BC’s current government is phasing out BC’s medical services plan premiums which are currently paid by adults in BC (unless they are the lucky and rare who have it paid by their employer). In place of Medical Services Plan will be the Employer Health Tax, which basically makes employers responsible for the province’s universal health care program (instead of the individuals who use it).
Interestingly, while employers will begin paying the tax in January 2019, the BC government is continuing to have individuals pay until January 2020.
This means the NDP are being paid twice by British Columbians for the same “benefit”. (Yes, if you are an employer currently paying your employees’ MSP, you will have to pay twice too.)
The increased tax applies to all organizations with an annual payroll of more than $500,000 for private organizations and $1.5M for charities. Governmental organizations like the health authorities, universities and public schools are treated like private organizations and so will need to dip into our tax dollars further to cover these additional costs (but I digress).
Here’s what we know about the EHT:
- Employers must register to pay this tax via eTaxBC before:
- May 15, 2019 if you have to pay installments or
- December 31, 2019 if you pay annually.
- Employers will have to pay installments if their estimated EHT for the year is more than $2,925. e., you have an annual payroll above $800,000 you will pay installments. Between $500,000 and $800,000, you can pay annually.
- Employers’ 2019 installments (if applicable) will be based on their 2018 calendar year.
- The EHT is based on employment income which includes:
- Salary and wages (and top ups for leaves)
- Bonuses and cash incentives
- Vacation pay
- Taxable allowances (e.g., for home office, phones, vehicles, etc.)
- Employer paid taxable Group benefits (e.g., life insurance, accidental death and dismemberment, critical illness, etc.)
- Employer contributions to RRSPs
- Stock option benefits
- Employers can’t pass on the cost of the EHT to their employees. It’s deemed a “Cost of Doing Business”.
When this type of tax has been implemented in other locations, it usually means that employees’ raises aren’t as high because employers have to find the money somehow. Alternative methods for managing this increase in business costs include:
- Shifting employees’ income to nontaxable forms of compensation such as deferred profit sharing (ask us how), health & dental benefit increases, and health care spending accounts.
- Transitioning to employee paid benefits or reducing benefits coverage.
- Increasing prices of products/ services.
- Accepting smaller margins or lower profits (cringing as I point this option out).
- Outsourcing to subcontractors and freelancers.
With only a month until it is 2019, it’s important to consider how your organization will handle this new tax. Want advice? That’s our specialty.