent of their payroll relates to activities in that sector, the rate is 1.25 per cent if their total annual payroll does not exceed $1 million.
Employers in other sectors whose total annual payroll is no more than $1 million pay a contribution rate of 1.7 per cent.
There are also rate reductions for employers with annual payrolls above $1 million, but less than $6 million.
In addition, a temporary exemption from the HSF is available for corporations involved in large investment projects in Quebec.
All of the jurisdictions specify that the tax applies to employees who report for work at their employer’s permanent establishment in the province and to those who are paid from it if they are not required to report there for work.
They also all generally apply to the same types of employee remuneration.
Each province requires employers to remit the tax on a regular schedule, although the timing varies, depending on the jurisdiction.
In Manitoba as well as Newfoundland and Labrador, remittances are due monthly.
In Ontario, employers pay the tax either monthly or yearly, with monthly remittances required for employers with annual payrolls over $600,000.
British Columbia requires employers to remit the tax once a year or in quarterly instalments if the amount of EHT owing in the previous year exceeds $2,925.
Although 2019 is the first year for the tax, the government requires employers to pay quarterly instalments this year if the amount of EHT they would have had to pay last year, if the tax had been in effect, exceeds $2,925.
In Quebec, employers pay the HSF contribution on the same schedule that they send in their remittances for the Quebec Pension Plan, Quebec Parental Insurance Plan, and provincial income tax deductions.
The jurisdictions also require employers subject to the tax to file an annual return.
In most cases, the returns are due by a specific date in March, although Quebec’s reporting requirements are tied to filing RL-1s at the end of February.
While the taxes are not the main source of revenue for the provinces that levy them, they can generate a significant amount of money. For example, the Ontario government estimates that the EHT will bring in about $6.5 billion in the 2018-2019 fiscal year, which is about four per cent of the province’s revenue.
Perhaps not surprisingly, business groups generally oppose the taxes and have called for governments to reduce and/or repeal them.
The Ontario Chamber of Commerce has said EHT rates in the province should be reduced to help businesses become more competitive.
In Manitoba, the Canadian Federation of Independent Business (CFIB) wants the government to raise the exemption threshold for the tax and begin working on a longer-term plan to eliminate it.
“The health and post-secondary education tax levy…is known at CFIB as the job-killing Manitoba payroll tax because it is a disincentive for businesses to grow past a payroll threshold, which ultimately limits job creation,” a recent CFIB pre-budget submission to the government said.
On the East Coast, a submission last summer to a government committee studying the province’s tax system, the Newfoundland and Labrador Employers’ Council recommended that the government eliminate the HAPSET.
“The biggest concern is that Newfoundland and Labrador is the only province in Atlantic Canada with a payroll tax. In fact, the province obtains more of its total business tax revenues from payroll taxes than any other province in the country, with the exception of Quebec,” said the council.
While the government did increase the tax’s exemption threshold from $1.2 million to $1.3 million this year, the council said it needs to do more.
“This tax is still a massive impediment to Newfoundland and Labrador’s competitiveness by negatively impacting labour productivity, employment, and wages,” it said. “Eliminate the payroll tax, as it is a job and wage killer.”
Quebec has responded to business calls for HSF changes by announcing multi-year threshold increases and rate decreases. It raised the threshold from $5 million to $5.5 million in 2018 and to $6 million for 2019 and 2020.
The threshold is scheduled to rise to $6.5 million in 2021 and to $7 million in 2022. Beginning in 2023, the government plans to annually index and adjust it.
The government also reduced HSF contribution rates for small and mid-size employers. The 1.25 per cent contribution rate for those in the primary and manufacturing sectors with an annual payroll of no more than $1 million is down from 1.5 per cent a year ago.
For employers in other sectors whose total annual payroll is no more than $1 million, the contribution rate has dropped from 2.3 per cent a year ago to 1.7 per cent. Next year, the rate is slated to decrease to 1.65 per cent.
In B.C., business groups are already calling for changes to the EHT. The CFIB wants the government to raise the threshold to at least $1.25 million and to index it to inflation.
There are complaints that the government is hurting businesses by implementing the EHT a year before eliminating medical services plan (MSP) premiums.
“This overlap creates the potential for some businesses and non-profits to be hit with double taxation as many organizations pay MSP premiums on behalf of their employees,” said the Burnaby Board of Trade.
To date, none of the governments have announced plans to eliminate the taxes. However, with provincial budgets due to come out over the next few months, it is likely that business groups will continue to lobby governments to reduce their reliance on the taxes.