Hiring in Canada continues to be appealing to businesses as it allows access to major global markets, a highly skilled workforce, and more.
But you don't need to stick to popular provinces like Ontario. Several smaller provinces like Newfoundland and Labrador offer tax credits and incentives to strategically encourage local economic growth.
One such incentive is the Health and Post Secondary Education Tax (HAPSET).
If you’re looking to hire Newfoundland and Labrador-based employees, read on to find out the details behind HAPSET, EHT tax, and what you’ll need to know as an employer.
What is the Health and Post Secondary Education Tax (Payroll Tax)?
The Health and Post Secondary Education Tax (HAPSET), commonly known as the payroll tax, must be paid by employers on the gross salary paid to employees who work in Newfoundland and Labrador.
Employers indirectly contribute to Newfoundland's Medical Care Plan by paying a payroll levy called the Employer Health and Post-Secondary Education Tax (HAPSET), which is managed by the Ministry of Finance.
Every employer with a permanent establishment in Newfoundland and Labrador with working employees must remit the Health and Post-secondary Education Tax. This tax must be paid by all employers who pay remuneration in relation to a business in the province.
Eligible employers include:
- Individuals
- Government
- Associations
- Corporations
- Partnerships (including a limited partnership or joint venture)
The Health and Post-secondary Education Tax is determined based on the employer's total annual payroll before deductions. The initial $500,000 of total remuneration is not subject to this tax.
If you are an eligible employer with a Newfoundland and Labrador payroll system in place, you are required to pay HAPSET taxes, though certain exceptions can apply. The tax rate payable by all employers is 2% of their taxable remuneration.
Newfoundland and Labrador is one of five provinces in Canada that implements an employer health tax. The other provinces are Manitoba, Quebec, British Columbia and Ontario.
How Is Remuneration Defined?
Remuneration encompasses salaries, wages, bonuses, commissions, allowances, or benefits disbursed or attributed to an employee, officer, or director of an employer under section 5(1) or section 6 or, section 7 as defined by the Income Tax Act (Canada).
Remuneration can also include:
- Taxable benefits and allowances
- Directors' fees
- Employer contributions to employee profit-sharing plans
When paid or credited, these amounts must be accounted for as income derived from employment by said employee, officer, or director for the purposes outlined in that Act.
In practical terms, any amounts classified as "income from office or employment" according to the Income Tax Act, if paid by or credited to the employee by the employer, fall within the scope of remuneration under HAPSET.
It’s important to note that certain exclusions apply. For example, pension, annuity, retiring allowances for pension income, and superannuation are not subject to the HAPSET.
Why Is Newfoundland Payroll Tax Necessary?
HAPSET is a form of employer health tax (payroll tax) paid by employers based on their total annual remuneration. The Ontario government implemented EHT in 1990, spurring other provinces such as Newfoundland and Labrador to introduce such a tax for companies that operate in the province.
The Health and Post-secondary Education Tax acts as a health services fund that provides the Canadian government with revenue to fund health care in the province. These contributions help cover medical expenses, childcare expenses, and other basic personal health-related expenses for residents.
In addition to employee contributions, employers are also responsible for making contributions to fund provincial health plans.
Who Is Responsible for Paying HAPSET?
Any employer with a permanent establishment in Newfoundland and Labrador and with employees reporting to work at or being paid through permanent establishments in Newfoundland and Labrador must pay HAPSET.
Taxable remuneration is determined by subtracting the allocated deduction (which is currently set at $400,000 per employer annually) from the total remuneration paid by an employer.
If an employer is a partner with another employer or is a corporation affiliated with another corporation, the $400,000 deduction from remuneration must be distributed among each partner or affiliated corporation, as specified in the province’s allocation agreement (which is referenced below).
A corporation is considered associated with another if it meets the criteria outlined in section 256 of the Income Tax Act (Canada).
Allocation Agreement
Employers linked with another corporation or partners with fellow employers responsible for employee remuneration must submit an allocation agreement to allocate the $400,000 deduction.
Not submitting the allocation agreement could lead to each employer in the group of associated corporations or partnerships losing out on their deduction.
Registered Charities And Private Sector Non-Profit Groups
Registered charities under the Income Tax Act (Canada) or those identified by the Minister of Finance as private sector non-profit organizations that maintain distinct locations within the province will receive individual $400,000 deductions for each establishment where they employ individuals in the province.
A non-profit organization is classified as a private sector non-profit organization if over half of its operational funding is derived from non-governmental sources.
Who is Exempt from Paying HAPSET?
Effective January 1, 2023, the threshold for exemption for Canada employer payroll taxes 2023 in Newfoundland and Labrador has been increased from $1.3 million to $2 million for all employers. If your cumulative payroll is under $2 million, you are not required to pay HAPSET payroll tax.
Charitable and nonprofit bodies are allocated separate deductions for each establishment where the organization has employees working in the province (rather than just one deduction for the whole company). For HAPSET purposes, a nonprofit is considered private if over half of its operating budget comes from non-government sources.
Health and Post Secondary Education Tax Rates in Newfoundland
So how much must you pay towards the Health and Post Secondary Education Tax?
Payroll tax at a rate of 2% of your taxable remuneration must be paid if your annual remuneration exceeds $2 million.
In this case, taxable remuneration means total remuneration paid by an employer minus its allocated deduction ($2 million per employer each calendar year).
Let’s say an employer is a partner of another employer or is a corporation associated with another corporation. In that case, the $2 million deduction from remuneration is allocated among each partner or associated corporation according to an allocation agreement.
See section 256 of the Income Tax Act (Canada) to know if your corporation is associated.
If you are associated or in partnership with another employer who pays remuneration to employees, you’ll need to file an allocation agreement to allocate a $2 million deduction amount.
How to Calculate HAPSET
The tax rate, payable by all employers in Newfoundland and Labrador, is 2% of taxable remuneration under $2 million. This makes calculating how much you owe relatively simple.
To calculate the amount of HAPSET you owe, simply multiply the annual amount by 2%.
How to Make HAPSET Payments
If an employer expects to exceed its allocated deduction for their annual remuneration, they must start submitting returns from the month in which the remuneration surpasses the allocated amount. These returns must be filed by the 20th of the month after the employer paid the remuneration.
Employers will also need to complete an Annual HAPSET Declaration Return form by the deadline of the subsequent year. This form is used to calculate the employer's total HAPSET due for the year.
Before submitting your returns, you must register with the Department of Finance in Newfoundland and Labrador. Once you have registered, you can view and print their tax forms online and mail them to: P.O. Box 8700 St. John’s, NL A1B 4J6. Alternatively, you can visit the Department of Finance office in St. John’s in-person.
For further questions or assistance with personal tax credits, remitting source deductions, and more, you can contact the office at:
Tax Administration Division Confederation Building
P.O. Box 8720
St. John's, Nfld.
A1B 4K1
Phone: (709) 729-6297
Fax: (709) 729-2856
Financial penalties and interest will be applied to late payments if payments are not sent to the Department of Finance or a recognized financial institution by the applicable due date.
How an Employer of Record Can Help?
Managing local employment compliance, taxes (including HAPSET), benefits, payroll, and more for your Newfoundland and Labrador-based employees can be challenging. If you’re just beginning to expand into the market, you'll want to focus on things like cultural acclimation, onboarding, and workforce skills development.
An Employer of Record platform can help you understand the legal requirements of hiring an employee in Canada, and the necessary employment costs.
An Employer of Record (EOR) serves as the legal employer of your talent in Newfoundland and Labrador, ensuring compliance when onboarding and paying the team.
Engaging an EOR helps you sidestep potential penalties for noncompliance and ensures accurate calculation of Newfoundland and Labrador’s Health and Post Secondary Education Tax.
Why Borderless AI?
Borderless AI serves as an Employer of Record (EOR) platform with specialized knowledge of Canada's federal and provincial employment laws. By acting as your legal entity in Canada, we enable you to hire employees in compliance with regulations. Our expertise in Newfoundland’s taxation requirements allows you to dedicate more time and attention to identifying the ideal candidates for your roles.
Speak with us today to discover how we can facilitate hiring from over 170 countries around the globe.
Disclaimer
Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
