Employer Health Tax for Charitable or Non-Profit Employers

The employer health tax is an annual tax on an employer’s B.C. remuneration paid to employees and former employees in a calendar year beginning on January 1, 2019. 

Employers pay the tax when their total B.C. remuneration is greater than $500,000 (this is referred to as the exemption amount). For charitable and non-profit employers, the exemption amount is set higher, at $1,500,000. 

When employers are associated with one another, they are required to share the exemption amount. However, employers who are associated with a charitable or non-profit employer aren't required to share the exemption with the charitable or non-profit employer.

Learn more about how the employer health tax applies to charitable or non-profit employers:

Charitable or Non-Profit Employers

You’re considered a charitable or non-profit employer if you’re a registered charity with the Canada Revenue Agency (CRA) or you’re exempt from paying income tax under the following sections of the Income Tax Act (Canada):

  • An agricultural organization, a board of trade, or a chamber of commerce (section 149(1)(e))
  • A registered Canadian amateur athletic association (section 149(1)(g))
  • A corporation constituted exclusively to provide low-cost housing for seniors (section 149(1)(i))
  • A non-profit corporation for scientific research and experimental development (section 149(1)(j))
  • A labour organization or society or a benevolent or fraternal society or order (section 149(1)(k)) 
  • A club, society or association that isn’t a charity and is organized and operated only for social welfare, civic improvement, pleasure or recreation and any other purpose other than profit (section 149(1)(l))

For employer health tax purposes, a charitable or non-profit employer doesn’t include an organization within the government reporting entity.

A charitable or non-profit employer also doesn’t include municipalities and crown corporations that are exempt from paying income tax under sections 149(1)(c) to (d.6) of the Income Tax Act (Canada).

Calculating the Employer Health Tax

A charitable or non-profit employer with B.C. remuneration:

  • Of $1,500,000 (exemption amount) or less doesn't pay employer health tax
     
  • Between $1,500,000.01 and $4,500,000 (notch rate amount) pays the tax as calculated: 
    • 2.925% x (B.C. remuneration - $1,500,000)
       
  • Greater than $4,500,000 pays the tax as calculated:
    • 1.95% x B.C. remuneration

For example, Registered Charity A pays B.C. remuneration in the amount of $2.5 million for a calendar year. The employer health tax payable for the year is calculated as

  • ($2,500,000 - $1,500,000) x 2.925% = $29,250

Use the employer health tax calculator to help you estimate the tax.

The exemption amount is prorated, for a period in a calendar year, if you don't have a permanent establishment in B.C. throughout the calendar year.

If you’re a charitable or non-profit employer with multiple locations in B.C., determine if your locations are qualifying locations. If you have more than one qualifying location, you may be eligible for more than one exemption amount. 

Qualifying Locations

Meeting the requirements of a qualifying location is only necessary if you have multiple locations and want to determine if you are eligible for more than one exemption amount. 

The land or premises, including any contiguous land or premises, must meet all the following to be considered a charitable or non-profit employer’s qualifying location.

  1. The land or premises is or is part of a permanent establishment of the charitable or non-profit employer in B.C.
  2. The charitable or non-profit employer has the exclusive right to occupy the land or premises.
  3. The land or premises is used and occupied only by the charitable or non-profit employer.

If a charitable or non-profit employer has branches, sections, parishes, congregations or other internal divisions, a qualifying location includes all their locations and all locations of any of its internal divisions that are in one building, or on one property or on contiguous properties.

Examples - Qualifying Locations

A charitable or non-profit employer rents several office suites in one building. All those suites are considered one location.  

A charitable or non-profit employer owns a parcel of land and builds several buildings on the land. All the buildings are considered one location.

A charitable or non-profit employer owns a building and then buys the building next door. Both buildings are considered one location because they are on contiguous parcels of land.

Charitable or non-profit employer A leases and has exclusive use of units 101 and 103 in a building. Charitable or non-profit employer B is a separate legal entity and B leases and has exclusive use of unit 201 in the same building.

Because they are separate legal entities, both A and B have a qualifying location in the same building and each have their own exemption. If, however, B was an internal division of A, all 3 units would be considered parts of one location and only one exemption would be available.

Charitable or non-profit employer C runs an after-school program in a community centre. C has a use-of-space permit that enables it to use the gym for 3 hours per day. Although C is the only organization using the gym during those 3 hours, the gym is used by other organizations at other times of the day. As C does not have exclusive use of the gym at all times, it cannot be a qualifying location for C. 

Charitable or non-profit employer D has a written agreement with a school board to use one particular classroom in a school to carry out its charitable activities. No other organization is permitted to use that classroom at any time for any reason. As D has exclusive use of the space, the classroom meets the location criteria; it is a qualifying location for which D may be able to claim an exemption. For the school, renting out a classroom does not disqualify the school location to be the school’s qualifying location if all other requirements are met.

Charitable or non-profit employer E enters into an agreement with Employer F to lease space from F to carry out E’s charitable activities. The leased space is a semi-open space that is within F’s place of business, but no other organization is permitted to use that space at any time for any reason. As E has the exclusive use of the space, the space meets the location criteria; it is a qualifying location for which E may be able to claim an exemption. If F is also a charitable or non-profit employer, renting out a part of their space to E does not disqualify the location to be F’s qualifying location if all other requirements are met. 

Where a location is a qualifying location

Charitable or non-profit employer E owns an apartment building where it provides supported living services to its clients. E has an office and a staff room in the building that are for staff use only and are not normally accessible by its clients. E has employees in the apartment building 24 hours per day. The apartment building is a qualifying location.

Where a location is not a qualifying location

Charitable or non-profit employer F owns an apartment building and leases the units in the apartment building to clients. F's employees provide services to the clients in their units in the apartment building (these are sometimes called supported independent living arrangements).

Although F's employees provide services to the clients in their units, the units belong to the clients under the lease. The units are used and occupied by F's clients who have the exclusive right to occupy the units and permit F's employees to work there. F does not maintain a staff room or office in the apartment building. The apartment building is not a qualifying location

 

To calculate your employer health tax if you have more than one qualifying location:

  1. Determine the B.C. remuneration for each qualifying location
  2. Calculate the employer health tax for each qualifying location
  3. Add up each qualifying location’s employer health tax. The total is your tax payable

Determining B.C. Remuneration for Each Qualifying Location

If you’re a charitable or non-profit employer with two or more qualifying locations, you need to determine the B.C. remuneration for each qualifying location.  

The following will help you determine how to allocate an employee’s B.C. remuneration to a specific qualifying location: 

  • If an employee reports for work at a qualifying location in a calendar year, the B.C. remuneration paid to or on behalf of the employee includes all remuneration paid to or on behalf of the employee during the calendar year;
  • If an employee reports for work at more than one qualifying location in a calendar year, all B.C. remuneration paid to or on behalf of the employee during the calendar year is considered to be attributed to the B.C. qualifying location where the employee primarily reports for work;
  • If an employee doesn’t report for work at a qualifying location in the calendar year, the B.C. remuneration paid by the charitable or non-profit employer must be allocated to a qualifying location that is reasonable based on all of the circumstances; and
  • All of the B.C. remuneration paid by a charitable or non-profit employer during a calendar year must be allocated to one or more qualifying locations for the calendar year. 

Note: If a location is not a qualifying location, the payroll/remuneration related to the location must be allocated to a qualifying location (such as the head office, or another qualifying location that the employees are attached to) for the purposes of calculating the employer health tax payable. The allocation must be reasonable under the circumstances.

For example, Charitable or non-profit employer X has 5 locations in B.C. 2 of the 5 locations are qualifying locations. X must calculate the employer health tax for each of the 2 qualifying locations. The B.C. remuneration paid to employees who report for work at the other 3 locations must be allocated to the 2 qualifying locations in a reasonable manner.

Calculating the Employer Health Tax with Multiple Qualifying Locations

If you have more than one qualifying location, you calculate the employer health tax for each qualifying location using the same tax rates for charitable or non-profit employers

Your employer health tax for a calendar year is the total of each qualifying location’s employer health tax. 

Examples - Multiple qualifying locations

 

Charitable or non-profit employer A has two qualifying locations

Charitable or non-profit employer A has two qualifying locations. The B.C. remuneration attributed to Location 1 is $1,000,000. The B.C. remuneration attributed to Location 2 is $2,000,000. A’s employer health tax for each qualifying location is calculated as:

Location 1: $0
Location 1 has B.C. remuneration that is below the exemption amount of $1,500,000. Therefore, the employer health tax payable for Location 1 is zero.

Location 2: $14,625
Location 2 has B.C. remuneration that is below $4,500,000. Therefore, Location 2 is entitled to the exemption amount of $1,500,000.
Location 2 calculates its employer health tax as:
2.925% x ($2,000,000 - $1,500,000) = $14,625

Total: $14,625
A’s total employer health tax payable is the total tax payable for locations 1 and 2, which equals $14,625.

 

Charitable or non-profit employer B has four locations, but only three are qualifying locations.

Charitable or non-profit employer B has four locations 1, 2, 3, and 4, but only three locations (1, 2, and 3) are qualifying locations. The B.C. remuneration for each location is:

Location 1 (head office): $5,000,000

Location 2: $1,200,000

Location 3: $1,600,000

Location 4: $500,000

All B.C. remuneration must be attributed to a qualifying location. Because Location 4 is not a qualifying location, the B.C. remuneration for Location 4 must be attributed to a qualifying location that is reasonable. In this case, Location 4’s remuneration is attributed to Location 1 (head office). As a result, Location 1’s B.C. remuneration is $5,500,000.

The employer health tax payable for each qualifying location is:

Location 1: $107,250
Location 1 has B.C. remuneration that exceeds $4,500,000. Therefore, Location 1 is not entitled to the exemption amount.
Location 1 calculates its employer health tax liability as:
1.95% x $5,500,000 = $107,250

Location 2: $0
Location 2 has B.C. remuneration that is below the exemption amount of $1,500,000. Therefore, the employer health tax payable for Location 2 is zero.

Location 3: $2,925
Location 3 has B.C. remuneration that is below $4,500,000. Therefore, Location 3 is entitled to the exemption amount of $1,500,000.
Location 3 calculates its employer health tax liability as:
2.925% x ($1,600,000 - $1,500,000) = $2,925

Total: $110,175
B’s total employer health tax payable is the total tax payable for locations 1, 2 and 3, which is $110,175.

 

Registering with Multiple Qualifying Locations

If you’re a charitable or non-profit employer, you must register for the employer health tax if your total B.C. remuneration of all qualifying locations (if you have more than one) is greater than $1,500,000. The $1,500,000 may be reduced for part-year employers.

For example, Charity ABC has three locations. Each location has a B.C. remuneration of $1,000,000. Since each location’s remuneration is less than the exemption amount of $1,500,000, Charity ABC doesn’t pay employer health tax. However, all charitable or non-profit employers with a total B.C. remuneration greater than $1,500,000 must still register for the employer health tax, even if they do not pay tax. Therefore, Charity ABC must register for the employer health tax.

For more information on how to register for the tax, see Register for Employer Health Tax.

Filing & Paying with Multiple Qualifying Locations

If you’re a charitable or non-profit employer with multiple qualifying locations you must file and pay your employer health tax on one tax return, calculate one tax amount and submit one payment, if applicable, for all your qualifying locations.

If you’re a charitable or non-profit employer and the total B.C. remuneration of all your qualifying locations is greater than $1,500,000, you’re still required to file a tax return, even if you don’t pay the employer health tax.

For more information on how to file and pay your employer health tax, see File and Pay Your Employer Health Tax.

Instalment Payments

Charitable and non-profit employers must make instalment payments if your employer health tax in the previous calendar year was greater than $2,925. 

Part-Year Employers

Employers that either begin or cease to have a permanent establishment in B.C. in a calendar year are required to pro-rate the exemption amount and the notch rate amount (where the rate drops to 1.95%) as follows:

  • To pro-rate the exemption amount:
    •  $1,500,000 x number of days with a permanent establishment in B.C. / 365 days
  • To prorate the notch rate amount:
    •  $4,500,000 x number of days with a permanent establishment in B.C. / 365 days

Charitable Organization ABC is a registered charity that begins to have a permanent establishment in B.C. on September 1, 2021.

Charitable Organization ABC has a permanent establishment in B.C. during the 2021 calendar year for 122 days.

Charitable Organization ABC will be eligible for a maximum exemption for the 2021 calendar year of $1,500,000 x 122 / 365 = $501,370.

Charitable Organization ABC calculates its notch rate amount at $4,500,000 x 122/365 = $1,504,110.

If Charitable Organization ABC has B.C. remuneration for the 2021 calendar year greater than $1,504,110, they won’t be eligible for an exemption and will be taxed at the rate of 1.95%.

Any B.C. remuneration that is greater than $501,370 and less than or equal to $1,504,110 will be taxed at the notch rate of 2.925%.

If Charitable Organization ABC has B.C. remuneration for the 2021 calendar year that is equal to or less than $501,370, Charitable Organization ABC won’t pay the employer health tax.