While urban property owners are receiving a B.C. government letter instructing them to register for the “speculation tax” on second homes, businesses are starting to receive similar directions to sign up and begin paying the “employer health tax” on payrolls of more than $500,000 a year.
The tax took effect Jan. 1, but employers have until later to start paying it. The payroll tax applies to employer-paid benefits as well as wages, with a rate of nearly three per cent on payroll totals from $500,000 to $1.5 million, and a lower rate of 1.95 per cent for payroll amounts above that.
Ken Peacock, vice-president of the B.C. Business Council, says one concern is that the tax adds another disincentive to employers to take on full-time workers and pay benefits. There is already a well-established trend to “gig economy” employment using part-time and short-term contracts, he said.
The tax is being imposed to replace provincial revenue from Medical Services Plan premiums, which have been cut by half and are to be eliminated by the end of 2019. That leaves employers who pay MSP on behalf of their employees with a choice to pay both for this year, or pass MSP costs on to employees who don’t have union contracts that require employer payment.
“It’s close to $2 billion when it’s all implemented, so it’s a big increase on businesses,” Peacock said.
Finance Minister Carole James has emphasized that when total MSP payments are calculated at the highest level charged, in 2017, the change actually represents an overall tax cut of $800 million when it is fully implemented.
That’s small comfort to businesses with large seasonal payrolls and others who never paid employee MSP. For them, it is an entirely new tax.
Richard Truscott, vice-president for Alberta and B.C. at the Canadian Federation of Independent Business, said the ministry has provided minimal information to circulate to members, telling them to register at a ministry website. The CFIB has received about 60 calls as of this week from people seeking details.
“Small business owners certainly aren’t clear on what the expectations are and how they need to bring themselves into compliance and start remitting the tax,” Truscott said. “You’re supposed to be tracking and calculating it. It depends how big your business is, how quickly you need to report.
“The businesses that are really screwed are those that did not pay MSP, don’t qualify for the exemption, and now pay the employer health tax, which is about 23 per cent of our membership.”
The finance ministry says if a business owes $2,925 in 2019, it has until March 31, 2020 to pay it. If it is above that total, registration must be complete by May 15 and instalment payments are required on June 15, Sept. 15 and Dec. 15, 2019, with the remainder due March 31, 2020.
The website for information and registration is gov.bc.ca/employerhealthtax and there is a toll-free number for questions, 1-877-387-3332.
The finance ministry estimates that about half of the current MSP is paid by individuals, through a bureaucracy that was contracted out to a U.S. back-office corporation a decade ago. It has produced horror stories such as people losing their jobs and then being billed anyway because MSP is based on income for the previous year.
The B.C. government’s task force on replacing MSP, chaired by economics professor Lindsay Tedds, recommended that a new tax be brought in only when MSP charges are phased out.
It called for a mix of taxes to replace the revenue, including an extra tax on sugary drinks and other unhealthy products to reduce health problems and costs to the medical system.
Businesses point to other increases they have already faced in recent years, including steep increases in minimum wages and a resumption of carbon tax increases starting in April of 2018. When the carbon tax was introduced in 2008, it came with offsetting reductions in personal and corporate income tax, which the NDP has removed in favour of funding green initiatives of its choosing.