2008 Prince Edward Island Budget Report
April 23, 2008
Highlights
- Deficit of $36.6 million forecast for 2007-08 fiscal year
- Deficit of $34.9 million projected for 2008-09 fiscal year
- No new tax changes announced
- Corporate and personal tax reductions will continue despite deficits
Overview
“One Island Community - One Island Future"
On April 23, 2008, the Honourable Wesley J. Sheridan tabled his second budget as Provincial Treasurer (a revised budget for 2007 was presented last fall after the Liberal party came to power following the 2007 provincial election). The Treasurer has again presented a budget with large deficits. The forecast deficit for the 2007-2008 fiscal year now sits at $36.6 million. A slight improvement is projected for 2008-2009 fiscal year - a deficit of $34.9 million. The Treasurer has stated that he hopes to balance the books within the next two years.
In terms of the economy, the Treasurer stated that the PEI economy grew by 1.8% in 2007 and it is expected that it will grow by 1.9% in 2008. As is the case with all Canadian government budgets this year, there is uncertainty surrounding economic growth as the economic situation in the U.S. seems to worsen as time passes, and the degree to which the Canadian (and provincial) economy will be impacted is uncertain.
The Treasurer chose to focus this year´s budget on the five key areas referred to in the throne speech: sustainable health care, high quality education, an economic strategy blending traditional industry with new opportunities, environmental stewardship and improvements to service/program delivery. Of these initiatives, health care was recognized as the top priority, with a focus on modernization.
The Treasurer also provided an update on tax changes. Although no new tax reductions were announced, it was confirmed that previously announced tax reductions will continue on schedule (which is good news given the deficits presented). Businesses will also benefit from the province´s promise to reduce the paperwork burden as a result of the province´s Red Tape Review.
There is good news for Island students seeking a post-secondary education. As announced on April 17, 2008, full-time resident students enrolling at UPEI in a first year program can qualify for a one-time bursary of $2,000. Students enrolling in a 2-year program at Holland College or la Société educative can qualify for varying amounts depending on the program.
In what appears to be the only revenue measure, the cost of a carton of cigarettes will be increased by $5 beginning on April 24th.
The following is a summary of tax changes of interest to our clients that will apply for 2008.
|
Prince Edward Island Consolidated Projection
(in millions $)
|
|
|
Original
Estimate 2007/2008*
|
Revised Forecast 2007/2008
|
Projected
2008/2009
|
|
Revenue
|
1,268.6
|
1,259.1
|
1,344.3
|
|
Program expenditures
|
(1,124.1)
|
(1,148.2)
|
(1,229.1)
|
|
Interest charges
on debt
|
(121.2)
|
(116.3)
|
(117.3)
|
|
Depreciation
|
(38.7)
|
(38.7)
|
(40.9)
|
|
Net surplus of
crown entities
|
17.5
|
7.5
|
8.1
|
|
Consolidated
Surplus (Deficit)
|
2.1
|
(36.6)
|
(34.9)
|
|
* As presented
in the April 10, 2007 budget.
|
Personal Tax Changes
Tax Bracket Thresholds
Under previously announced changes, tax bracket thresholds will be increased by 2% in 2008 when compared with 2007. 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 were effective January 1st of each respective taxation year.
In addition, taxpayers with over $8,850 of basic provincial tax (i.e. tax after non-refundable tax credits and other tax credits are taken into consideration) were subject to a surtax in 2007 on the excess amount at the rate of 10%. For 2008, the threshold at which the surtax becomes payable was increased to $12,500.
|
Tax Bracket Thresholds
|
2007 Amount
|
2008 Amount
|
|
2nd Tax Bracket Threshold
|
$31,369
|
$31,984
|
|
3rd Tax Bracket Threshold
|
62,739
|
63,969
|
|
Surtax Threshold
|
8,850
|
12,500
|
Increased Basic Personal,
Spousal and Age Amounts
Previously announced changes will also result in a 2% increase in the Basic Personal Amount, the Spousal Amount and the Age Amount when compared with 2007. The increases to these credits are outlined in the chart below.
|
Non-Refundable Tax Credit Amounts
|
2007 Amount
|
2008 Amount
|
|
Basic Personal Amount
|
$7,560
|
$7,708
|
|
Spousal Amount
- Income Threshold
|
6,420
642
|
6,546
655
|
|
Age Amount
- Income Threshold
|
3,691
27,480
|
3,764
28,019
|
Business Tax Changes
Small Business Income Tax Cuts Continue
Although no new announcement was made in this year´s budget, the fact that the significant cuts to the corporate small business income tax rate will continue on schedule is good news for Island businesses. The small business rate applies on the first $400,000 of active business income earned by Canadian-controlled private corporations. The small business rate was reduced from 4.3% to 3.2% effective April 1, 2008, 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%
|
Other Changes
Provincial Tax on Gasoline
In last year´s budget, the variable component of the provincial tax on gasoline and diesel fuel was capped at 8.7 cents per litre. According to the 2008 provincial budget papers, this resulted in a reduction in gasoline taxes of 4.4 cents per litre last year and it was confirmed that this reduction will be continued into the 2008-2009 fiscal year.
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 23, 2008.
|
|
Top 2008
Personal Rates
%
|
Top Corporate Rates
|
|
|
|
General
%
|
M&P
%
|
Small Business
%
|
Retail Sales
Tax
%
|
|
BC
|
43.70
|
31.5 (1)
|
31.5 (1)
|
15.5 (1)
|
7.0
|
|
Alta.
|
39.00
|
29.5
|
29.5
|
14.0
|
-
|
|
Sask.
|
44.00
|
32.5 (2)
|
29.5
|
15.5
|
5.0
|
|
Man.
|
46.40
|
33.5 (3)
|
33.5
|
13.0
|
7.0
|
|
Ont.
|
46.41
|
33.5
|
31.5
|
16.5
|
8.0
|
|
Qué.
|
48.22
|
30.9
|
30.9
|
19.0
|
7.5 (6)
|
|
NB
|
46.95
|
32.5
|
32.5
|
16.0
|
8.0 (7)
|
|
NS
|
48.25
|
35.5
|
35.5
|
16.0
|
8.0 (7)
|
|
PEI
|
47.37
|
35.5
|
35.5
|
14.2
(4)
|
10.0
(6)
|
|
Nfld.
|
45.50
|
33.5
|
24.5
|
16.0
|
8.0 (7)
|
|
Yukon
|
42.40
|
34.5
|
22.0
|
15.0 (5)
|
-
|
|
NWT
|
43.05
|
31.0
|
31.0
|
15.0
|
-
|
|
Nunavut
|
40.50
|
31.5
|
31.5
|
15.0
|
-
|
- (1) The general tax rate will be reduced to 30.5% and the small business rate will be reduced to 14.5% on July 1, 2008.
- (2) The general tax rate will be reduced to 31.5% on July 1, 2008.
- (3) The general and the M&P tax rates will be reduced to 32.5% on July 1, 2008.
- (4) The small business rate was reduced from 15.3% on April 1, 2008.
- (5) The tax rate for M&P profits eligible for the small business deduction is 13.5%.
- (6) Provincial sales tax applies on GST. Effective combined rate is 12.875% in Québec and 15.5% in PEI.
- (7) As part of the HST (combined rate is 13% with GST).
Prince Edward Island Budget Report 2008 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.
