2005 British Columbia Budget Report
February 15, 2005
Highlights
- Budget Surplus for 2004-05 and Balanced Budgets Thereafter Small Business Deduction Threshold Increased
- New Personal Tax Reduction Introduced for Low-Income Earners
Overview
"Towards a Golden Decade"
With these words, the Honourable Colin Hansen delivered his first budget as Minister of Finance. With a strong economy, higher than expected commodity prices and increased federal transfer payments, the government was able to report a substantial surplus, the first in years. And with expectations that the economy will remain strong and with the 2010 Winter Olympics around the corner, the government is convinced that the province has indeed entered a golden decade.
For the 2004-05 fiscal year, the government is now forecasting a record-high budget surplus of $1.74 billion before a $300 million forecast allowance, an impressive improvement in the province's financial picture. In last year's budget, the surplus was only projected to be $100 million. However, as a large portion of the surplus is due to some one-time sources of revenue, the government is wisely using the surplus, or $1.7 billion, as a payment on the province's debt. Today, the government projected a small surplus for the 2005-06 fiscal year of $220 million, after setting aside $400 million in forecast allowances.
The government did find room to increase spending in some areas. Over the next three years, an additional $2 billion of the province's money will be spent under the BC Transportation Plan, improving airports, roads and transit. This, combined with money from private, local and federal government partnerships, will mean that over $3 billion will be invested in the province's infrastructure. Health care spending will also increase by $1.5 billion over the next 3 years, with significant increased contributions from the federal government in this area.
The budget did include some targeted tax relief. Small businesses will benefit from an increase in the small business deduction threshold to $400,000 annually. Low-income individuals will benefit from a new personal tax reduction.
The following is a summary of the more important items of interest to our clients.
British Columbia Budget Projections
|
(in millions $) |
|
Original Estimate 2004/2005 |
Revised Forecast 2004/2005 |
Projected
2005/2006
|
Revenue |
28,568 |
30,273 |
30,746 |
Expenditures |
(30,440) |
(30,986) |
(32,456) |
|
(1,872) |
(713) |
(1,710) |
Commercial crown corporation net income
Forecast allowance |
2,072
(100) |
2,453
(300) |
2,330
(400) |
Surplus |
100 |
1,440 |
220 |
Tax Changes Affecting Individuals
Personal Tax Reduction
Effective for the 2005 taxation year, a new personal income tax reduction has been proposed. The non-refundable BC Tax Reduction is aimed at lower income taxpayers and will be equal to $360 less 3.6 per cent of net income in excess of $16,000. Consequently, the credit will be clawed back once a taxpayer's net income reaches $26,000. The credit amount of $360 and the $16,000 threshold will be indexed after 2005.
First Time Home Buyer's Exemption Enhanced
Two changes have been proposed that will enhance the property tax exemption program for first time home buyers. First, effective for registrations after February 15, 2005, the fair market value threshold for eligible residential property under the program has been increased to $325,000 from $275,000 in the Greater Vancouver Regional District, the Capital Regional District and the Fraser Valley Regional District and to $265,000 from $225,000 in the rest of the province. A partial exemption is provided for residences that have a fair market value up to $25,000 above the new thresholds.
The second change increases the mortgage principal pay down limit under the program (the limit is the maximum amount of mortgage principal that can be repaid in the first year of ownership without losing eligibility for the program). The limit is the greater of the amount required to pay the mortgage down to 70 per cent of the fair market value of the property or a specified amount. For qualifying properties in the Capital Regional District, the Greater Vancouver Regional District and the Fraser Valley Regional District, the specified amount is increased to $13,000 from $11,000. Elsewhere, the amount is increased to $10,600 from $9,000.
Home Owner Grant Threshold Increased
Under this program, the basic grant entitles a home owner to a maximum reduction in residential property taxes of $470. An additional grant of $275 is also available if the owner is over 65 years of age, permanently disabled, or eligible to receive certain war veterans' allowances. The grant is reduced for property values over a prescribed threshold on the basis of $10 for each $1,000 of value over the threshold.
As first announced on January 5, 2005, the BC government plans to raise the threshold value for home owner grants to $685,000 from $585,000 for 2005. In addition, the phase-out rate will be reduced to $5 for each $1,000 of value over the threshold.
Medical Services Plan Premium Assistance
Effective August 1, 2005, the Medical Services Plan premium assistance program will be enhanced. The threshold for each level of assistance will be raised by $4,000.
Business Tax Changes
Small Business Threshold
Canadian-controlled private corporations (CCPCs) benefit from a lower tax rate on the first $300,000 of income from an active business for both BC and federal tax purposes. Today, the government announced that the $300,000 BC small business threshold would be increased to $400,000 effective January 1, 2005. Where a taxation year straddles January 1st, the threshold will be prorated.
Film Tax Credits Enhanced
As first announced on January 20, 2005, the BC government proposes to raise both its domestic and foreign film tax credit rates to match rates recently announced in Ontario. The Production Services Tax Credit, which is available to foreign productions, will be increased to 18 per cent from 11 per cent, and the basic Film Incentive BC tax credit for domestic productions will be increased to 30 per cent from 20 per cent. The higher credit rates apply effective January 1, 2005 and will be available until March 31, 2006.
Mining Exploration Tax Credit Extended
The Mining Exploration Tax Credit (equal to 20 per cent of eligible BC mining exploration expenditures) has been extended for an additional ten years. It will now expire on December 31, 2016.
Sales Tax Changes
Alternative Fuel Vehicles
Provincial sales tax relief for qualifying alternative fuel vehicles will be provided as a point of sale tax reduction rather than a refund. Under the new program, hybrid electric passenger vehicles are eligible for a full reduction of sales tax up to a maximum of $2,000 from February 16, 2005 to March 31, 2008. The maximum tax relief is reduced to $1,000 from April 1, 2008 to March 31, 2009 and is eliminated after March 31, 2009. The definition of "hybrid electric vehicle" is expanded to reflect technological developments.
Alternative fuel vehicles that are not hybrid electric passenger vehicles, passenger buses or shuttle buses are eligible for a tax reduction of 50 per cent of the sales tax payable to a maximum of $1,000. Shuttle buses are eligible for a tax reduction of 50 per cent of sales tax payable to a maximum of $5,000 and passenger buses are eligible for a tax reduction of 50 per cent of sales tax payable to a maximum of $10,000. The tax reductions for alternative fuel vehicles, other than hybrid electric passenger vehicles, are effective February 16, 2005 and are not phased out.
Residential Heating Equipment
Effective from February 16, 2005 to March 31, 2007, an exemption will be provided for certain energy efficient heating equipment when purchased or leased for residential purposes. Eligible equipment includes gas fired forced-air furnaces, boilers, air-source heat pumps and ground source heat pumps that are listed as being "ENERGY STAR Qualified" by the Office of Energy Efficiency, Natural Resources Canada, and oil-fired forced-air furnaces that have a Seasonal Energy Utilization Efficiency rating of at least 85 per cent as established under the federal Energy Efficiency Act.
Increased Vehicle Surtax Thresholds
The threshold at which the surtax on passenger vehicles applies is increased to $49,000 from $47,000, effective for vehicles purchased after February 15, 2005. The tax rates will apply as follows:
- 7 per cent on passenger vehicles valued at less than $49,000;
- 8 per cent on passenger vehicles valued at $49,000 or more, but less than $50,000;
- 9 per cent on passenger vehicles valued at $50,000 or more, but less than $51,000; and
- 10 per cent on passenger vehicles valued at $51,000 or more.
For leased passenger vehicles, the surtax thresholds will apply to the first lease payment due after February 15, 2005.
Moving Picture and Audio Productions
Effective August 1, 1996, an exemption is provided for recordings of visual and audio productions such as TV and radio programs and movies acquired for public broadcast or for making copies for sale or lease, as specified. Effective February 16, 2005, an exemption is provided for certain recordings of visual and audio productions acquired for copying into other productions, as specified.
Other Measures
The following measures are effective February 16, 2005:
Bona Fide Aquaculturalists - Exemptions added for several items purchased or leased for an aquaculture purpose.
Bona Fide Farmers - Exemptions added for disinfectant mats and tapeners purchased or leased for a farm purpose.
Safety Helmets - The exemption for safety helmets is expanded to include all safety helmets for use in sport, recreation and transportation.
Smoke and Fire Alarms - The exemption for self-contained smoke and fire alarms for residential use is amended to increase the qualifying per unit price from $50 to $250.
Penstock Systems - The exemption for penstock piping and related equipment is expanded to include penstock and related equipment for any hydroelectric power generating facility that is validly licensed under the Water Act.
Other Changes
School Tax Exemption
Effective for the 2005 tax year, an exemption from school tax is introduced for specified improvements of eligible hydroelectric projects that first began production after December 31, 2001. The exemption is for intake facilities, including trash racks, penstocks and their foundations and support structures, tunnels and tunnel linings. Weirs are exempt when part of a run-of-river project. Dams do not qualify for the exemption.
Administrative Changes
A number of administrative changes were proposed, some of which are outlined below.
- Income and Capital Tax Acts (Effective dates vary) -
- Harmonization of BC rules with federal rules regarding a series of transactions for anti-avoidance purposes.
- Amendments to ensure maximum federal foreign tax credits for corporations are claimed before a provincial foreign tax credit is allowed.
- Amendments to exclude expenses incurred for purposes of the BC Mining Flow-through Share Tax Credit from eligible expenses for purposes of the Mining Exploration Tax Credit.
- Addition of a definition of salaries and wages for determining paid up capital of financial corporations allocated to other jurisdictions.
- Addition of a requirement that financial corporations must have the same year-end when claiming an investment allowance.
- Insurance Premium Act - An exemption is introduced on health care premiums received by out-of-province non-profit health insurers, retroactive to January 1, 1997. The Act is also amended to provide authority to inspect tax related records and to clarify the definition of "taxpayer". Lastly, the Act is amended to clarify an exemption for real estate insurance organizations, retroactive to September 15, 1990.
- International Financial Activity Act - Amendments to clarify that the effective registration date and registration refusal can be appealed, and to change the international financial centre society's name to "International Financial Centre British Columbia Society".
- Taxation (Rural Area) Act - For 2005, the rural residential property tax rate has been reduced. The non-residential rural tax rates will be adjusted so that the change in total non-residential rural area tax revenue is limited to inflation plus new construction.
- Hotel Room Tax - Effective February 16, 2005, an exemption is provided for lodging in industrial camps.
- Health Authorities Act - Amendments to clarify property tax exemptions for public hospitals managed directly or as a public-private partnership.
- School Act - For the 2005 calendar year, the average residential school property tax rates will be increased by 2 per cent, the provincial inflation rate for 2004. Non-residential school property tax rates will be adjusted so that the total change in total non-residential school tax revenues will be limited to inflation plus new construction.
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 15, 2005.
|
Top 2005 |
Top Corporate Rates |
|
|
Personal Rates
% |
General
% |
M&P
% |
Small Business
% |
Retail Sales
Tax
% |
BC |
43.70 |
35.62 |
35.62 |
17.62 |
7.0 |
Alta. |
39.00 |
33.62 |
33.62 |
16.12 |
- |
Sask. |
44.00 |
39.12 |
32.12 |
18.12 |
7 |
Man. |
46.40 |
37.12 |
37.12 |
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 (1) |
N.B. |
46.84 |
35.12 |
35.12 |
15.62 |
8.0 (2) |
N.S. |
48.25 |
38.12 |
38.12 |
18.12 |
8.0 (2) |
P.E.I. |
47.37 |
38.12 |
29.62 |
20.62 |
10.0 (1) |
Nfld. |
48.64 |
36.12 |
27.12 |
18.12 |
8.0 (2) |
Yukon |
42.40 |
37.12 |
24.62 |
17.12 (3) |
- |
N.W.T. |
43.05 |
36.12 |
36.12 |
17.12 |
- |
Nunavut |
40.50 |
34.12 |
34.12 |
17.12 |
- |
- 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 2005 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.
