Additional Information regarding Compensation Directive 2004-008 in Relation to the Ontario Health Premium

COMPENSATION COMMUNIQUÉ

July 7, 2004

SUBJECT:

Additional Information regarding Compensation Directive 2004-008 in Relation to the Ontario Health Premium

Due to the numerous inquiries received concerning the Ontario Health Premium (OHP) that was introduced in the Ontario Budget presented on May 18, 2004, this communiqué is written to provide further clarification and to address the various types of questions that have been received.

It appears that many individuals are relating the OHP to the Ontario Government's former Ontario Health Insurance Plan (OHIP) and there lies the confusion. The OHP is not a health insurance plan but rather a personal income tax payable on all taxable income. The Ontario Government calls it a premium however it is deducted as income tax and reported on employee pay stubs and T4s as income tax. All employees working in the province of Ontario are subject to the OHP tax regardless of the employee's province of residence because income tax at source is based on the employee's province of employment. This particular tax is not identified separately from the existing income tax amounts withheld from the employee's payments. Compensation advisors will be able to respond more readily to employee inquiries if they relate to the fact that the OHP is an income tax and not a health insurance plan premium.

All taxable payments paid to an employee are subject to this tax including all supplementary payments (e.g. Overtime). The tax is calculated in the same manner as all other income taxes except that the OHP tax has a maximum annual deduction amount. Please refer to Compensation Directive 2004-008, Section 3.1 for information concerning rates, brackets and maximums.

It should also be noted that an employee who is on leave without pay is not receiving taxable income and therefore there is no OHP tax payable. Remember, OHP is a tax and not an insurance plan. If the employee receives taxable income from other sources, it is the payor (as long as it is an Ontario payor) of the payment who is responsible for withholding the OHP tax at source. Upon tax filing, the employee's total taxable income from all sources will be used to determine the total tax payable.

Concerns have been raised by Quebec resident employees who work in Ontario. Some of these employees feel that they should not be paying the OHP tax. As you are no doubt aware, income tax at source is calculated on employment income based on the province of employment, and, when the employee files his tax return, tax is based on the province of residence. Since the OHP is a tax, anyone working in Ontario is required to pay this tax at source. If, when the Quebec resident employee files his tax return, the ministère du Revenu du Québec (MRQ) determines that the employee's tax liability is less than the tax deducted at source, the employee will receive a refund from the MRQ. Currently, in the majority of instances, the Quebec resident employee working in Ontario is under deducted and must pay tax when he files his tax return. The deduction of the OHP tax will in most instances reduce the amount the employee will have to pay when he files his return. The only employees who might receive a refund from the MRQ at year end are those who currently have additional tax withheld at source or have other deductions they can claim when they file their tax return.

It should also be noted that the tax adjustment factor for employees working in Quebec and living in Ontario has been adjusted to take into consideration the increase in tax resulting from the implementation of the OHP tax. Please refer to Compensation Directive 2004-008, Section 3.4.

Lastly, compensation advisors should be aware that it has always been the right of any taxpayer, who feels that he is over deducted income tax at source, to request that the Canada Revenue Agency (CRA) provide relief from excessive income tax deductions at source. The employee must however prove to CRA that he will receive a tax refund when he files his tax return. Excessive tax deductions normally arise when an employee works in a province with higher tax rates than his province of residence, or, the employee has additional tax deductions (e.g. medical expenses, registered retirement savings plan purchases, capital losses, etc.) that are not taken into consideration at source.

Original Signed by
Tom Meyers

R. Jolicoeur
Director General
Compensation Sector
Finance, Accounting, Banking and Compensation

Reference(s): CJA 9007-7