2004 Manitoba Budget Report
April 19, 2004
Highlights
- Balanced Budget Predicted
- Additional Corporate Tax Rate Cuts Introduced for 2006
- Land Transfer Tax Increased
- Film and Video Production Tax Credit Enhanced
Overview
Today's Challenges, Tomorrow's Opportunities
Today, the Honourable Greg Selinger presented his fifth budget as Minister of Finance. With the government required to deliver a balanced budget under the province's balanced budget legislation, this budget contained little for the taxpayers of the province and focused on trimming government spending.
The surplus for the 2003-04 fiscal year, originally budgeted at $10 million, is now forecast to be $5 million. However, this is after a drawdown of $143 million from the fiscal stabilization fund which is almost $100 million more than originally budgeted. Before budgeted debt and pension payments of $96 million and an adjustment of $75 million for disaster related expenditures, the province's expenditures for the 2003-04 fiscal year are expected to exceed revenues by $112 million. For the 2004-05 fiscal year, a $3 million surplus has been projected - and for the first time since the fiscal stabilization fund was introduced, no draw from this fund has been budgeted for.
The budget speech contained very little in new initiatives. Any tax relief mentioned by the Minister had already been announced in prior budgets, with the exception of a corporate tax cut to take effect after 2005. And with little room to maneuver, the budget contained few spending increases and concentrated on spending reductions, including setting in motion a plan to eliminate 400 civil service positions through attrition.
The following is a summary of the more important tax changes of interest to our clients.
Manitoba Budget Projections |
(in millions $) |
|
Original Estimate 2003/2004 |
Revised Forecast 2003/2004 |
Projected
2004/2005
|
Revenue |
7,302 |
7,279 |
7,571 |
Expenditures |
(7,037) |
(7,135) |
(7,233) |
Debt Servicing Costs |
(271) |
(256) |
(239) |
Disaster-Related Expenditure Adjustment |
-- |
75 |
-- |
Debt/Pension Repayment |
(96) |
(96) |
(96) |
Fiscal Stabilization Fund |
48 |
143 |
-- |
Restatement Adjustment |
64 |
(5) |
-- |
Budgetary Surplus |
10 |
5 |
3 |
Business Tax Changes
Corporate Tax Rates Cut
The Finance Minister announced further corporate income tax rate cuts that will build on the 2002 reductions which are still being phased in. Effective January 1, 2006, the general corporate rate will be reduced from 15% to 14.5% and the small business rate will be reduced from 5% to 4.5%. For 2004, these rates are 15.5% and 5% respectively. The small business threshold is currently $360,000 and will increase to $400,000 on January 1, 2005 under previously announced changes.
Film and Video Production Tax Credit Enhanced
The Film and Video Production Tax Credit was introduced in 1997 and provides a credit equal to 35% of eligible salaries paid for work performed on an eligible film. Today's budget proposes four enhancements to the credit:
- The credit is extended to March 1, 2008 from its currently scheduled expiry date of March 2, 2005.
- A frequent filming incentive for returning producers will now be provided. Where a corporation produces three eligible films in two years, the company will earn a 5% additional credit on eligible salaries paid with respect to the third qualifying production. To be eligible for the incentive, principal photography for the third production must commence after April 19, 2004, and principal photography on the previous two eligible films must not have been substantially completed before April 20, 2003.
- A 5% incentive is introduced on eligible salaries paid for work performed in Manitoba on productions where at least 50% of filming days take place outside of Winnipeg. This change applies where principal photography of an eligible film commences after April 19, 2004.
- The restriction that a corporation cannot hold or be associated with a corporation that holds a CRTC broadcast licence will be removed for applications received after April 19, 2004.
Financial Institution Capital Tax
For bank, trust and loan corporations, the capital tax base will be expanded to include subordinated debt in the calculation of taxable paid-up capital for taxation years ending after April 19, 2004. Subordinated debt is an unsecured debt that is secondary to claims by secured creditors. This change will harmonize Manitoba rules with federal rules and provincial rules in Saskatchewan, Ontario and Quebec.
Odour Control Tax Credit
An Odour Control Tax Credit has been proposed to encourage businesses to implement measures to control nuisance odours arising from their activities. The non-refundable credit can be used to reduce Manitoba corporate income tax and will be equal to 10% of eligible expenditures made prior to January 1, 2007. Eligible expenditures will include expenses incurred to prevent, reduce or eliminate nuisance odours that arise or may arise from the use or production of organic waste. The expenditure must be on capital property that will be prescribed, and incurred for the purpose of earning income from a business or property. Typical expenditures might include lagoon covers, straw cannons or filters.
The government will seek input on whether the credit should be extended to other categories of expenditures for this purpose.
Income Tax Credit Carryovers
To harmonize Manitoba's tax credit carry-forward rules with recently announced federal loss carry-forward changes that apply for provincial corporate income tax purposes, the carry-forward period for unused Manitoba business credits will be extended from 7 to 10 years. This change will apply to the following credits commencing with the 2004 taxation year:
- the Manufacturing Investment Tax Credit;
- the Research and Development Tax Credit; and
- the Community Enterprise Development Tax Credit.
In addition, the Co-operative Education Tax Credit introduced in last year's budget will now have a three-year carry-back or a 10-year carry-forward provision.
Other Measures
Retail Sales Tax Broadened
Effective July 1, 2004, the RST will be broadened to apply to certain legal, accounting, architectural, engineering, security and private investigation services.
Land Transfer Tax
Commencing May 17, 2004, a revised Land Transfer Tax rate schedule will apply to the tendering of transfers at Land Titles Offices. The tax rates which apply at the various property value levels will remain unchanged, with the exception of property values in excess of $200,000, where the rate will increase from 1.5% to 2.0%. Conveyances of title between spouses, between common-law partners, to registered charities, and other exempt transfers remain unaffected by this change.
Education Support Levy Reduced
The Education Support Levy (ESL) is a province-wide property tax. For 2004, the residential mill rate will be reduced by 13.6%, from 5.28 mills to 4.56 mills. The new rate may be slightly different in Winnipeg.
Tobacco Tax Increased
Effective midnight April 19, 2004, the Tobacco Tax rate is increased from 15.5 cents to 17.5 cents per cigarette, from 14.5 cents to 16.5 cents per gram of fine-cut tobacco, and from 13 cents to 15 cents per gram of raw leaf tobacco. Also, the tax rate on cigars increases from 60% of the retail price to 75%, but is capped at $5 per cigar.
Liquor Markups
Liquor markups will be adjusted to provide an additional $10 million.
Motive Fuel Tax
Effective midnight April 30, 2004, the tax rate on diesel fuel will increase to 11.5 cents per litre, equalizing the Diesel Fuel Tax rate with the Gasoline Tax rate.
Technical Amendments
Amendments to various statutes will be made, including:
- The elimination of commissions paid to larger vendors when remitting RST;
- An increase in late-filing penalties to 10% on all provincially administered tax statutes;
- Permitting a fee for registration as a tax rebate discounter;
- An extension of the Manitoba Drilling Program, broadening the definition of eligible HOV volumes and increasing qualifying production limits;
- Corrections to the Income Tax Act for certain drafting errors and inconsistencies;
- The repeal of The Manitoba Foundation Act; and
- The introduction of a regulation to allow a new intake of applications for the Riparian Tax Credit.
2004 Federal Budget Measures
Adopted The government announced that it will parallel personal and business tax changes announced in the 2004 Federal budget.
Personal Tax Measures - Commencing with the 2004 tax year, Manitoba will harmonize with the federal budget measures to exempt employment income earned (up to prescribed limits) by military or police personnel while serving on high-risk military or police missions outside Canada; to create a deduction for disability-related support costs; and to improve the tax recognition of medical and disability-related costs incurred by caregivers on behalf of disabled persons. Manitoba will also extend the Education Tax Credit to employees who pursue career-related studies at their own expense and it will extend the Mineral Exploration Tax Credit for flow-through share investors to the end of 2005.
Business Tax Measures - Beginning in 2004, Manitoba will parallel the federal budget measures to increase the capital cost allowance rate for computer equipment from 30% to 45% and for data network infrastructure equipment from 20% to 30%. Manitoba will also parallel the federal budget measure to deny the deductibility of government fines and penalties.
How Manitoba Compares
The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to April 19, 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 |
33.62 (1) |
33.62 (1) |
16.12 (1) |
- |
Sask. |
44.00 |
39.12 |
32.12 |
18.62 |
7.0 |
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 (4) |
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 (5) |
- |
N.W.T. |
42.55 |
36.12 |
36.12 |
17.12 |
- |
Nunavut |
40.50 |
34.12 |
34.12 |
17.12 |
- |
- Effective April 1, 2004, the Alberta corporate rates were reduced. Prior to the reduction, the combined general rate and M&P rate was 34.62% and the combined small business rate was 17.12%.
- Provincial sales tax applies on GST. Effective combined rate is 15.025% in Québec and 17.7% in PEI.
- As part of the HST (combined rate is 15% with GST).
- The small business rate will be reduced to 15.62% on July 1, 2004.
- The tax rate for M&P profits eligible for the small business deduction is 15.62%.
Manitoba 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.
