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March 23, 2010

Highlights

• Deficit of $555 Million Projected for 2009-10
• Deficit of $545 Million Forecast for 2010-11
• Books to be Balanced by 2014-15
• Elimination of Corporate Income Tax on Small Business Income and Capital Tax to Proceed on Schedule
• Reduction in General Corporate Income Tax Rate Deferred

Overview

“Manitoba Moves Forward"

On March 23, 2010, the Honourable Rosann Wowchuk presented her first budget as Minister of Finance. Following the same trend that has developed in the federal and provincial budgets presented so far this year, the economic downturn has had a more severe impact on the province's finances than first predicted. The surplus of $48 million projected for the 2009-2010 fiscal year in last year's budget is now expected to be a deficit of $555 million. A deficit of $545 million is forecast for the 2010-2011 fiscal year. Manitoba expects to balance its budget by the 2014-15 fiscal year.

To deal with the budget deficit, spending will be reduced in one-half of provincial government departments. Ninety percent of new spending will be directed to priority areas such as health, education and training, and justice. Amendments to Manitoba's balanced budget legislation will be needed to incorporate the Minister's financial projections.

There was some good news on the corporate tax front, as the downturn in the economy will not delay previously scheduled corporate tax reductions. The elimination of the Manitoba corporate income tax on small business income will proceed on schedule on December 1, 2010 and the corporate capital tax will be eliminated at the end of 2010. The news was not as good for a planned reduction to the general corporate income tax rate. The Minister announced today that the reduction of this rate from 12% to 11% will go forward at a later time when the economy improves.

On the personal tax front, previously announced personal tax reductions for 2010 will be delayed. The personal tax brackets and rates that applied in 2009 will apply again for 2010. Under changes announced previously, the tax rate for the first tax bracket was to be reduced from 10.8% to 10.7%. Also, the threshold for both the middle and top tax brackets was to be increased by $1,000.

A number of smaller tax changes were included in today's budget which are mainly enhancements or extensions to existing programs for both individuals and businesses.

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

Manitoba Summary Budget Projections (in millions $)
	Original Estimate 2009/2010	Revised Forecast 2009/2010	Projected 2010/2011
Revenue	12,729	12,502	12,720
Expenditures	(12,681)	(13,057)	(13,265)
Summary net income (loss)	48	(555)	(545)

PERSONAL TAX CHANGES

New Tuition Fee Income Tax Rebate Advance

The Tuition Fee Income Tax Rebate provides graduates who live and work in Manitoba with a 60% rebate of eligible post-secondary tuition fees. The budget proposes to introduce an advance on this Rebate to students while they are still in school. Students resident in Manitoba and attending a post-secondary institution will be able to claim a 5% refundable tax credit on tuition and ancillary fees paid after August 31, 2010 as the Tuition Fee Income Tax Rebate Advance. Under the Advance, there will be a maximum annual cap of $250 for 2010 and $500 for subsequent years, with a lifetime cap of $5,000. Amounts claimed under the Advance will reduce the lifetime Rebate maximum of $25,000 that applies after graduation. The Advance may be claimed by the student even if they transfer a tuition and education amount to their parent or spouse. However, an individual will not be able to claim the Advance in a year that they are claiming the Rebate.

Fitness Tax Credit Broadened

The Children's Fitness Tax Credit is a non-refundable tax credit currently provided on the annual cost of eligible fitness activities of children up to and including age 15. The credit will be broadened to include claims for young adults aged 16 to 24, beginning in 2011. The annual cost of eligible fitness activities that qualify for federal income tax purposes up to a maximum of $500 can be claimed by a young adult, their parent or spouse for Manitoba's Fitness Tax Credit. Similar to the credit for young children, young adults with a disability will be eligible for an additional credit if a minimum of $100 is spent on qualifying fitness activities.

Fertility Treatment Tax Credit Introduced

The budget proposes the introduction of a refundable Fertility Treatment Tax Credit related to the treatment of a Manitoba resident. This credit will equal 40% of fertility treatment costs paid to an accredited clinic in Manitoba and for related prescription drugs, net of any reimbursements such as private health care coverage. The maximum credit that can be claimed is $8,000 on annual eligible costs of $20,000 incurred after September 2010. Eligible costs must qualify as a medical expense for federal income tax purposes and the credit can be shared with a spouse or common-law partner.

Small Business Venture Capital Tax Credit Extended

The Community Enterprise Investment Tax Credit is a non-refundable income tax credit for resident Manitobans, both individual and corporate, who invest in qualifying equity capital in emerging enterprises. The Minister announced that this tax credit is extended for three years to December 31, 2013 and that it is renamed the Small Business Venture Capital Tax Credit.

BUSINESS TAX CHANGES

Research and Development (R&D) Tax Credit Expanded

As announced in the 2009 budget, the 20% R&D Tax Credit for scientific research and experimental development expenditures carried on in Manitoba under an eligible contract with a qualifying research institute in Manitoba became fully refundable.

Today's budget extends refundability of this tax credit to in-house R&D expenditures (i.e. R&D not undertaken under contract with an institute in Manitoba) as follows:

• starting with 2011, one-quarter of the credit for in-house R&D will be refundable, and
• starting with 2012, one-half of the credit for in-house R&D will be refundable.

Co-op Education and Apprenticeship Tax Credits Broadened

The Co-op Education and Apprenticeship Tax Credits (CEATC) were introduced in 2003 to encourage employers to hire co-op education students from post-secondary institutions. The credits have been extended in stages to include co-op graduates, newly certified journeypersons and advanced level apprentices.

The budget proposes that starting in 2011, the tax credits will be broadened to include employers who hire high-school and post-secondary Level 1 and 2 apprentices, but who are not eligible for the Federal Apprenticeship Job Creation Tax Credit. This includes tax-exempt employers as well as taxable employers of non-Red-Seal apprentices. The Manitoba CEATC will be equal to 10% of net wages and salaries paid to an apprentice, up to a maximum $2,000 credit.

Co-operative Development Tax Credit Introduced

Today's budget introduced a tax credit for co-operatives that make financial contributions toward co-operative development in Manitoba. Contributions to a fund managed by the Manitoba Cooperative Association will be used for the provision of technical assistance, the co-ordination of existing supports and services, and the provision of small grants and strategic investments.

Program details will be announced later this year. Contributions made after September 2010 will be eligible for the tax credit.

Film and Video Production Tax Credit Extended and Enhanced

The Minister announced that the Manitoba Film and Video Production Tax Credit will be extended for three years to March 1, 2014. Starting with productions beginning principal photography after March 2010, production companies will be able to elect to claim either:

• the maximum 65% film tax credit based on eligible labour costs, or
• a new 30% tax credit based on production costs incurred and paid for labour, goods and services provided in Manitoba that are directly attributable to the production of an eligible film.

As well, the following changes are proposed, effective March 24, 2010:

• production companies may file Form T2029, Waiver in Respect of the Normal Reassessment Period, to extend their application deadline by 18 months,
• legislation will be amended to provide the government with greater flexibility to make changes in response to external changes, and
• federal limitation periods will be adopted for filing a Manitoba film tax credit certificate with the Canada Revenue Agency.

Interactive Digital Media Tax Credit Extended

The Interactive Digital Media Tax Credit is available to eligible taxable Canadian corporations with a permanent establishment in Manitoba that develop and produce interactive digital media projects in the province. The Minister announced an extension of this tax credit for three years to December 31, 2013.

Also, for certificates of eligibility and tax credit certificates issued after March 23, 2010, the following changes are proposed:

• tax credit certificates can be issued on a taxation-year basis instead of at the end of a project,
• repaid or repayable government assistance will no longer reduce eligible labour costs, and
• where a government or public authority is the purchaser of an interactive digital media product, the amount paid by the purchaser and the amount of the Interactive Digital Media Tax Credit cannot exceed 100% of the project's costs.

New Credit Unions and Caisses Populaires Profits Tax

Effective January 1, 2011, credit unions and caisses populaires with a permanent establishment in Manitoba will be subject to a new 1% profits tax on taxable income in excess of $400,000. Historically, most credit unions and caisses populaires are taxed at the Manitoba small business rate regardless of their size due to the tax rules that apply to these organizations. This would have meant that these entities would have become largely exempt from Manitoba income tax when Manitoba's small business income tax is eliminated on December 1, 2010.

The profits tax will be based on Manitoba's taxable income as determined for federal income tax purposes. This tax will be reduced by the amount of Manitoba income tax paid or payable in that year.

The amount of taxable income used to calculate this tax will be prorated where a credit union's or caisse populaire's taxation year straddles January 1, 2011. Credit union centrals, caisses populaires federations and deposit guarantee corporations are exempt.

OTHER CHANGES

Farmland School Tax Rebate Frozen

The Farmland School Tax Rebate is a provincial rebate of school division taxes on farmland. The rate of this rebate was scheduled to increase to 80% for 2010. However, this increase has been deferred and the rate will remain at 75%.

Tobacco Tax Increased

The tobacco tax is increased effective today at midnight. The rate will rise on cigarettes from 18.5 cents to 20.5 cents per cigarette, on fine-cut tobacco from 17.5 cents to 19.5 cents per gram and on raw leaf tobacco from 16 cents to 18 cents per gram.

Retail Sales Tax Now Applies on Tanning Services

As studies show that indoor tanning increases the risk for skin cancer, the Minister announced today that retail sales tax will be applied to tanning services effective July 1, 2010.

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 23, 2010.

	Top 2010 Personal Rates %	2010 Corporate Rates
		General %	M&P %	Small Business %	Provincial Retail Sales Tax %
BC	43.70	28.50	28.50	13.50	7.00(6)
Alta.	39.00	28.00	28.00	14.00	-
Sask.	44.00	30.00	28.00	15.50	5.00
Man.	46.40	30.00	30.00	12.00(1)	7.00
Ont.	46.41	32.00(2)	30.00(2)	16.50(2)	8.00(6)
Qué.	48.22	29.90	29.90	19.00	7.50(7)
NB	43.30	30.00(3)	30.00(3)	16.00	8.00(8)
NS	48.25	34.00	34.00	16.00	8.00(8)
PEI	47.37	34.00	34.00	13.10(4)	10.00(7)
Nfld.	44.50	32.00	23.00	16.00	8.00(8)
Yukon	42.40	33.00	20.50	15.00(5)	-
NWT	43.05	29.50	29.50	15.00	-
Nunavut	40.50	30.00	30.00	15.00	-

 

The information in this publication is current as of March 23, 2010.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.
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