In early July, the provincial government in British Columbia announced it would be moving forward with a new health tax program.
What is the new BC health tax?
The new BC health tax is designed to eliminate current user premiums for individuals using the provincial healthcare system in the province. Right now, individuals residing in BC pay a monthly premium to ensure access to the healthcare system. Beginning next year, the premiums will be phased out and replaced by the new tax.
Tax Targets Employer-Sponsored Benefits
The BC government announced it would shift from charging premiums to individual users to taxing employers’ payroll instead. Under the Income Tax Act, the new employer health levy will be applied to employment income and taxable benefits alike.
Income is considered to include salary and wages, payments for casual labour, bonuses and commissions, vacation pay, gratuities and tips paid through the employer, and directors’ fees paid to directors of corporations.
Taxable benefits will also be subject to the new tax. This includes stock option benefits, employer-paid group life insurance premiums, employer-paid contributions to employees’ RRSPs, employer “top-ups” to benefits like parental leave, and other taxable allowances and benefits.
Some Benefits Won’t Be Taxed
Not all benefits are taxable, and those not designated as taxable benefits won’t be subject to the BC healthcare levy.
Benefits that won’t be subject to the tax include deferred profit-sharing plans, registered pension plans, extended health benefits, and retirement compensation arrangements.
Some Employers Are Exempt
The province also exempted some employers from being subject to the new tax. Under the current plan, mid-sized employers will bear most of the costs of the tax. Smaller employers, those whose payroll is under $500,000 per year, will be exempt from the tax.
The new health levy is also regressive. While those whose payroll is under $500,000 will be entirely exempt, those whose payroll is between $500,000 and $1.5 million will pay a higher rate than those employers whose payroll exceeds $1.5 million.
The rate for employers in the $500,000 to $1.5 million has been set at 2.95 percent. Those with payroll exceeding $1.5 million will pay a lower rate of 1.95 percent.
What Does It Mean for BC Employers?
This announcement has left some BC employers scrambling to ensure compliance will be in order for January 1, 2019. The first step may be a wide-scale review of the workforce. Some employers may look to bring their payroll down under the $500,000 benchmark if possible. Others may try to increase it to get the 1 percent tax break if they’re nearing the $1.5 million mark.
This could mean changes in the workforce, such as hiring or eliminating certain positions as needed. A wide-scale review of benefits is likely in order for most BC employers.
Again, this could have varying effects for different companies, depending on how much payroll is on the budget line. Those near either end of the $500,000 to $1.5 million bracket will likely employ various strategies to increase or decrease expenditures and lower their tax obligations.
What Does It Mean for Employees?
Since the effects of the tax will vary depending on the size of the business, the news is a mixed bag for employees. Those working for larger employers may see a boost in full-time, permanent employment or a more robust benefits package. Those working for smaller employers could see the opposite effect.
Many employers will likely look to offer more non-taxable benefits, so employees across the board may benefit from additional health benefits, registered retirement plans, and other non-taxed benefits.
Employees whose individual health premiums are currently paid through their employers may not notice a change, while others may see employers pass the tax as much as possible.
One thing is for sure, and it’s that this new announcement means big changes for employers and employees alike.