2007 Prince Edward Island Budget Report
April 10, 2007
Highlights
- Consolidated Surplus of $1.3 Million Projected for 2006-07
- Consolidated Surplus of $2.1 Million Projected for 2007-08
- Personal Tax Thresholds and Credits Increased
- Corporate Small Business Tax Cuts to Proceed on Schedule
Overview
"Today's Leadership, Tomorrow's Prosperity"
Today, the Honourable Mitch Murphy tabled his fourth budget as Provincial Treasurer and apparently, the last government budget before an expected election call.
A consolidated surplus of $1.3 million is now forecast 2006-07 - a healthy improvement when compared with the original estimate of a consolidated deficit of $12.5 million. A surplus of $2.1 million is projected for the 2007-08 fiscal year.
Program expenditures for the 2007-08 fiscal year are projected to increase by $88 million when compared with 2006-07 - an increase of 8.5%. New spending initiatives will focus on education and health care. Other new spending announcements include initiatives aimed at social service and seniors programs, increased public safety, the environment and tourism.
A number of personal tax changes were announced. Although tax rates will remain unchanged, the threshold for the middle and top tax rates will be increased by 2% for 2007 and by 4% for 2008 when compared with the thresholds that applied for 2006. Also, the threshold for the provincial surtax will be more than doubled by 2008.
Personal taxes will be further reduced due to a 2% increase in the basic credit, the spousal credit and the age credit for 2007, and a 4% increase for 2008 (when compared with the credit amounts that applied for 2006). In addition, the full-time and part-time education credit amounts will be doubled.
Although no corporate income tax changes were announced, the Treasurer confirmed that the small business rate cuts announced in last year's budget will proceed on schedule.
The following is a summary of the more important budget measures of interest to our clients.
Prince Edward Island Consolidated Projection
(in millions $) |
| |
Original
Estimate 2006/2007 |
Revised Forecast 2006/2007 |
Projected
2007/2008 |
| Revenue |
1,154.6 |
1,188.0 |
1,268.6 |
| Program expenditures |
(1,012.9) |
(1,036.1) |
(1,124.1) |
| Interest charges on debt |
(118.3) |
(116.1) |
(121.2) |
| Depreciation |
(37.8) |
(37.0) |
(38.7) |
| Net surplus of crown entities |
1.9 |
2.5 |
17.5 |
| Consolidated Surplus (Deficit) |
(12.5) |
1.3 |
2.1 |
Personal Tax Changes
Tax Reduced Through Increased
Tax Bracket Thresholds
Today, the Treasurer announced reductions to personal income taxes by raising the thresholds of the tax brackets by 2% in 2007 and by 4% in 2008, over current levels. Currently, income up to the 2nd tax bracket threshold is subject to tax at the rate of 9.8%, income between the 2nd and 3rd tax bracket thresholds is subject to tax at the rate of 13.8% and income over the 3rd tax bracket threshold is subject to tax at the rate of 16.7%. The proposed increases to these thresholds are outlined in the chart below and are effective January 1st of each respective taxation year.
As well, taxpayers with over $5,200 of basic provincial tax (i.e. tax after non-refundable tax credits and other tax credits are taken into consideration) are subject to a surtax on this amount at the rate of 10% of the basic tax over $5,200. The budget proposed to increase this surtax threshold substantially so middle-income families will no longer be subject to it. The proposed increases are outlined in the chart below and are effective January 1st of each respective taxation year.
|
Tax Bracket
Thresholds
|
2006
Amount
|
2007
Amount
|
2008
Amount
|
|
2nd Tax Bracket Threshold
|
$30,754
|
$31,369
|
$31,984
|
|
3rd Tax Bracket Threshold
|
61,509
|
62,739
|
63,969
|
|
Surtax
Threshold
|
5,200
|
8,850
|
12,500
|
Increased Basic Personal,
Spousal and Age Amounts
The Treasurer also announced that personal taxes will be lowered through the increase of the Basic Personal Amount, the Spousal Amount and the Age Amount. As with the tax bracket thresholds, the budget proposed to increase these amounts by 2% in 2007 and by 4% in 2008, over current levels.
The Spousal Amount is a non-refundable tax credit that can be claimed by a taxpayer for a dependent spouse (the spouse or common-law partner amount) or, if the taxpayer is single, for one qualified dependent. This amount is reduced by the amount of the spouse's or dependant's net income over a specified income threshold as outlined in the chart below (which will also be increased).
Taxpayers 65 years of age or older at the end of the year may claim an additional personal credit amount known as the Age Amount. The amount of the credit is subject to clawback at 15% if the taxpayer's income exceeds a certain income threshold which is outlined in the chart below (which will also be increased).
|
Non-Refundable Tax Credit
Amounts
|
2006 Amount
|
2007 Amount
|
2008 Amount
|
|
Basic Personal Amount
|
$7,412
|
$7,560
|
$7,708
|
|
Spousal Amount
- Income Threshold
|
6,294
629
|
6,420
642
|
6,546
655
|
|
Age
Amount
-
Income Threshold
|
3,619
26,941
|
3,691
27,480
|
3,764
28,019
|
Increased Education Amount
The Education Amount will be doubled for both full-time and part-time students, effective for the 2007 taxation year. The Education Amount for full-time students will increase to $400 per month from $200 per month and for part-time students, to $120 per month from $60 per month.
Corporate Tax Changes
Small Businesses Income
Tax Cuts Continue
Although no new announcement was made today regarding corporate income taxes, the Treasurer confirmed that the tax cuts announced last year will continue to be phased-in on schedule. The small business rate was reduced from 5.4% to 4.3% effective April 1, 2007, and further cuts will be implemented through 2010 (when the small business rate will be reduced to 1%).
|
Effective
Date
|
Tax Rate for Canadian-Controlled Private Corporations on Active Business Income
|
|
April 1, 2007
|
4.3%
|
|
April 1, 2008
|
3.2%
|
|
April 1, 2009
|
2.1%
|
|
April 1, 2010
|
1.0%
|
The Treasurer also confirmed that the province will follow the federal increase to the small business deduction, from $300,000 to $400,000, effective January 1, 2007. This will mean that the lower tax rates just discussed will apply on active business income of up to $400,000 for each corporation or associated group.
Other Measures
Federal Harmonization
As Prince Edward Island uses federal tax rules for calculating income for both individuals and corporations, many of the federal tax changes that have been announced recently will apply automatically. The budget documents highlighted that Islanders will benefit from the following initiatives in particular:
- The new pension income-splitting measure will apply effective January 1, 2007.
- The capital gains exemption will increase to $750,000 for dispositions after March 18, 2007.
Provincial Tax on Gasoline
Today's budget proposed that effective April 11, 2007, the variable component of the provincial tax on gasoline and diesel fuel will be capped at 8.7 cents per litre. The budget document states that based on current conditions, capping the gas tax will protect Islanders from further tax increases when the average minimum pump price exceeds $1.00 per litre. This change will result in a reduction by 1.4 cents per litre, effective midnight tonight.
Licensed Establishment User Fee
In response to consultations with the Canadian Restaurant and Food Service Association, the licensed establishment user fee will be eliminated effective April 10, 2007.
How PEI Compares
The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to April 10, 2007.
|
|
Top 2007
|
Top Corporate
Rates
|
|
|
|
Personal Rates
%
|
General
%
|
M&P
%
|
Small Business
%
|
Retail
Sales
Tax
%
|
|
BC
|
43.70
|
34.12
|
34.12
|
17.62
|
7.00
|
|
Alta.
|
39.00
|
32.12
|
32.12
|
16.12
|
-
|
|
Sask.
|
44.00
|
36.12
(1)
|
32.12
|
17.62
|
5.00
|
|
Man.
|
46.40
|
36.12
|
36.12
|
16.12
|
7.00
|
|
Ont.
|
46.41
|
36.12
|
34.12
|
18.62
|
8.00
|
|
Qué.
|
48.22
|
32.02
|
32.02
|
21.12
|
7.50
(2)
|
|
NB
|
46.95
|
35.12
|
35.12
|
18.12
|
8.00
(3)
|
|
NS
|
48.25
|
38.12
|
38.12
|
18.12
|
8.00
(3)
|
|
PEI
|
47.37
|
38.12
|
38.12
|
17.42
(4)
|
10.00
(2)
|
|
Nfld.
|
48.64
|
36.12
|
27.12
|
18.12
|
8.00
(3)
|
|
Yukon
|
42.40
|
37.12
|
24.62
|
17.12
(5)
|
-
|
|
NWT.
|
43.05
|
33.62
|
33.62
|
17.12
|
-
|
|
Nunavut
|
40.50
|
34.12
|
34.12
|
17.12
|
-
|
- The general tax rate will be reduced to 35.12% on July 1, 2007.
- Provincial sales tax applies on GST. Effective combined rate is 13.95% in Québec and 16.6% in PEI.
- As part of the HST (combined rate is 14% with GST).
- The small business tax rate was reduced from 18.52% on April 1, 2007.
- The tax rate for M&P profits eligible for the small business deduction is 15.62%.
Prince Edward Island Budget Report 2007 is a publication of BDO Dunwoody LLP and Beaton Fitzpatrick Murray 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 Beaton Fitzpatrick Murray.
