Looking to hire Manitoba-based talent? Hiring in Canada gives your company access to a highly lucrative employment market. Hiring from Manitoba means having access to a highly developed economy, a highly skilled talent pool, proximity to another economic powerhouse (the US), and much, much more. Though often overshadowed by larger Canadian cities, Manitoba offers a stable and diversified economy, with an educated and skilled workforce and one of the lowest rates of unemployment in Canada. But before you hire from Manitoba, you will need to understand the intricacies of this location’s specific tax regulations, ensuring you are deducting the right amounts.
For example, you may not be aware that in Canada, emergency and preventative medical services are thought to be free of charge, leading many to believe that healthcare is entirely free for Canadian residents, but this “free” healthcare does indeed come at a price.
The province of Manitoba pays for part of this publicly funded system through an Employer Health Tax (EHT) referred to as the Health and Post Secondary Education Tax Levy (HE Levey).
One of the main challenges that employers will face is understanding Canada’s federal and provincial local labor laws, including The HE Levy.
Employers must familiarize themselves with the individual tax obligations of each employee, and understand the payment process, mandatory payroll tax, and what constitutes payroll in Canada. In this article, we’ll tell you everything you need to know about Manitoba’s HE Levy. Let’s get to it!
What is Employer Health Tax?
Let’s start with the basics: what is EHT tax? The Employer Health Tax (EHT) is a payroll tax applicable to any compensation disbursed to an employee. This tax is automatically withheld from an employee's paycheck, and the exact amount may differ depending on the province within Canada. Manitoba is one of five provinces in Canada that has an EHT tax. The others are BC, Quebec, Newfoundland, and Ontario.
Employer Health Tax rates are decided by each province's government, respectively. For example, the Ontario government and Ontario ministry set EHT rates for Ontario payroll within the province.
What is the HE Levy?
The HE Levy (a form of EHT tax) is a payroll tax on all remuneration paid to an employee, including bonuses, salaries, wages paid to hourly employees, stock options, etc. The HE Levy is paid by employers with a permanent establishment in Manitoba. The amount an employer owes depends on the total amount of remuneration paid to employees who reside in the province by the employer.
Associated groups, which include associated corporations and specific corporate partnerships, must divide the $2 million exemption among themselves, considering the total combined annual payroll.
Employers whose total compensation in a year amounts to $2 million or less are granted an exemption.
Tax rates based on total yearly payroll:
- $2 Million or less: Exempt
- $2 to $4 million: 4.3% on the amount over $2 million (notch provision).
- Over $4 million: 2.15% of the total payroll (the $2 Million is not a deduction).
Employers without a continuous presence in Manitoba throughout the entire year must calculate the exemption or notch provision (as applicable) on a prorated basis for that year.
What is Remuneration?
Remuneration, or payroll in Canada, is defined as employment income and taxable benefits under Canada’s Income Tax Act.
Remuneration can include:
- Salary and wages
- Advances in salary and wages
- Bonuses, commissions, and other additional payments
- Gratuities or tips paid through an employer
- Taxable allowances and benefits
- Stock option benefits
- Employer-sponsored life insurance premiums
- Top-up benefits
- Directors’ fees
- Honorariums
- Employer-paid contributions to employee trusts
There are specific exemptions under this act. For instance, payments like pensions made by an employer to a retired former employee are not classified as part of payroll. Additional exclusions include:
- Private health service plans.
- Contributions to supplementary unemployment benefit plans.
- Deferred profit-sharing plan contributions.
- Other similar plans and contributions.
Who is Responsible for Paying the HE Levy?
The HE Levy is a tax paid by employers with employees who report to a permanent establishment (fixed business address) in Manitoba.
Suppose an employee does not physically attend any of the employer's permanent establishments (inside or outside Manitoba) but receives their pay through a permanent establishment in Manitoba. In that case, employers are still responsible for paying the HE Levy.
Employers with Manitoba payroll systems in place are considered eligible employers and are required to abide by these tax rates, though certain exceptions may apply.
For employers, this includes:
- The federal and provincial government
- Partnerships
- Trusts
- Proprietorships, corporations, municipalities, universities, school boards, hospitals, nonprofits, or charities.
Who is Exempt from the HE Levy?
There are a few cases in which employers may receive a tax exemption. Those are:
- Employers with a total annual remuneration of $2,000,000 or less within a tax year (The exemption is not applicable to individual entities within an associated group (including corporate partnerships) with an annual total remuneration exceeding $2 million).
- Employers with Manitoba-based employees who report to a permanent establishment outside the province.
- Compensation given by a common carrier to an employee for operating a commercial truck outside of Manitoba or on an inter-jurisdictional trip is not subject to the HE Levy.
Tax Information for Employers
Basic Tax Rate in Manitoba
Employers with a total remuneration surpassing $4 million annually are taxed at the basic rate of 2.15% on the entire amount. This means the initial $2 million is not exempt.
For example, the tax payable on remuneration of $5.5 million would be ($5,500,000 X exemption prorated for part-year 2.15%) = $118,250.
Notch Tax Rate in Manitoba
Employers with total remuneration ranging from $2 million to $4 million annually are only taxed on the portion exceeding $2 million, at the notch tax rate of 4.3%.
For example, on remuneration of $2.15 million, the tax payable is ($2,150,000 - $2,000,000 = $150,000) X 4.3% = $6,450.
It’s important to note that entities within an associated group, which includes corporate partnerships, are treated as a unified employer. For instance, if Corp. A disbursed $1,000,000 in remuneration, and Corp. B disbursed $1,150,000; the combined remuneration for the associated group is $2.15 million, and the tax liability follows the example provided above.
Exemption Prorated for Part-year
Employers who do not have a permanent establishment in Manitoba for the full year must adjust the exemption or notch provision (as applicable) on a prorated basis. This adjustment is proportionate to the number of days the employer had a permanent establishment in Manitoba during that year.
For example, the prorated exemption for an employer operating in Manitoba for 100 days = 100/365 x $2,000,000 = $547,945, and the notch tax range would be between $547,945 and $1,095,890.
Hence, the tax amount due for the Manitoba operations in that year can be determined through the following:
- If the remuneration paid is $300,000 – no tax is payable as this amount is less than the prorated exemption;
- If remuneration paid is $700,000 – the tax payable is in the notch range i.e. ($700,000 - $547,945 = $152,055) x 4.3% = $6,538;
- If remuneration paid is $1,200,000 – this exceeds the prorated notch range, and the tax is payable on the total amount, i.e. $1,200,000 x 2.15% = $25,800.
This provision generally applies to employers who had a permanent establishment in Manitoba for only part of the year. This includes out-of-province contractors and businesses that began or ended operations in Manitoba during the year or experienced a change in legal structure (e.g. a sole proprietorship incorporating mid-year).
Non-resident Contractors
A non-resident contractor obligated to provide security for tax liability under The Retail Sales Tax Act must also provide cash or securities to the Minister or arrange for a bond as collateral for the payment of the HE Levy. The amount of security for the HE Levy should not exceed 2.15% of the total price.
It’s important to be aware that the bond must be issued by an insurer duly licensed under The Insurance Act of the province of Manitoba, and it must be in a format acceptable to the Minister of Finance.
Before making the final payment to a non-resident subcontractor, the resident general contractor or principal must secure a clearance letter from Manitoba Finance confirming that the non-resident subcontractor's tax account is in good standing.
In cases where the general contractor is a non-resident, the principal must ensure that clearance letters are obtained for both the non-resident subcontractors and the general contractor.
If a non-resident contractor's account is not in good standing, either the resident general contractor or the principal is obligated to withhold an amount equivalent to the outstanding tax from any holdback and remit this sum to Manitoba Finance. If the general contractor is a non-resident, the principal must remit any outstanding tax to Manitoba Finance that has not been remitted by the non-resident contractors.
Releasing the holdback without obtaining a clearance letter, the general contractor or principal will be held responsible for any unpaid tax.
Upon the completion of the contract in Manitoba, Manitoba Finance may conduct an audit. If it is determined that the tax has been fully paid, the deposit or bond will be refunded, and a clearance letter will be issued.
Self-employed Earnings
Income made through self-employment of a proprietor or from a partnership by a partner is not considered remuneration for HE Levy purposes and is not subject to taxation.
Payments made for contract services are also not subject to the HE Levy. Contract services refer to services provided by an individual who lacks an employer-employee affiliation with the payer. In such cases, the payments are not classified as remuneration for HE Levy objectives and are, therefore, not subject to taxation. It's important to highlight that the criteria for establishing the presence of an employer-employee relationship for HE Levy purposes align with those applied by the Canada Revenue Agency (CRA).
Taxing Remuneration Paid by a Joint Venture
A joint venture is not identified as an employer by the terms of the HE Levy. It is the individual venturers who are recognized as the employers. The compensation disbursed via the joint venture must be distributed among the individual venturers following the same method used for allocating their earnings and costs. This is seen as compensation directly issued by the individual venturers. Each venturer is liable for the HE Levy based on their complete remuneration for the year, which includes the remuneration from a joint venture.
Other Payroll Taxes in Manitoba
In addition to the HE Levy, employers in Manitoba are responsible for handling other payroll deductions and social security contributions. Manitoba-based companies are responsible for withholding federal and provincial income tax contributions for each employee. These include:
- Employment Insurance (EI)
- Canada Pension Plan
Employers in Manitoba will also need to pay income taxes. The employer is responsible for withholding income tax for all employees. The personal income tax rates in Manitoba for 2023 are:
- 10.80% for the first $36,842
- 12.75% for amounts over $36,842 up to $79,625
- 17.40% on amounts over $79,625
Effective for the 2024 tax year, Manitoba’s tax bracket thresholds will increase, with a return to annual indexing in 2025.
In 2024, Manitoba’s personal income tax rates will be:
- 10.80% for the first $47,000
- 12.75% for amounts over $47,000 up to $100,000
- 17.40% on amounts over $100,000
Regarding basic personal amount (BPA) credits in Manitoba, on March 7, 2023, the Government of Manitoba announced an increase to the province’s basic personal amount. As of 2023, the basic personal amount will increase from $10,855 to $15,000.
Manage Payroll Deductions Using the Canada Payroll Calculator
If you’re new to filing taxes in Manitoba, consider using online software such as the Canada Payroll Calculator. Using the Payroll Deductions Online Calculator (PDOC) to calculate federal, provincial (excluding Quebec), and territorial payroll deductions is one way to check compliance with Canadian tax regulations. It works by verifying deductions that you list on your official earnings statement.
However, you should be aware that you bear the responsibility for any risks associated with using this calculator. The results of the calculations generated rely on the accuracy of the information you input.
Another way to ensure compliance is to work with an Employer of Record to ensure your tax reports are correct.
When Does the HE Levy Need to be Paid?
Monthly Returns
Every employer that pays remuneration exceeding $2 million for the year must submit a monthly report detailing the total remuneration distributed for that month, along with the corresponding tax owed.
Monthly reports and payments are required to be submitted by the 15th day of the following month. For example, the report for March should be filed and paid by April 15. In case the 15th falls on a weekend or public holiday, the deadline shifts to the next business day. Payments outside the specified pay period will be subject to penalty and interest. Monthly payments must be made online.
If your annual remuneration is over $2 million, it's mandatory to submit a HE Levy return for each month, even if there were no payments made in a specific month.
There are two types of monthly returns:
- Employers (including corporations within an associated group) whose total remuneration for the year falls between $2 million and $4 million are required to file a monthly return detailing the amount of remuneration paid. They start paying tax once the total remuneration for the year surpasses $2 million. Beyond this, the HE Levy is applicable on remuneration over $2 million. This is calculated by applying the notch tax rate of 4.3% to the remuneration paid each month for the remainder of the year.
- Employers (including corporations of an associated group) with total remuneration over $4 million for the year are liable to pay tax on the entire remuneration disbursed. They must file a return and remit the corresponding tax each month, calculated using the basic tax rate of 2.15% multiplied by the remuneration paid in that specific month.
Annual Reports
In addition to monthly returns, employers with taxable remuneration in a given year must submit a HE Levy Annual Report for that year no later than March 31 of the following year. If March 31 falls on a weekend or public holiday, the deadline is extended to the next business day. This report must be filed on TAXcess, accompanied by:
- Schedule “A” HE Levy Schedule For Associated Corporations/Corporate Partnerships (if applicable).
- Payment for any amount owing.
- Copy of every information summary (e.g., T4, T4A) required to be filed under Canada’s Income Tax Act.
- Summary of contributions to an employee profit-sharing plan (EPSP) or an employee trust.
- Documentation outlining the difference between the remuneration disclosed in the Annual Report and the figures indicated on the T4 and T4A Summaries. This may include specifics regarding payments made to employees who reported for duty at an employer's permanent establishment in a different province or contributions to an EPSP.
Groups with associated employers must submit a consolidated annual report online. Within the associated group, a single employer should be appointed to file the HE Levy Annual Report, along with the Schedule "A" HE Levy Schedule For Associated Corporations/Corporate Partnerships, on behalf of each associated corporation/corporate partnership.
Employers who do not pay the required taxes by the due date will be subject to a penalty of 10% of the unpaid tax balance. In addition, employers who do not file the required returns by the due date may be issued a penalty of $200 for each day the payment is late.
How to Register
An employer must register for the HE Levy if the total remuneration paid to their employees is over $2 million within a year. Employers paying Manitoba-based employees and contractors can register for the HE Levy by registering online.
To pay taxes, employers will need to register for an account on the TAXcess Manitoba website.
To register, you’ll need to provide:
- Legal or “operating as” name of business and business structure
- Recent tax returns for each tax account include the following:
- account number
- account type
- last payment amount - Contact information
Employers
Before filing the report, employers will need to provide all required information to create an account. A detailed walkthrough of the steps to be taken depending on the specifics of the account being opened and the taxes being filed can be found here.
After an account has been made, a confirmation number will be issued to confirm your online sign-up. You will receive an email confirmation to the address provided with instructions for signing in.
You will also receive an authorization code. This should be kept for your records. The authorization code is only required the first time you sign in to TAXcess.
Payment Method
To add a Pre-Authorized Payment (PAD) payment source:
- Enter the name of the financial institution from which you would like to make your payments.
- Enter the bank account type, bank and branch number, and account number, and confirm the account number.
- Review and verify the information on the Pre-Authorized Payment Agreement Form.
- Read and agree to the terms and conditions of the Pre-Authorized Payment Agreement.
Now you have added a payment source and can begin making payments.
How Can an Employer of Record Help?
Managing local employment compliance, taxes (including the HE Levy), benefits, global payroll, and more for your Manitoba-based employees can be challenging, particularly if you’re just beginning to expand into the market.
An Employer of Record (EOR) service can provide comprehensive support in understanding the legal prerequisites for hiring an employee in Canada, as well as gauging the required costs of employment. An EOR service can also help navigate local regulations concerning payroll deductions in Manitoba.
Additionally, an Employer of Record streamlines the entire process of maintaining compliance when bringing new employees on board. This includes guiding new employees through onboarding, handling benefits, negotiating contracts, and more.
An EOR service also manages all payroll deductions, including income tax withholding. By partnering with an EOR, you can avoid any potential penalties for noncompliance and ensure you have a complete understanding of Manitoba's employer health tax.
Why Borderless?
Make the process of paying taxes in Manitoba easy with Borderless. Borderless has extensive knowledge regarding federal and provincial employment laws in Canada. We act as a local legal entity that allows you to hire employees legally.
We handle everything from ensuring your company pays the correct HE Levy amounts to managing remote workers so you can focus on growing your business. Speak with our team today to see how we can help you hire from over 170 countries worldwide.
Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
