Health-related premiums, payroll taxes entrenched in other jurisdictions
In December, Quebec passed legislation to phase out a mandatory health contribution that is part of income tax source deductions for employees. The phase-out will occur over three years, starting in 2017.
"By eliminating the health contribution, the government is easing Quebecer’s tax burden and boosting their purchasing power, which will fuel growth and economic development," Finance Minister Carlos Leitão said.
"When fully implemented, the elimination of the health contribution will benefit close to 4.5 million taxpayers and put $1.7 billion back in individuals’ pockets by 2019-2020."
Provincial residents aged 18 years and older have to pay the contribution if their annual net income exceeds a specified threshold ($18,570 for 2016) unless the law exempts them. The contribution amount varies depending on an individual’s income, with the maximum annual contribution set at $1,000 for 2016.
For employees, the contribution is built into income tax source deduction tables and formulas that employers use to calculate payroll deductions. For other individuals, the contribution is calculated on a provincial income tax return.
Amendments to the Act respecting the Régie de l’assurance maladie du Québec will raise the exemption threshold for the contribution to $40,820, beginning in 2017. The maximum contribution amount will decrease from $1,000 to $800 in 2017 and $600 in 2018. The government will eliminate the contribution in 2019.
Once Quebec eliminates the contribution, it will leave the list of jurisdictions that levy a specific premium or tax on individuals to help pay for health-care costs. Ontario, British Columbia, the Northwest Territories and Nunavut will remain on the list.
Ontario’s health premium is similar to Quebec’s; the government administers it through the income tax system and the amount individuals pay depends on their taxable income. Those with taxable incomes up to $20,000 are exempt.
The maximum premium amount is $900. For employees, the premium is built into income tax source deduction tables and formulas.
In British Columbia, residents are required to pay monthly Medical Services Plan (MSP) premiums. The premium rate varies from $75 a month for a single person to $150 a month for a family of three or more. Financial assistance is available for those with lower incomes. While not required, employers may set up group plans where they deduct the premium from employees’ pay (or pay it on the employees’ behalf) and remit it to the government.
The Northwest Territories and Nunavut both have a payroll tax to help to fund public services such as health care and education. Unlike payroll taxes in other jurisdictions, these require employees, rather than employers, to pay the tax.
The taxes apply to all employees who work in the territories, regardless of their age and whether they live there. The tax rate in both jurisdictions is two per cent of gross territorial remuneration.
Although employees pay the tax, employers have to deduct and remit it to the applicable territory’s finance department. The remittance period varies from monthly to annually, depending on the size of an employer’s payroll.
Every year, employers have to file an annual return showing each employee’s earnings and the total amount deducted for the payroll tax. Employers must also deal with any under or over deductions.
Health-related taxes
In some jurisdictions, governments look to employers in addition to or instead of individuals to help fund health-care costs. Quebec, for example, may be phasing-out its health contribution for individuals, but it is not doing the same for its health services fund (HSF), a health-related payroll tax that employers must pay when they submit source deduction remittances.
The contribution rate varies from 2.7 per cent to 4.26 per cent, depending on the size of an employer’s payroll. Some businesses have complained the HSF contribution has contributed to high payroll costs for employers in Quebec compared to other jurisdictions.
In its annual Report Card on Quebec Prosperity, released last fall, the Quebec Employers Council gave the province a "D" rating for employers’ cost of payroll taxes. By comparison, it gave Alberta an "A", British Columbia a "B" and Ontario a "C".
"Among the four Canadian provinces of reference, Quebec is where payroll taxes are the highest, by far, and they boost labour costs the most, notably because of contributions to the health services fund," the report said.
However, the council said it was hopeful the situation might change as a result of government proposals to reduce payroll-related taxes, including lowering the HSF contribution rate for small and medium employers.
Other provinces with health-related payroll taxes include Manitoba, Newfoundland and Labrador and Ontario. Business groups in those jurisdictions have long called on the governments there to lower or eliminate the taxes.
The Manitoba Chambers of Commerce has asked the provincial government to develop a plan to eliminate its health and post-secondary education tax levy or raise the exemption threshold for it. Employers with a permanent establishment in the province have to pay the tax if their total annual payroll is more than $1.25 million.
The tax rate depends on an employer’s total yearly payroll. The rate for employers with payrolls between $1.25 million and $2.5 million is 4.3 per cent on the amount that exceeds $1.25 million. For employers with a payroll over $2.5 million, the tax rate is 2.15 per cent of total payroll.
The Chambers of Commerce says it would like to see the government raise the base exemption threshold to $2 million and increase the second threshold from $2.5 million to $3.5 million.
To date, the government has not announced any changes to the tax.
The province is heading to an election in the spring and at least one party, the Liberals, say they would phase-out the tax.
In Newfoundland and Labrador, the Employers’ Council (NLEC) has been calling on the government for years to eliminate the province’s health and pos-secondary education tax, saying it hurts employment and salary levels in the province. The two-per-cent tax applies to employers whose annual payroll exceeds $1.2 million.
In Ontario, business groups such as the Canadian Federal of Independent Business (CFIB) have long lobbied the government to eliminate or significantly reduce its employer health tax (EHT).
The government levies the payroll tax on all employers that have a permanent establishment in the province. The first $450,000 of an employer’s payroll is exempt from the tax.
The EHT rate varies from 0.98 per cent for employers with Ontario payrolls that are less than $200,000 to 1.95 per cent for employers with payrolls that exceed $400,000.
In response to small business concerns about the tax, the government raised the exemption threshold to $450,000 from $400,000 in 2014; however, to help make up for the lost tax revenue, it eliminated the exemption for private sector employers with annual Ontario payrolls exceeding $5 million.
The government says it will adjust the exemption every five years, based on the province’s consumer price index.
Since 2014, the government has not made any further changes to the EHT. It has also not indicated it would ever eliminate the tax, which the Finance Ministry estimates will generate $5.7 billion in government revenue this fiscal year.
Unless an upcoming provincial budget holds a surprise, it seems that health-related premiums and payroll taxes will remain a source of government revenue in many jurisdictions for some time to come.
