2005 Manitoba Budget Report
March 8, 2005
Highlights
- Budget Surplus of $314 Million Forecast for 2004-05
- Corporate Tax Cuts Confirmed and Expanded
- Personal Taxes Reduced
- Personal and Business Credits Extended
Overview
"Balancing Priorities. Building Opportunities. Investing in Tomorrow"
Today, the Honourable Greg Selinger presented his sixth budget as Minister of Finance. With increased revenues, mainly due to increased transfer payments from the Federal government, the Minister was able to deliver a good news budget, which offered debt repayments, new spending in key areas and tax relief for both corporations and individuals.
The surplus for the 2004-05 fiscal year, originally budgeted at $3 million, is now forecast to be $314 million. This entire amount will be deposited into Manitoba's Fiscal Stabilization Fund (FSF), which had been significantly depleted in the last fiscal year. This surplus also includes a $99 million payment towards the province's unfunded pension liabilities. For the 2005-06 fiscal year, the province has budgeted for a $3 million surplus which includes a $110 million contribution to unfunded pensions and no draw from the FSF for the second year in a row. The budget also contained some spending increases for municipalities, health care, education and infrastructure.
Previously announced corporate tax rate cuts will take effect in 2006, for both the general and small business rates. Additional rate reductions will take effect in 2007. Individuals will benefit from a reduction in the tax rate that applies to the middle income bracket which will be effective for 2006.
The following is a summary of the more important tax changes of interest to our clients.
Manitoba Budget Projections |
(in millions $) |
|
Original Estimate 2004/2005 |
Revised Forecast 2004/2005 |
Projected
2005/2006
|
Revenue |
7,653 |
8,204 |
8,177 |
Expenditures |
(7,315) |
(7,554) |
(7,795) |
Debt Servicing Costs |
(239) |
(237) |
(269) |
Debt/Pension Repayment |
(96) |
(99) |
(110) |
Budgetary Surplus |
3 |
314 |
3 |
Personal Tax Changes
Personal Income Taxes Cut
The personal income tax rate that applies to taxable income between $30,544 and $65,000 will be cut again. Effective January 1, 2006, the rate will be reduced from 14% to 13.5%. With this change, Manitoba's personal tax rates will be as follows:
The Finance Minister also announced that the personal tax credit amount will be increased by $100, to $7,734 for the 2006 taxation year.
Political Contributions Tax Credit Increased
For eligible political contributions made in 2005 and subsequent years, an individual will now be able to claim a credit equal to 75% of the first $400 (up from $200). The contribution amount between $400 and $750 remains eligible for a 50% credit and the contribution amount above $750 is eligible for a 33.33% credit. This change increases the maximum credit from $500 to $650.
Other Credits Extended
Two tax credits available to individuals will be extended. The Community Enterprise Development Tax Credit will be extended to December 31, 2008, while the Manitoba Equity Tax Credit will be extended to June 30, 2008.
Business Tax Changes
Corporate Income Tax Cut
Corporate tax cuts first announced in last year's budget have been confirmed and expanded. The general corporate tax rate will be reduced from 15% to 14.5% effective July 1, 2006 and will be reduced further to 14.0% effective July 1, 2007. The small business rate will be reduced from 5.0% to 4.5% on January 1, 2006 and to 4.0% on January 1, 2007. Manitoba's corporate rates are summarized below (rates for taxation years straddling the effective dates are prorated):
Research and Development Tax Credit Increased
The Research and Development Tax Credit is a 15% non-refundable tax credit that helps corporations offset the costs of research and development. The budget proposes to increase the credit rate to 20%, effective for eligible expenditures made after March 8, 2005.
Manufacturing Investment Tax Credit Enhanced
The Manufacturing Investment Tax Credit is a 10% non-refundable tax credit that helps corporations offset the capital costs for plant and equipment investments. The credit will be broadened to include used buildings, machinery and equipment as qualifying property. The budget also proposes for the first 2% of the credit to be refundable. These measures will take effect after March 8, 2005.
Film and Video Production Tax Credit Enhanced
The budget proposes four enhancements to the Film and Video Production Tax Credit as follows:
- For productions that begin principal photography after March 8, 2005, the credit rate is increased from 35% to 45%.
- The pre-production period is extended for productions that start principal photography after March 8, 2005. This extension means that the start of the period of eligibility for salaries will shift from “final script stage” to the “production commencement time”. If development commenced before March 9, 2005 and eligible salaries were incurred by the company in its taxation year that includes March 9, 2005, the new rule will apply.
- Retroactive to April 20, 2004, serial productions and producers are recognized under the frequent filming incentive.
- The rural and Northern incentive is extended to encompass more of Manitoba, retroactive to April 20, 2004.
Co-operative Education Tax Credit Extended
The Co-operative Education Tax Credit is a non-refundable credit equal to 10% of the wages paid to a student to a maximum of $1,000 per student per placement. The eligibility period was set to expire by the end of 2005. The budget proposes to extend the eligibility period to December 31, 2008.
Other Measures
Farmland School Tax Rebate Increased
The Farmland School Tax Rebate was introduced in 2004 to provide a 33% rebate of the school division Special Levy on farmland. This rebate will be increased to 50% of the Special Levy on farmland in 2005.
Retail Sales Tax Exemptions Extended
The exemption from RST for manure slurry tanks and lagoon liners for use in farm livestock operations will be extended to June 30, 2007.
An exemption from RST is proposed for magazines provided to the public at no charge, effective April 1, 2005.
Education Support Levy
The Education Support Levy is a province-wide property tax. For 2005 property tax statements, the residential mill rate will fall 47% from 4.56 mills to 2.42 mills. The new rate may be slightly different in Winnipeg.
Riparian Tax Credit
In the third intake during 2004-05, benefits from this program were significantly increased and the term of the commitment was lengthened from three years to five. A fourth intake of applications for this program allows agricultural operators to apply during 2005-06 to receive tax credit benefits during calendar years 2006 through 2010. To qualify, an operator must commit to maintain specific management practices on designated riparian land throughout those years. Riparian land enrolled during the 2002-03 intake becomes eligible for re-enrollment for the increased benefits and extended term of the 2005-06 intake.
Income Trusts
Income trusts have become an important investment vehicle for both small and institutional investors. For purposes of protecting investors, legislation will be introduced in 2005 to limit the liability of investors in income trusts. This will make income trusts more attractive to pension funds who have been concerned with liability issues.
How Manitoba Compares
The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to March 8, 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%.
Manitoba 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. For additional information, contact your BDO advisor or visit us at www.bdo.ca.
