On February 20, 2018, the provincial government proposed a new $1.9 billion tax that will hit over 60,000 businesses on January 1, 2019.
The Employer Health Tax (EHT) was proposed to replace revenues lost from the elimination of the Medical Service Plan (MSP). However, the tax is currently structured to penalize businesses. New CFIB research reveals multiple holes in the proposed policy, as well as serious shortcomings in the province’s own analysis.
Using the government’s numbers, up to 61% of businesses with between 5 and 20 employees would pay the new payroll tax (this would be 37,800 businesses total in B.C.). In reality, we found that the percent impacted far exceeds the number quoted by the B.C. government. Preliminary data in our Municipal Election and New Provincial Payroll Tax survey shows that 45% of small businesses have a payroll exceeding the $500,000 threshold, and will have to pay the new tax.
Our new research paper on the EHT also makes several recommendations to improve the proposed policy:
- Increase the small business exemption (e.g. from $500,000 to $2 million);
- Make the tax graduated (e.g. rather than applying the tax rate on the entire payroll, pay the tax rate on the payroll within that range – 0 per cent on the first $500,000, 0.98 per cent on payroll between $500,000 to $1,000,000, etc);
- Create a more even split between businesses and individuals;
- Tie the thresholds to inflation;
- Ensure the tax is as easy as possible to administer;
- Phase in new taxes only when the MSP has been fully eliminated (Jan 1, 2020).
To see the new findings and learn more about the proposed Employer Health Tax, you can read the Proposed Employer Health Tax Hurts BC Small Business.