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New employer tax is rolling out in 2019 and may catch businesses unaware

Businesses with a payroll over $500,000 need to pay the new employer health tax starting in 2019
Christina Kirchhofer | Submitted

Businesses over a certain payroll size will be facing yet another bill to pay as of January 1, 2019.

As the newly elected NDP government announced in its budget earlier this year, Medical Services Plan (MSP) premiums are being eliminated and the new employer health tax is being introduced instead, placing the cost on businesses.

This is great news for individuals who no longer have to pay the monthly health insurance cost, but, instead, the tax is being directed towards employers – some of whom may not be aware or prepared for the upcoming changes.

“MSP premiums will be completely gone by January 2020, but this employer health tax is meant to replace that revenue,” says Christina Kirchhofer, a senior manager at the Vancouver-based accounting firm Manning Elliott.

Payroll thresholds

The new employer health tax is imposed on employers based on the size of their payroll. It starts at a rate of 0.98% for payrolls over $500,000 and gradually increases by various tax thresholds to 1.95% for B.C. payrolls above $1.5 million per year.

Small businesses with payroll of $500,000 or less will be exempt from the tax.

The tax structure may seem straightforward but, as Kirchhofer explains, it’s not quite so cut and dried.

“It’s not only based on the individual company’s payroll size – the tricky part is that they look like associated corporations and associated employers,” says Kirchhofer.

That means the tax follows similar lines as the income tax, but with some exceptions.

The exemption for businesses with a payroll under $500,000 doesn’t just focus on each individual company – if there are associated companies, that payroll threshold is split between each of the companies.

“We have to determine if [associated] relationships exist because if they do, that could make some companies fall into having to pay this tax.”

Untangling relationships

That’s where Kirchhofer and others at Manning Elliott come in.

The accountants at Manning Elliott help companies untangle their corporate relationships and figure out the combined annual payroll to see if the companies seeking advice fall under the exemption or need to pay the tax.

“We’re able to help make sure that the companies that need to be paying this tax are doing so, especially if the employers or companies are associated with other employers,” says Kirchhofer.

Although the employer health tax isn’t in place yet, it’s something businesses need to have on their radar, because otherwise the employer could be caught out and end up paying more with the added fees and fines.

The companies will need to look at the last year’s payroll and then, starting in January, register with the B.C. Ministry of Finance. Those that fall above the tax bracket threshold must pay the first instalment by June 15, 2019.

“More companies are realizing that they are going to have to register for this and it is going to be another payment they are going to have to make,” says Kirchhofer.

Failing to pay the employer health tax will result in late fines, interest and other penalties.

“You don’t want to get caught out afterwards,” she says.

Registered charities and non-profit organizations are also impacted by the new health tax but have a higher payroll threshold of $1.5 million per year.

“You want to be on top of the rules and make your first remittance in June if you are required to do so.”

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