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As businesses across B.C. pay their first instalment of the province’s new Employer Health Tax due on Saturday, many say the tax places an unfair financial burden on small businesses because it’s tied to payroll instead of profit.

The new tax replaces B.C.'s Medical Services Plan premiums, paid by individuals and families on a monthly basis to finance public health care. People in the province need to pay online, in person or mail a cheque to Victoria to get public health coverage.

B.C. is the only province that still collects such premiums. They are charged on a sliding scale based on income, and in 2017 everyone who made more than $24,000 a year needed to pay, and the rate maxed out at $900 a person per year for those making $42,000 a year or more.

John Horgan’s NDP government promised to get rid of the premiums, and in 2018 it reduced them by half as part of a plan to phase them out completely by 2020.

“The removal of the premiums is long overdue,” said Steve Morgan, a public-health professor at the University of British Columbia. “They cost a lot to administer, and they are profoundly inequitable in terms of the burden on households.”

All members of the business community whom The Globe and Mail spoke to for this story said they support the transition away from MSP premiums to a tax on business. But they were frustrated with how the EHT is applied and suggested ways it could be made more fair for small businesses.

B.C.'s EHT is levied on all for-profit businesses with a payroll greater than $500,000 in the province, and non-profits with a payroll greater than $1.5-million.

Businesses with payrolls up to $1.5-million pay 2.925 per cent of the portion of payroll that’s over $500,000. Larger enterprises, with payrolls over $1.5-million, pay 1.95 per cent on total payroll.

Christine Hoechsmann, owner of Ashley Furniture Galleries and The Bedroom Furniture Galleries in Cranbrook, B.C., is worried the new tax will force her to reduce employee benefits.

“This tax has nothing to do with our profit and has everything to do with our payroll," she said. “It feels like you’re being taxed and punished for looking after your team."

With 25 employees between two stores, Ms. Hoechsmann considers herself a small-business owner. The province says 85 per cent of businesses in B.C. will be exempt from the tax, but Ms. Hoechsmann was surprised when her accountant told her she was on the hook for $15,000.

“It kind of felt like we were lied to,” she said.

The average salary of full-time workers in B.C. was $58,448 in 2018, according to Statistics Canada, and assuming all employees are paid that, businesses with nine employees or more need to pay EHT.

Brian Corcoran, a partner at a Richmond, B.C. law firm, said paying EHT this year means he’s holding off on plans to hire another paralegal.

“It has a direct impact,” he said. “Because of it we’re not hiring someone we would have otherwise hired.”

Some companies in B.C. pay for their employees’ MSP premiums as part of extended health benefits offerings, and since they’ll be paying those and EHT this year, some businesses say the province is “double dipping.”

But a Ministry of Finance spokesperson countered that by saying businesses are saving money because of the reduced premiums this year.

On June 1, minimum wage in B.C. also rose to $13.85.

“June is shaping up to be a very costly month for small business in B.C.,” said Richard Truscott, vice-president, B.C. and Alberta with the Canadian Federation of Independent Business.

Mr. Morgan, the public health expert, also thought the province missed out on administrative savings by creating a new tax, with a new registration method, instead of rolling it into corporate income tax which has an established method for collection.

Dan Baxter, director of policy development, government and stakeholder relations with the BC Chamber of Commerce, said small businesses have a few suggestions to make the EHT more fair: Tie it to profit instead of payroll, or increase the exemption if it must be tied to payroll, and loosen the associated employer rules.

Mr. Baxter pointed to Ontario, which collects health fees as part of corporate and personal income tax. But that province also has an EHT, with an exemption limit even lower than in B.C.

Newfoundland and Labrador, Quebec and Manitoba also have payroll taxes with names that indicate they’re for health care. Manitoba’s EHT has a higher exemption; only businesses with payrolls exceeding $1.25-million have to pay it.

Mr. Baxter would like to see B.C. adopt that limit.

“Businesses don’t mind paying into the pot,” he said. “But we need to be making sure we don’t stall the ability of small- and medium-sized business to grow.”

Under B.C.'s rules, associated employers, or companies owned by the same person, are taxed as one entity. That rule hurts Priyanka Lewis, who owns three restaurants in Whistler.

Two of them have payrolls of a little more than $500,000, and a third, which is less than two years old, has a $200,000 payroll. If each paid the EHT as an independent business, she would need to pay 2.95 per cent on about $300,000. As it stands, she’s paying tax on more than $1-million.

“It’s a huge hit for us,” she said. “Especially in food and beverage. Our bottom line at best is a 10-per-cent profit margin.”

The first instalment of the tax is due on June 15. But Ms. Lewis said her businesses don’t have the cash flow to cover the $7,000 instalment on her $30,000 EHT bill, and she’ll be defaulting. She would then be subject to penalties and interest according to the Ministry of Finance.

“I just think that there needed to be a little bit more thought about how it was rolled out and how it was going to affect different industries,” she said. “If you’ve got two people sitting at a desk and the business makes $10-million, they’re paying less EHT than us.”

According to B.C.'s Ministry of Finance, the EHT will save the government more than $50-million annually in administration costs. A ministry spokesperson did not answer why the province chose a payroll tax instead of a profit or income-based tax, only saying the EHT mirrors similar taxes in other provinces.

EHT is “the biggest middle class tax cut in a generation,” B.C.'s Finance Minister Carole James said in a statement. "That’s good for people and good for business.“ She calls it a tax cut because MSP premiums provided $2.6-billion in revenue in 2016-17, and EHT will provide $1.9-billion.

Kathleen Ross, president of Doctors of BC, welcomes the transition to EHT because it means residents won’t have to worry about whether they can see a doctor.

Hospitals have policies not to turn anyone away, but Dr. Ross worries that people who didn’t pay MSP may avoid seeking more routine care, such as seeing a family doctor to manage diabetes or hypertension.

EHT “will absolutely improve access to care in the province," she said.