Canadian Payroll Reporter

6 Canadian HR Reporter, a Thomson Reuters business 2018 News April 2018 | CPR will lose when it eliminates pre- miums for the province's Medi- cal Services Plan (MSP), which the government said generated about $2.6 billion in revenue in 2016-17. In the budget speech, James said the government would do away with the premi- ums on Jan. 1, 2020. "B.C. is an outlier in Canada as the only province that levies un- fair, regressive MSP premiums that penalize families and indi- viduals. Whether a person earns $60,000 or $200,000 a year, they pay the same amount. And MSP fees have more than doubled over 16 years," she said. "MSP premiums also impact business- es. They are complex and expen- sive to administer." Provincial residents pay monthly premiums to the government on their own or through source deductions un- der an employer group plan. Some employers pay the premi- ums on behalf of their workers as a taxable benefit. In January, the government reduced premium rates from $75 per month to $37.50 for single adults and from $150 per month to $75 for adult couples. It announced in last year's bud- get that it wanted to eliminate MSP premiums and replace their revenue by 2021. The new employer health tax would apply to employers with an annual payroll of more than $500,000. The government forecasts that it would generate about $1.9 billion a year in rev- enue in 2019-20 and 2020-21. Budget documents propose that the tax rate would vary, depending on the size of an em- ployer's payroll (see chart). Em- ployers whose annual payroll was $1.5 million or more would pay the full tax rate of 1.95 per cent on their total payroll. Budget documents state that the government will table leg- islation this year to implement the tax. It will include rules covering remitting frequency, installment payments, and the way in which payroll will be cal- culated for associated business- es for determining deductions and tax rates. James announced the elimi- nation of MSP premiums and the introduction of the employer health tax despite the fact that a task force she set up last fall to study ways to eliminate the premiums and replace their revenues had not yet delivered its final report, due at the end of March. In an interim report presented to James in early February, the task force said it was leaning to- wards a combination of options to replace MSP revenue, includ- ing a payroll tax and a personal income tax surcharge. Other options suggested dur- ing consultations included rais- ing corporate income tax rates, broadening the base for the pro- vincial sales tax, replacing the sales tax with a value-added tax, and introducing new taxes on sugary drinks and junk food, as well as on cannabis. The principles were fairness, efficiency, business competitive- ness, simplicity, and revenue sta- bility. James instructed the task force not to recommend keeping MSP premiums or increasing the provincial sales tax. "All revenue options that have been identified represent trade- offs among the criteria, each having some positive and some negative implications. There- fore, we feel that it is important the revenue be replaced by a combination of measures in or- der to best mitigate the negative impacts of each," the report said. During consultations, the task force said it received more than 1,500 submissions from individ- uals and 26 from stakeholders, including business, labour, and public policy groups. The report advised that whatever measures the govern- ment decided to use to replace the MSP revenue, the changes should not be phased-in. "(W)e suggest that MSP be eliminated as at a specific date and that the new revenue mea- sures take effect fully at the same time," the report said. It also suggested that the government give residents and businesses reasonable notice of when changes would occur. "MSP premiums are paid by many employers as an employee benefit, which represents part of the compensation of those em- ployees. Reasonable notice will provide time for employees and employers to agree upon how that compensation will be re- placed when MSP premiums are eliminated," the report said. "For unionized employees where the collective agreement does not already address this issue, that may require collec- tive bargaining, which takes time. We believe that at least one year's lead time should be al- lowed," said the report. Although the government is moving ahead with changes be- fore the task force's work is done, James said it is important that the task force complete and sub- mit its final report. "The province will benefit from receiving the task force's analysis and recommendations to inform future efforts to im- prove the progressivity, fair- ness and competitiveness of the tax system," budget documents said. After James announced the budget proposals, business groups said they were concerned that the employer health tax would drive up the cost of doing business in the province. "Our initial assessment is that this new tax will increase overall payroll costs for our members by several hundred million dollars a year," said Greg D'Avignon, pres- ident and CEO of the Business Council of British Columbia. The Canadian Federation of Independent Business (CFIB) said the exemption threshold for the tax was too low and would mean that businesses with only 10 to 20 employees would have to pay the tax if their payroll was above $500,000. The budget also included proposed changes to some of the non-refundable tax credits claimed on a British Columbia Personal Tax Credits Return (TD1BC). One measure would replace the province's caregiver and infirm dependent tax cred- its with a new B.C. caregiver credit. The change would apply for 2018 and later years. Similar to the Canada care- giver credit on the federal TD1, the B.C. credit would be avail- able to provincial residents car- ing for an eligible adult relative who depends on them because of a mental or physical infirmity. For 2018, the maximum amount for the B.C. caregiver credit would be $4,556 per in- firm dependant. It would be in- dexed to inflation in later years. The caregiver would not have to live with the dependant to claim the credit. Individuals who care for an infirm spouse or common-law partner would be eligible for the greater of the new credit or the spousal tax credit. Single indi- viduals who care for an infirm adult relative would be allowed to claim the greater of the new credit or the eligible dependant tax credit. The budget also proposed to eliminate the B.C. education tax credit claimed on the TD1BC, beginning next year. The move follows the federal government's elimination of its education tax credit for 2017 and later years. The Canada Revenue Agency normally updates TD1 forms to incorporate budget changes. It is expected that the agency will revise the TD1BC to incorporate the 2018 tax credit changes. Tax expected to generate $1.9 billion annually from B.C. BUDGET on page 1 News B.C. introduced the new health tax despite the fact its task force had not yet delivered its final report. Annual B.C. Payroll Annual Tax Tax as a Per Cent of Payroll $500,000 or less $0 0.00 $750,000 $7,313 0.98 $1,000,000 $14,625 1.46 $1,250,000 $21,938 1.76 $1,500,000 $29,250 1.95 Over $1,500,000 $29,250 plus 1.95 per cent of payroll over $1.5 million 1.95 Source: 2018 B.C. Budget and Fiscal Plan

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