2004 British Columbia Budget Report
February 17, 2004
Highlights
- Balanced budget for 2004 - 05 SR&ED credit extended
- International Financial Business Program Enhanced
Overview
"Our best is yet to come"
With these words, the Honourable Gary Collins delivered his third budget as Minister of Finance. And in spite of numerous challenges for the province over the last year, the province remains on track to deliver a balanced budget next fiscal year. With an economy that finally seems to be turning the corner and with the 2010 winter Olympics on the horizon, there are signs that better times are ahead.
The financial results for the 2003-04 fiscal year are projected to be better than forecast at this time last year, with a projected deficit of $1.6 billion. In last year's budget, the deficit was projected to be $2.2 billion. And today, the Minister announced a small budget surplus of $100 million for the 2004-05 fiscal year. It was critical that the government was able to announce a balanced budget for the next fiscal year to meet the balanced budget requirement under the Balanced Budget and Ministerial Accountability Act.
No changes to income tax rates were announced today. However, the government did announce that it was extending its scientific research and experimental development tax credit program. It is also introducing changes to the International Financial Business Program to broaden the range of businesses that can participate and to expand the program to the entire province.
On the spending side, the government did not have much room to manoeuvre. However, some new money was found for health care and education. Mr. Collins was very clear that this new money is to be targeted at improving patient care and the education system and is not available for wage increases for health care professionals or teachers.
The following is a summary of the more important items of interest to our clients.
British Columbia Budget Projections |
(in millions $) |
|
Original Estimate 2003/2004 |
Revised Forecast 2003/2004 |
Projected
2004/2005
|
Revenue |
27,615 |
27,454 |
28,357 |
Expenditures |
(30,730) |
(31,032) |
(30,229) |
|
(3,115) |
(3,578) |
(1,872) |
Commercial crown corporation net income
Forecast allowance |
1,381
(500) |
2,034
(100) |
2,072
(100) |
Overall (deficit) |
(2,234) |
(1,644) |
100 |
Tax Changes Affecting Individuals
Property Tax Exemptions Broadened
Effective February 18, 2004, the scope of family relationships which meet the ownership test in the definition of "family farm" will be broadened to include siblings, aunts, uncles, cousins, nieces, nephews, and the spouses of these individuals. In addition, the rules for tax-exempt intergenerational transfers of a family farm will be broadened to include transfers to siblings and the spouses of siblings. Also effective tomorrow, the exemption for transfers of a family farm through trustees to related individuals will be expanded to include transfers through a trustee to a family farm corporation owned by related individuals.
Additional exemptions will be provided on transfers to and from the Public Guardian and Trustee on behalf of minors. These new exemptions will ensure that tax won't be imposed a second time in cases where the Public Guardian and Trustee has already paid tax on behalf of the minor.
Finally, effective February 18, 2004, an exemption is provided for transfers to trustees of registered charities with religious purposes under specified statutes (where the registered charity does not take legal title to the property). Previously, tax remissions had been routinely used to eliminate the tax in these circumstances.
Home Owner Grant Act Threshold Increased
Effective for the 2004 tax year, the threshold value for the phase-out of the home owner grant is increased to $585,000 from $525,000, while the phase-out rate remains unchanged. Recipients of the basic home owner grant will continue to receive a partial grant for properties with values up to $632,000 ($659,500 for seniors).
BC Family Bonus Decreased
As the federal government has increased the National Child Benefit Supplement, the BC Family Bonus, including the basic benefit and BC Earned Income Benefit will be reduced. This change is similar to changes made since 1998, but the details were not provided. However, the BC government states that depending on family circumstances, families will receive either the same or increased combined federal and provincial benefits.
Business Tax Changes
SR & ED Tax Credit Extended
The Finance Minister announced that the BC Scientific Research and Experimental Development (SR&ED) Tax Credit will be extended for a further five years to August 2009. To encourage research and development, a 10 per cent corporate tax credit is available on qualifying BC expenditures incurred by Canadian-controlled private corporations. The Minister also confirmed that for 2003 and subsequent tax years, the taxable income phase-out range for the $2 million expenditure limit is $300,000 to $500,000, up from $200,000 to $400,000 (to match recent federal changes).
International Financial Business Program Enhanced
To attract new international financial businesses (IFBs) to BC, several changes will be made to the BC International Financial Business (Tax Refund) Act, as follows (effective date in brackets):
- Most types of corporations carrying on international financial activities will be able to register. Registration was previously restricted to financial institutions (September 1, 2004).
- The requirement that IFBs be located in the Greater Vancouver Regional District will be eliminated (September 1, 2004).
- The list of eligible international financial activities that qualify for a tax refund will be expanded to include the following activities (September 1, 2004):
- Treasury functions, back-office operations and back up office operations where at least one party to the transaction is a non-resident (for both related party and non-related party activities).
- Film and television distribution rights to non-residents (for both related party and non-related party activities).
- One-sided foreign exchange transactions, allowing one party of a foreign exchange transaction to be a Canadian resident as long as other parties are non-residents.
- Import letters of credit used to finance the purchase of foreign goods where a Canadian purchaser incurs the liability to pay once the goods are received. Previously, only export letters of credit were eligible.
- The tax benefit that is currently available to employees engaged in IFB activities is eliminated (while the tax refund for specialists remains in place). The tax refund is reduced to 75 per cent of BC tax payable, while the time limit for qualifying as a specialist is extended from 2 to 5 years (January 1, 2005).
Ports Competitiveness Initiative
On October 15, 2003, the government announced a ports competitiveness initiative to provide property tax relief for Lower Mainland port operators. As a result of discussions with non-Lower Mainland port operators and municipalities, the Minister announced that the initiative will be extended to port operators in Squamish and Prince Rupert.
Sales Tax Changes
The following sales tax measures were proposed, effective February 18, 2004:
Software - The exemption for software incorporated into other software for retail sale is expanded, where certain conditions are met for its redistribution.
Commercial Fishers - Exemptions added for purchase or lease of electronic monitoring equipment used to monitor fishing activities, and fish tags and tagging equipment.
Aquaculturalists - Exemptions added for numerous items purchased or leased for an aquaculture purpose.
Farmers - Exemptions added for the purchase or lease for a farm purpose of on-farm incineration units; treatment products to reduce gas and bacteria levels in litter, bedding and manure; treatment products to promote the decay of organic material water in on-farm ponds, dugouts and reservoirs; and rolling benches.
Dealer Use Formula - Vehicles removed temporarily from inventory by motor vehicle dealers to transport customers whose vehicles are being serviced are eligible to be taxed under the "dealer use formula".
Returnable and reusable containers - Persons who bring containers into BC to package or deliver their product for sale and which are capable of being returned and reused are subject to tax, except in prescribed circumstances where the containers are not returnable.
Bundled purchases - Where taxable and non-taxable goods and/or services are sold for a single price (bundled purchase), the application of tax will be limited to the fair market value of the taxable portion, except in certain circumstances.
Definition of "Sale" - Where the provision of tangible personal property (TPP) is incidental to the provision of a service that is not subject to tax, and the service and the TPP are sold for a single price, the TPP will not be taxable.
Penstock - To be exempt from sales tax the facility must hold a valid water license for power production purposes under the Water Act.
Production machinery and equipment - Eligibility for the production machinery and equipment exemption for pollution control and waste management equipment is clarified.
Other Changes
Capital Tax Change
An amendment will be made to clarify that between 1993 and 2002, property must have been used directly for a listed purpose in order to qualify for a deduction from the tax base. This clarification is consistent with how the legislation has been administered.
Motor Fuel Tax Act
Several modifications were proposed in today's budget to improve the existing exemption for alternative motor fuels, increase the fee for a temporary motive fuel permit issued to a commercial carrier not registered under the International Fuel Tax Agreement, increase the maximum refund amount for fuel tax paid by people with disabilities and to expand the definition of family farm corporation for the purpose of the motor fuel tax exemption for farmers. Family farm corporations will now include any corporate structure provided that at least 75 per cent of the voting shareholders are direct family members actively engaged in farming and the corporation's sole activity is farming.
Various Statutes
Effective February 18, 1998, a number of statutes are amended to establish a seven-year period for collecting unremitted or unpaid taxes commencing on the date an assessment or re-assessment is raised.
How BC Compares
The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to February 17, 2004.
|
Top 2004 |
Top Corporate Rates |
Retail Sales |
|
Personal Rates
% |
General
% |
M&P
% |
Small Business
% |
Tax
% |
BC |
43.70 |
35.62 |
35.62 |
17.62 |
7.5 |
Alta. |
39.00 |
34.62 (1) |
34.62 (1) |
17.12 (1) |
- |
Sask. |
44.00 |
39.12 |
32.12 |
18.62 |
6.0 |
Man. |
46.40 |
37.62 |
37.62 |
18.12 |
7.0 |
Ont. |
46.41 |
36.12 |
34.12 |
18.62 |
8.0 |
Qué. |
48.22 |
31.02 |
31.02 |
22.02 |
7.5 (2) |
N.B. |
46.84 |
35.12 |
35.12 |
16.12 |
8.0 (3) |
N.S. |
45.69 |
38.12 |
38.12 |
18.12 |
8.0 (3) |
P.E.I. |
47.37 |
38.12 |
29.62 |
20.62 |
10.0 (2) |
Nfld. |
48.64 |
36.12 |
27.12 |
18.12 |
8.0 (3) |
Yukon |
42.40 |
37.12 |
24.62 |
19.12 (4) |
- |
N.W.T. |
42.05 |
34.12 |
34.12 |
17.12 |
- |
Nunavut |
40.50 |
34.12 |
34.12 |
17.12 |
- |
- Effective April 1, 2004, the Alberta corporate rates will be reduced (subject to affordability). The combined general and M&P rate will be 33.62% and the combined small business rate will be 16.12%.
- Provincial sales tax applies on GST. Effective combined rate is 15.025% in Québec and 17.7% in P.E.I.
- As part of the HST (combined rate is 15% with GST).
- The tax rate for M&P profits eligible for the small business deduction is 15.62%.
British Columbia Budget Report 2004 is a publication of BDO Dunwoody LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. Additional information can be obtained from your nearest BDO Dunwoody LLP office or through our Internet World Wide Web home page at www.bdo.ca.
