Employer Health Tax for Associated Employers

If you’re associated with one or more employers on December 31, you're considered to be an associated employer for the purposes of the employer health tax. If you aren’t associated with another employer on December 31 you aren’t considered associated for that calendar year.

Associated Employers

Associated employers are a group of employers connected with each other by ownership or by a combination of ownership and relationships between individuals. Individuals are related either through blood, marriage or adoption.

The employer health tax applies section 256 of the Income Tax Act (Canada) with modifications to determine whether or not employers are associated. In particular, the association rules are extended to include individuals, partnerships and trusts.

The following are examples of different employers that are associated with one another:

  • One corporation controls the other corporation.
  • Both corporations are controlled by the same person, or group of persons.
  • Each corporation is controlled by a different person and the persons are related. One of them owns at least 25% of any class of shares of each corporation.  
  • One corporation is controlled by one person, and that person is related to all members of the group that controls the other corporation. That one person also owns at least 25% of the shares of the other corporation (other than shares of a specified class). It isn’t necessary that the members of the group be related to each other.
  • Each corporation is controlled by a related group, with all members of one group related to all members of the other group. One or more persons who are members of both groups, either alone or together, own at least 25% of the shares of each corporation (other than shares of a specified class).
  • Two corporations that aren't otherwise associated with each other will be considered associated with each other if they are associated with the same corporation (the third corporation).

How to Apply Associated Employers Rules to Individuals, Partnerships and Trusts

Individuals, partnerships and trusts are considered to be corporations with one class of voting shares. To determine ownership of shares:

  • Sole Proprietor: The individual owns all of the shares of the corporation.
  • Partnership: Each partner owns shares in the same proportion in which he or she shares the income or loss of the partnership.
  • Trust: Each beneficiary of a trust owns shares in the same proportion in which he or she shares the income or loss of the trust.

Note: If you're an employer who is associated with a charitable or non-profit employer, you aren't required to share the exemption with the charitable of non-profit employer. 

Exemption Amount for Associated Employers

If you are a member of a group of associated employers, you have to decide whether the group is eligible for the exemption based on the group’s combined B.C remuneration.

If you’re an associated employer on December 31 in a calendar year and the combined B.C. remuneration paid during the calendar year by all the associated employers is:

  • $500,000 or less: 
    • You don’t pay the employer health tax for the calendar year.
  • Between $500,000.01 and $1,500,000:
    • The group is eligible for the $500,000 exemption amount,
    • You must have an agreement to share the $500,000 exemption amount to all employers in the group for the calendar year, and
    • Each employer in the associated group with B.C. remuneration greater than the allocated exemption amount pays the employer health tax at 2.925%.
  • Greater than $1,500,000:
    • You aren’t eligible for the exemption amount for the calendar year, and
    • Each employer in the group pays the employer health tax at 1.95% of the employer’s B.C. remuneration.

The $500,000 exemption amount and the $1,500,000 threshold are prorated if, for a period in a calendar year, no employer in the group has a permanent establishment in B.C.

Examples - Calculating the employer health tax for an associated group of employers

Corporation A and Corporation B are an associated group of employers. Corporation A has B.C. remuneration of $100,000. Corporation B has B.C. remuneration of $300,000.

To determine whether Corporation A and Corporation B are entitled to claim the exemption amount of $500,000, Corporation A and Corporation B are required to combine their B.C. remuneration.

The combined B.C. remuneration of Corporation A and Corporation B is $400,000. Because the combined B.C. remuneration is below $500,000, neither Corporation A nor Corporation B is required to pay the employer health tax.

Corporation C and Corporation D are an associated group of employers. Corporation C has B.C. remuneration of $200,000. Corporation D has B.C. remuneration of $400,000.

To determine whether Corporation C and Corporation D are entitled to claim the exemption amount of $500,000, Corporation C and Corporation D are required to combine their B.C. remuneration.

The combined remuneration of Corporation C and Corporation D is $600,000. Because the combined B.C. remuneration is below $1,500,000, Corporation C and Corporation D are entitled to claim the exemption amount of $500,000.

As a group of associated employers, Corporation C and Corporation D must enter into an agreement to share the exemption amount. Corporation C claims an exemption amount of $200,000. Corporation D claims an exemption amount of $300,000.

Corporation C will calculate its employer health tax as:

2.925% x ($200,000 - $200,000) = $0

Corporation D will calculate its employer health tax as:

2.925% x ($400,000 - $300,000) = $2,925

Corporation D and Corporation E are an associated group of employers. Corporation D has B.C. remuneration of $700,000. Corporation E has B.C. remuneration of $900,000.

To determine whether Corporation D and Corporation E are entitled to claim the exemption amount of $500,000, Corporation D and Corporation E are required to combine their B.C. remuneration.

The combined remuneration of Corporation D and Corporation E is $1,600,000. Because the combined B.C. remuneration exceeds $1,500,000, neither Corporation D nor Corporation E are entitled to claim the exemption amount of $500,000.

Corporation D will calculate its employer health tax as:

1.95% x $700,000 = $13,650

Corporation E will calculate its employer health tax as:

1.95% x $900,000 = $17,550

 

Agreement to share the exemption amount

If a group of employers are associated on December 31 and the group is entitled to an exemption amount (i.e. the group's combined B.C. remuneration is between $500,00.01 and $1,500,000 for the calendar year), the group must enter into an agreement to share the exemption amount for the calendar year.

The maximum exemption amount for a group of associated employers is $500,000 for a calendar year. The exemption amount is prorated if, for a period in a calendar year, no employer in the group has a permanent establishment in B.C.

Example - Group Maximum Exemption Amount

Corporation A has a permanent establishment in B.C. from March 1 to December 31.

Corporation B has a permanent establishment in B.C. from May 1 to December 31.

Corporation C has a permanent establishment in B.C. from July 1 to December 31.

Corporations A, B and C are associated employers on December 31.

For the calendar year, the maximum exemption for the group is $419,178 ($500,000 x 306/365) because for 59 days (January 1 to February 28), no employer in the group has a permanent establishment in B.C.

An agreement cannot assign an exemption amount to an employer higher than the exemption amount that employer would have been eligible for if that employer weren't associated. For example, the group cannot assign all of the group’s maximum exemption of $419,178 to Corporation C. The maximum exemption that can be assigned to Corporation C is $252, 055 ($500,000 x 184/365).

Modifications to Association Rules

The association rules only apply to employers that are associated with each other on December 31 of a calendar year.

If Employer A and Employer B aren't otherwise associated with each other, but are each associated with Employer C, all three employers are considered to be associated with each other. Unlike the association rules under the Income Tax Act (Canada), the employers cannot elect out of the association rules.

Note: Sections 256(7) to (9) of the Income Tax Act (Canada) don’t apply to the association rules under the Employer Health Tax Act.