2006 Manitoba Budget Report
March 6, 2006
Highlights
- Consolidated Surplus of $251 Million Forecast For 2005-06
- Corporate Tax Cuts Confirmed and Expanded
- Personal Taxes Reduced
- Capital Tax Reductions Announced
Overview
"Meeting Commitments, Building Opportunities"
Today, the Honourable Greg Selinger presented his seventh budget as Minister of Finance. With good economic growth, the Minister was able to offer something for everyone, including spending in key areas and tax relief.
The surplus for the 2005-06 fiscal year, originally budgeted at $3 million, is now forecast to be
$251 million even after a $110 million payment to the province’s Debt Retirement Fund, ($85 million of which was paid toward the province’s unfunded pension liabilities). However, this surplus did include $86 million drawn from the province’s Fiscal Stabilization Fund (FSF), $68 million of which was used to fund general spending and $18 million of which was used for wait time reduction programming in health care. For the 2006-07 fiscal year, the government has budgeted for a surplus of $148 million, which includes draws from the FSF of $85 million and a $110 million payment to the Debt Retirement Fund. Note that these numbers include consolidated amounts from Crown Corporations and other entities.
The government announced new spending in all areas, including education, health care, fighting crime and infrastructure. The budget also included tax cuts for both individuals and corporations. In addition, the government announced it will begin to phase out the corporate capital tax in 2008, subject to balanced budget requirements.
The following is a summary of the more important tax changes of interest to our clients.
Manitoba Budget Projections
(in millions $) |
| |
Original Estimate 2005/2006 |
Revised Forecast 2005/2006 |
Projected
2006/2007 |
| Revenue |
8,177 |
8,361 |
8,651 |
| Expenditures |
(7,795) |
(7,979) |
(8,256) |
| Debt Servicing Costs |
(269) |
(269) |
(282) |
| Debt/Pension Repayment |
(110) |
(110) |
(110) |
| Budgetary Surplus |
3 |
3 |
3 |
| Consolidated Surplus on a SummaryBasis (includes government organizations) |
N/A |
251 |
148 |
Personal Tax Changes
Personal Income Taxes Cut
In today’s budget, the Finance Minister announced that the tax rate that applies to the middle tax bracket will again be reduced – to 13% effective January 1, 2007. This reduced rate will apply on taxable income between $30,544 and $65,000. Note that this rate was reduced from 14% to 13.5% on January 1, 2006 under previously announced changes. With this change, Manitoba's personal tax rates are as follows:
| Taxable Income |
Tax Rate - 2005 |
Tax Rate - 2006 |
Tax Rate - 2007 |
| 0 to $30,544 |
10.90% |
10.90% |
10.90% |
| $30,544 to $65,000 |
14.00% |
13.50% |
13.00% |
| $65,000 and over |
17.40% |
17.40% |
17.40% |
In addition, the basic personal tax amount will again be increased by $100 to $7,834 in 2007 (note that this credit amount was increased by $100 to $7,734 for 2006 under previously announced changes).
Taxation of Dividends
Last year, the Federal Liberal government announced plans to amend the income tax rules for individuals who receive dividends from Canadian corporations. Under current rules, when an individual receives a dividend, that dividend is grossed-up by 25% to reflect the pre-tax corporate profit, and a credit is allowed to the individual to reflect taxes paid by the corporation. Despite this gross-up and credit system, the Federal tax system and the tax systems in most provinces were not “integrated” with respect to business income not eligible for the corporate small business deduction as less overall tax would be paid where an individual earns income directly when compared with the combined corporate and personal tax payable where the same income is earned by a corporation and the net income after tax is paid as a dividend to the individual. Under the Federal proposal, the gross-up factor will be increased to 45%, and there will also be an increase to the Federal dividend tax credit. These changes will ensure that a similar amount of overall tax is paid on income earned directly and income passing through a corporation.
Today, the Finance Minister announced that Manitoba will enact changes to harmonize the province’s rules with the Federal rules, once details on the Federal changes are announced.
Other Personal Tax Changes
Additional personal tax changes announced today include:
Children’s Physical Activity Tax Credit – The new Federal Conservative government has proposed a tax credit in support of families with children enrolled in physical activities. Manitoba will parallel this credit once it is introduced.
Adoption Expenses Tax Credit – Manitoba will parallel the Federal adoption tax credit for 2006 and subsequent years. Eligible expenditures of up to $10,000 per adoption under Federal rules will qualify for a non-refundable Manitoba credit at 10.9%.
Personal Tax Credit Eligibility Age Increased – To bring Manitoba’s Personal Tax Credit in line with the Federal GST tax credit and similar credits in other provinces, the eligibility age for the credit will be increased to age 19 for 2006 and subsequent tax years.
Corporate Tax Change
Corporate Income Tax Cut
There was good news today for corporate taxpayers – tax cuts previously announced will proceed on schedule, and further cuts were announced. Under previously announced changes, the general corporate tax rate was to be reduced from 15% to 14.5% effective July 1, 2006 and to 14.0% effective July 1, 2007. Today, the Minister announced that the July 1, 2006 tax rate reduction will be advanced to January 1, 2006 and the tax rate will be reduced further, to 13.0%, effective July 1, 2008 (subject to affordability).
Under previous announcements, the small business rate was reduced from 5.0% to 4.5% on January 1, 2006 and was scheduled to decrease to 4.0% on January 1, 2007. Today, the Minister announced that the 2007 cut will be enhanced – the tax rate will now be reduced to 3% effective January 1, 2007.
Manitoba's corporate rates are summarized below (rates for taxation years straddling the effective dates are prorated):
|
2005 |
2006 |
2007 |
2008 |
| General tax rate (rate reductions effective July 1st of each year except as noted) |
15.00% |
14.50%
(Jan. 1/06) |
14.00% |
13.00% |
|
| Small business tax rate |
5.00% |
4.50% |
3.00% |
3.00% |
Capital Tax Reduced
Under current rules, a corporation is allowed to claim a $5 million deduction in calculating taxable capital. Effective for fiscal years commencing after January 1, 2007, the $5 million deduction will be increased to $10 million. With the increased deduction, the capital tax rate for corporations with taxable paid-up capital between $10 million and $20 million will be 0.3% and the rate for corporations with taxable paid-up capital over $20 million will be 0.5%.
In addition, the capital tax rate will be reduced from 0.5% to 0.4% for corporations with taxable paid-up capital over $20 million, and from 0.3% to 0.2% for corporations with taxable paid-up capital between $10 million and $20 million. This change, subject to affordability, will be effective for fiscal years commencing after July 1, 2008.
Manufacturing Investment Tax Credit Changes
The Minister announced two enhancements to the Manufacturing Investment Tax Credit (MITC) today. First, the credit will be extended by another 3 years to June 30, 2009. In addition, the refundable portion of the MITC will be increased from 20% to 35% (the effective date of this change was not announced).
A technical change was also announced related to renewable energy and energy conservation equipment. The MITC will be updated to ensure equipment in Federal CCA class 43.2 will continue to qualify for the MITC.
Other Measures
Education Support Levy Eliminated
The Education Support Levy (ESL) is a province-wide property tax. A commitment was made by the government in the 2002 budget to eliminate the residential ESL over a period of five years. In meeting their commitment, the government proposes the elimination of the tax for residential properties for 2006.
Farmland School Tax Rebate Increased
The Farmland School Tax Rebate provides a rebate of the school division special levy on farmland. In 2006, this rebate will be increased to 60% from 50% of the special levy on farmland.
Odour Control Property Tax Credit Introduced
A new Odour Control Property Tax Credit is available for agricultural landholders for the 2006 property tax year. This credit will allow qualifying individuals to offset 10% of the purchase price of an eligible odour control investment as long as the asset remains available for use on their land for a specified length of time. A taxpayer will be able to claim either this new Odour Control Property Tax Credit or the existing Odour Control Corporation Income Tax Credit.
Biodiesel Incentive Introduced
For qualifying biofuel that is produced in Manitoba and sold as biodiesel, there will be an exemption from both Retail Sales Tax and Motive Fuel Tax for a period of five years, beginning March 7, 2006. The exemption will be available for both 100% pure biofuel and the biofuel portion of blended biodiesel. The biofuel must meet certain standards in order to qualify for this incentive.
Co-op Education Tax Credit And Co-op Hiring Incentives
The Co-operative Education Tax Credit provides a credit equal to 10% of the wages paid to a student to a maximum of $1,000 per student per placement to offset corporate income tax. The budget introduces a parallel incentive to unincorporated employers and to tax-exempt entities for co-op education work placements starting on or after March 7, 2006. As well, for taxable corporations, this credit will become fully refundable for placements ending in 2006 and subsequent years. To further encourage employers to hire, the budget introduces a new Co-op Graduates Hiring Incentive. This incentive will be provided to employers, including unincorporated and tax-exempt entities, who hire students graduating from a qualifying post-secondary co-operative education program on a full-time basis in the province where the employment starts within 18 months of graduation. This incentive is equal to 5% of the wages paid to the graduate in each of the first two full years of employment to a maximum benefit of $2,500 for each year. For taxable corporations, this new incentive is fully refundable.
Retail Sales Tax Exemptions
An exemption from Retail Sales Tax is proposed for geophysical survey equipment, drill rigs, and well-servicing equipment used in oil and gas exploration and development, effective April 1, 2006. This would include both equipment purchased for use in Manitoba and equipment brought into Manitoba on a temporary basis. As well, the Retail Sales Tax exemption for diabetic supplies has been extended to include lancets, lancing devices and blood glucose monitors purchased by diabetics for their own use. Lastly, the Retail Sales Tax refund on the residential purchase of a mobile or ready-to-move home are now provided as a point of sale exemption so the vendor will charge the tax at 4% of the selling price.
Fuel Tax Exemptions
The budget proposes to expand the exemption from Fuel Tax for commercial logging operations to include off-highway use of fuel, effective March 7, 2006. For example, this would now include processing activities, the off-highway transportation of forestry products and the construction and maintenance of logging roads.
Riparian Tax Credit
There will be a fifth intake of applications for this program with an application deadline of March 31, 2007. Enhancements have been made to the program to provide additional benefits for the costs of meeting riparian management conditions.
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 6, 2006.
| |
Top 2006 Personal Rates
% |
Top Corporate Rates for 2006 |
Retail Sales Tax
% |
General
% |
M&P
% |
Small Business
% |
| BC |
43.7 |
34.12 |
34.12 |
17.62 |
7 |
| Alta. |
39 |
33.62 |
33.62 |
16.12 |
- |
| Sask. |
44 |
39.12 |
32.12 |
18.12 |
7 |
| Man. |
46.4 |
36.62 (4) |
36.62 (4) |
17.62 |
7 |
| Ont. |
46.41 |
36.12 |
34.12 |
18.62 |
8 |
| Qué. |
48.22 |
32.02 |
32.02 |
21.62 |
7.5 (1) |
| N.B. |
46.84 |
35.12 |
35.12 |
15.12 (5) |
8.0 (2) |
| N.S. |
48.25 |
38.12 |
38.12 |
18.12 |
8.0 (2) |
| P.E.I. |
47.37 |
38.12 |
38.12 |
19.62 |
10.0 (1) |
| Nfld. |
48.64 |
36.12 |
27.12 |
18.12 |
8.0 (2) |
| Yukon |
42.4 |
37.12 |
24.62 |
17.12 (3) |
- |
| N.W.T. |
43.05 |
36.12 (6) |
36.12 (6) |
17.12 |
- |
| Nunavut |
40.5 |
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%.
- The general and M&P tax rate will now be reduced to 36.62% effective January 1, 2006.
- The small business tax rate will be reduced to 14.62% on July 1, 2006.
- The general and M&P tax rate will be reduced to 33.62% on July 1, 2006.
Manitoba Budget Report 2006 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.
