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The employer health tax (EHT) is a new employer tax on the remuneration paid to employees and former employees residing in British Columbia. All employers are subject to the tax, but special rules apply to employers that are charities or not-for-profits (NPOs). The new EHT rules came into force on January 1, 2019.
Who do these special rules apply to?
These special rules apply to registered charities, and to a broad range of NPOs that have employees in British Columbia. For the purposes of the EHT, the definition of NPO includes labour unions, agricultural organizations, seniors housing corporations, and amateur athletic associations.
Every charitable or NPO employer that pays remuneration to BC employees in excess of $1,500,000 is required to register for EHT and to file a tax return, even if the employer doesn’t pay the EHT.
How is the tax calculated?
The tax is calculated as a percentage of remuneration paid to employees or former employees in BC. Remuneration includes salaries, bonuses, commissions, and a number of other benefits. If the total remuneration is less than $1,500,000 (the exemption amount) no EHT is payable. For remuneration above that amount and up to $4,500,000, the EHT is payable at a rate of 2.925%. Amounts over $4,500,000 are subject to EHT at a rate of 1.95%.
For example, an employer with aggregate BC remuneration of $5,000,000 would pay $97,500.00 in EHT. The first $1,500,000 would be exempt, the next $3,000,000 would be taxed at 2.925%, and the final $500,000 would be taxed at 1.95%. You can access the EHT calculator provided on the BC government website here.
When is the EHT paid?
The first EHT return is due on March 31, 2020 and must be filed electronically through eTaxBC.
If the employer’s EHT for the previous calendar year exceeded $2,925 the employer is required to make quarterly instalment payments based on the lesser of: (a) the previous year’s EHT and (b) the estimated EHT for the current year. As the EHT is new, in 2019, an employer must make instalment payments if their EHT payable for 2018 would have exceeded $2,925 had the EHT been in effect. As of January 7, 2019, instalment payments can be made online using eTaxBC or through a bank or financial institution.
How are charities and NPOs treated differently?
For most employers, the EHT is calculated on the aggregate amount of their BC remuneration, regardless of where they carry on business. However, charities and NPOs are taxed on the basis of a separate calculation of remuneration paid at each qualifying location in BC. This means that a charity with several locations might pay no EHT if the aggregate remuneration at each location was below the $1,500,000 threshold. This is because the charity can claim an exemption for each qualifying location.
For example, a charity that had four qualifying locations, and paid remuneration of $1,400,000 at each location, would not be subject to EHT. If it had only one qualifying location, with aggregate remuneration of $6,400,000, the charity’s EHT would be $124,800.
The result is that a charity operating at multiple qualifying locations will pay much less EHT than would be payable by a for-profit employer with the same BC remuneration, or another charity with the same BC remuneration but only one qualifying location.
These calculations require charitable and NPO employers to determine which location an employee is attached to, as that determines how the remuneration for that location is measured. Sometimes that will be straightforward, but where employees work remotely or at multiple locations the determination may be more complicated.
What is a Qualifying Location?
To be considered a ‘qualifying location’ of a charitable or NPO employer, the premises must meet all of the following requirements:
- It is a permanent establishment of the employer in BC
- The employer has the exclusive right to occupy the premises
- It is used and occupied only by the employer
The definition of ‘permanent establishment’ is broad. It includes a place where an employer carries on business through an agent. It also includes the registered office of a charity or NPO.
If the employer has multiple locations, but some of them are not qualifying locations (either because they are not permanent or because they are not used exclusively by the employer), the employer can only claim the $1,500,000 exemption for each of the qualifying locations. Furthermore, the remuneration paid to employees who report to work at the other locations must be attributed to the qualifying locations. In that case, the remuneration of each of those employees must be attributed to a qualifying location that is reasonable based on all the circumstances.
The requirement of ‘exclusive use’ means that some charitable or NPO employers may be at a tax disadvantage if they sublet or share space, even if the subtenant is another charity.
A charitable or NPO employer with multiple qualifying locations must file and pay EHT on one tax return, calculate one tax amount and submit one payment, if applicable, for all qualifying locations.
Miller Thomson lawyers have experience helping charities and NPOs with a broad range of legal issues, including tax matters. If you need assistance determining whether your organization is required to pay EHT and/or whether your organization qualifies for an exemption in respect of one or more of its BC locations, contact Miller Thomson’s Social Impact group.