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April 29, 2008

Highlights

• Surplus of $158 million forecast for 2007-08 fiscal year
• Surplus of $190 million projected for 2008-09 fiscal year
• No corporate or personal tax rate changes announced
• Comprehensive review of Nova Scotia tax system announced

Overview

“A New Nova Scotia ... A Path to 2020"

On April 29, 2008, Finance Minister Michael Baker presented Nova Scotia's provincial budget for the 2008-2009 fiscal year, which represents the seventh consecutive balanced budget.

For the 2007-2008 fiscal year, a surplus of $158 million is now forecast - up from the original projection of $118 million. A surplus of $190 million is estimated for the 2008-2009 fiscal year. Spending initiatives for 2008-2009 will focus on protecting the environment, reducing health care wait times, creating healthier communities, education and infrastructure. There were positive economic results in the past 12 months - for example, corporate profits (before tax) were up by 4.6% and consumer spending grew by 4.2%. The Minister, however, did caution Nova Scotians that the slowing U.S. economy would impact the province.

One move may create some controversy in the province. Effective May 15, 2008, non-heating use of electricity (used for running appliances and lighting) will be removed from the energy rebate program (based on an estimate of how much power is used for this purpose). At the same time, the Heating Assistance Rebate Program will be introduced for low-income Nova Scotians.

There were no major tax changes in the budget. With a minority government and uncertain economic times, the Finance Minister chose to stay the course on taxes for the time being. In terms of the future, the Minister did announce a full review of Nova Scotia's tax system. Under the review, provincial taxes and fees on businesses and individuals will be assessed. The goal is to determine whether the current structure is fair, competitive and if it encourages investment and productivity.

The following is a summary of the more important items of interest to our clients.

Personal Tax Changes

Personal Amounts and Credits

Last year's budget established a scheduled series of increases in personal income tax credits. The value of these tax credit changes are based on each family's individual circumstances. The Minister announced that the basic personal amount, a credit against personal income tax, will increase from $7,481 in 2007 to $7,731 in 2008. After 2008 and before 2011, the credit amount will increase by an additional $500. Other Nova Scotia personal tax credits, such as the spousal, disability, pension, and age amounts, will be increased by a similar percentage.

Starting in 2011, the basic personal amount, non-refundable tax credits, and personal income tax brackets will be indexed.

Graduate Tax Credit

In January 2007, Nova Scotia implemented the Graduate Tax Credit. This credit is available once to anyone living and working in Nova Scotia who graduated from an eligible post-secondary program on or after January 1, 2006. For graduates in 2008 and beyond, the government will increase the tax credit from $1,000 to $2,000.

Volunteer Firefighters and Ground Search and Rescue Tax Credit Extended

The Volunteer Firefighters Tax Credit will be expanded to include ground search and rescue volunteers who will now be eligible for a $375 refundable tax credit in 2008 and a $500 refundable tax credit in 2009.

Healthy Living Tax Credit Extended

The Healthy Living Tax Credit for sport and recreational activities, currently available only for eligible children's fitness activities, will be extended to all Nova Scotians starting in 2009. The maximum expenditure per individual will be $500. The Department of Health Promotion and Protection will be extending the list of eligible organizations to include those that provide fitness activities for adults.

Transit Tax Credit Introduced

The Minister announced today that the province will match the Federal Transit Tax Credit starting in 2009. Taxpayers can claim the cost of monthly or longer duration public transit passes as well as payments for electronic payment cards and weekly passes provided certain conditions are satisfied in each case. Electronic payment cards are eligible if used for at least 32 one-way trips during 31 consecutive days. Weekly passes are eligible if the passes can be used for unlimited travel within at least a five day period and enough passes are purchased to allow the taxpayer to travel on at least 20 days in a 28-day period.

Business Tax Changes

Film and Digital Media Tax Credits Increased

Today, the Minister confirmed a previous announcement made in the fall that the film and digital media tax credits will be increased. The base Film Tax Credit for productions commencing after September 30, 2007 will increase to 50% of eligible salaries paid to Nova Scotia labour, up to 25% of total production costs. The Digital Media Tax Credit will increase to 50% of eligible salaries, up to 25% of total production costs for expenditures incurred after December 31, 2007. In addition, the bonus for filming or producing in the eligible geographic area will increase to 10% of eligible salaries, up to 5% of total production costs for both of these tax credits.

Large Corporations Tax

Under previously announced changes, Nova Scotia's Large Corporations Tax (LCT) on the capital of corporations other than financial institutions will decline from 0.225% to 0.2% on July 1, 2008. The tax rate will continue to decline until the LCT is eliminated in 2012. When compared to its peak rate of 0.3% in 2005, the reduced LCT rate will save Nova Scotia businesses an estimated $28 million in the 2008 taxation year and $42.8 million in the 2009 taxation year.

How Nova Scotia Compares

The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to April 29, 2008.

Nova Scotia Budget Report 2008 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.