You have likely heard about the BC government budget that will eliminate its operating debt one year early with a variety of new taxes. But how does the new “Employer Health Tax” affect your BC small business? To start we need to understand exactly what this budget means for the province, and your business. The NDP government budget calls for a $4.4 billion increase in taxes over the next three years. The tax increase is designed to offset new spending, such as:
- $1 billion for child care – related to the NDP promise of reducing child care costs to $10 a day for families.
- $1.6 billion on affordable housing
- $1.5 billion for health care
- $409 million for K-12 education
In addition to the new spending above, the three-year plan includes $26 billion for schools, hospitals, bridges and roads. This is estimated to create 50,000 new constructions jobs.
Despite all the sensational headlines you have likely seen, it should be stated that the BC government is not expecting the entire $4.4 billion to come from BC small businesses. There are also increased taxes on tobacco, property taxes, luxury vehicles and a large increase on the foreign buyer’s tax. The biggest change to your business is the planned elimination of the Medical Service Plan (MSP) premiums for individuals by Jan 1st 2020. This money has to come from somewhere, and one of the areas is a new tax for payrolls that exceed $500,000.
So how does the new “Employer Health Tax” affect your BC small business? The “employer health tax” will charge companies a percentage of their payroll. For example, if your payroll is over $1.5 million you will pay 1.95% ($29,250) under this new tax law. The tax ranges from 1% to 2% of your payroll depending on the amount.
The timing of these changes is also significant, the new tax is slated to start on Jan 1st, 2019. Whereas the MSP premiums will be eliminated by Jan 1st, 2020. So if you are currently paying MSP premiums on behalf of your employees, you will essentially be double paying for the 2019 calendar year until the premiums are eliminated in 2020. For companies that pay for MSP premiums as part of their benefits plan, the new tax will just replace your premium cost, when MSP premiums are eliminated January 1, 2020.
If your business currently does not cover MSP premiums, this tax is a new cost to your business and will negatively impact your bottom line. Small to medium sized businesses will be the hardest hit as many are already operating on a tight budget. This could mean that business owners may reduce their employee benefits coverage, increase costs for goods and services or look for other ways to help reduce the new cost associated with the Employer Health Tax.
To help offset the cost of this new payroll tax, PST on electricity sales for businesses will also be phased out by April 1st, 2019. There is also the argument that increased spending in child care will help businesses feeling the impact from parents who have to miss work because of their child care situation.
Do you have more questions like how does the new “Employer Health Tax” affect your BC small business? We encourage you to contact a DENT Benefits representative for the latest regulatory changes!
The information in this material is derived from various sources. Material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. This article is not a substitute for tax advice from a licensed accountant. Please contact your accountant for tax advice before acting on any of the ideas above. Before acting on any of the above, please contact us for benefit, pension and insurance advice based on your corporate or personal circumstances.