Canada: Tax Bulletin - Ontario Health Premium

On June 21st, the Ontario government introduced legislation in order to implement the new Ontario Health Premium ("OHP") that was introduced by the 2004 Ontario budget. The OHP will be enacted through an amendment to the Ontario Income Tax Act with the result that standard income tax source deduction rules will apply to the collection of the OHP.

The OHP will be payable at graduated intervals based on an individual’s taxable income. The OHP for 2004 will be ½ of the full year premium for 2005. This reflects the introduction of the tax halfway through 2004. An individual will be liable for the OHP once taxable income exceeds $20,000. Individuals with taxable income exceeding $200,000 will pay the maximum OHP of $900 ($450 in 2004). The following chart summarizes the premiums applicable to various levels of taxable income:

 

Proposed Premium (per Individual)

Taxable Income

2004 Taxation Year

2005 and Subsequent Taxation Years

Up to $20,000

$0

$0

$20,000 - $36,000

$150

$300

$36,000 - $48,000

$225

$450

$48,000 - $72,000

$300

$600

$72,000 - $200,000

$375

$750

more than $200,000

$450

$900

Impact on Employers

Employer’s Tax Withholding Obligations

At the time of writing, the legislation implementing the OHP had not yet become law. However, if passed, the obligation to pay the OHP will be retroactive. The Canada Revenue Agency (the "CRA") is recommending that employers withhold the prescribed proportion of the OHP from every employee’s pay starting with the first payroll in July, 2004. The CRA has updated its Payroll Deductions Tables and Tables on Diskette effective for July 1, 2004 such that the OHP is built into the amounts shown on the tables.

Employers With Collective Agreements

Before 1989, Ontario employees paid health care premiums (OHIP). At that time, many collective agreements provided that the employer would pay all or a portion of their workers’ health care premiums. Although OHIP premiums were abolished in 1989, many collective agreements may not have been amended to reflect this fact. As a result, those agreements may still contain provisions requiring employers to pay all or part of the cost of health care premiums. However, the OHP is a tax rather than a premium. Whether the OHP would be captured by the wording of collective agreements related to health care premiums will depend upon the specific wording of those agreements. Since there is a difference between the former OHIP premium and the new OHP, it should not automatically be assumed that old collective agreement provisions dealing with OHIP premiums will now apply to the OHP. As a result, employers should seek legal advice on the particular terms of their collective agreements in order to determine whether they will be required to pay the OHP.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2004 McMillan Binch LLP

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