2010 Nova Scotia Budget Report
April 6, 2010
Highlights
- Combined HST Rate to Increase from 13% to 15% on July 1st
- Deficit of $222 Million Projected for 2010-11 Fiscal Year
- Provincial Books to be Balanced by 2013-14
- Top Personal Income Tax Rate Now 50%
- Tax Rate on Corporate Small Business Income Falls to 4.5% in 2011
Overview
"Back to Balance: The Four Year Plan"
On April 6, 2010, the Honourable Graham Steele presented his second budget as Nova Scotia Finance Minister. Today's budget included some strong measures to deal with the province's budget deficit. In a report last year, an advisory panel appointed by the Nova Scotia government recommended that the deficit should be eliminated through tax increases and spending cuts. The panel also pointed out the need for a new economic growth agenda.
The deficit of $592 million predicted for the 2009-2010 fiscal year in last September's budget is now expected to be a deficit of $488 million. A deficit of $222 million is forecast for the 2010-2011 fiscal year. A balanced budget is predicted for the 2013-2014 fiscal year. The balanced budget will be achieved through a reduction of government spending and higher taxes.
The biggest tax change in this year's budget is the increase in the Harmonized Sales Tax (HST) rate. Effective July 1, 2010, the provincial component of the HST will be increased from 8% to 10%. Transitional rules around this change will apply. This will bring the combined federal/Nova Scotia HST rate to 15%.
For higher-income individuals, there was more bad news with the introduction of a new top personal tax rate of 21% (resulting in a 50% top marginal tax rate with federal income tax).
For corporate business owners, there was some good news, as the corporate income tax rate that applies on small business income will be reduced from 5% to 4.5% on January 1, 2011.
The following is a summary of the more important items of interest to our clients.
|
Nova Scotia Budget Summary -
Statement of Operations
(in millions $)
|
|
|
Original
Estimate
2009/2010
|
Revised
Forecast 2009/2010
|
Estimate
2010/2011
|
|
Revenue
|
8,055
|
8,088
|
8,391
|
|
Expenses
|
(8,205)
|
(8,138)
|
(8,085)
|
|
Debt servicing costs
|
(889)
|
(872)
|
(959)
|
|
Consolidation and accounting adjustments
for
governmental units
|
90
|
76
|
82
|
|
Net
income from government business enterprises
|
357
|
358
|
349
|
|
Provincial deficit
|
(592)
|
(488)
|
(222)
|
PERSONAL TAX CHANGES
New Temporary Fifth Personal Tax Bracket Introduced
Today's budget announced the addition of a fifth personal income tax bracket, effective January 1, 2010 which will remain in place until the budget is balanced. Before the budget change, the top provincial personal income tax rate of 17.5% was applicable to taxable income in excess of $93,000. With the new fifth income tax bracket, taxable income in excess of $150,000 will now be taxed at a marginal provincial income tax rate of 21%. Due to the introduction of this additional bracket, the high-income tax surtax, which applied to individuals with taxable income starting at about $83,000 per year, will be suspended until the budget is balanced. Employer payroll remittances for personal income taxes will be adjusted to reflect this change on July 1, 2010.
Personal Amounts and Credits
The Personal Tax Credit amount will be increased by $250 as previously announced - from $7,981 in 2009 to $8,231 for 2010. Other Nova Scotia personal tax credits, such as the Spousal, Disability, Pension and Age amounts, will be increased by 3.13% in 2010.
Tax Reduction for Low-Income Seniors
Beginning January 1, 2010, an adjusted family income calculation will be introduced to exclude the Guaranteed Income Supplement in calculating the provincial Low-Income Tax Reduction that is available for low-income individuals and families. This adjustment will result in an elimination of provincial income tax for approximately 18,000 seniors.
New Affordable Living Tax Credit
To help offset the increase of the HST, Nova Scotia households earning less than $34,800 per year will start receiving the Nova Scotia Affordable Living Tax Credit beginning on July 1, 2010. The annual amount of the credit will be $240 per household, plus $57 for each child under 19 living in the household. The credit will be reduced by $0.05 for every dollar of adjusted family income above $30,000. Credits will be paid in quarterly amounts, in conjunction with the federal GST credit. Anyone who is eligible for this credit in July will automatically receive it without making an application as long as a 2009 tax return has been filed. This credit will not be counted as part of adjusted family income when determining the
Low-Income Tax Reduction.
New Poverty Reduction Credit
The government announced a new credit to help individuals living in poverty. The Poverty Reduction Credit will provide individuals or couples with tax-free payments of $50 per quarter for a total of $200 annually, beginning July 1, 2010. To qualify, individuals must be at least 19 years of age with no dependants. In addition, individuals must be receiving Social Assistance as their main source of income through the Income Assistance Program and their income for the previous year must be $12,000 or less. The Department of Community Services will determine eligibility through the Income Assistance Program.
BUSINESS TAX CHANGES
Small Business Tax Rate Reduced
The government announced a tax rate reduction that will benefit small businesses. Effective
January 1, 2011, the small business tax rate will be reduced from 5% to 4.5%. This reduced rate applies to the first $400,000 of active business income for Canadian-controlled private corporations (including associated corporations) with taxable capital of $10 million or less in the prior year. The benefit of this rate is partially reduced where taxable capital in the prior year exceeds $10 million and is eliminated where taxable capital in the prior year exceeds $15 million.
HST AND OTHER SALES TAX CHANGES
Increased HST Rate
To help balance the province's books, the provincial portion of the HST will be increased from 8% to 10% effective July 1, 2010. This will result in an increase of the combined HST rate from 13% to 15%.
The government also announced that transitional rules will be put in place to assist in determining the HST rate applicable to transactions that straddle the July 1, 2010 implementation date for the rate increase.
Existing rebates for organizations such as municipalities, hospitals, and other public services bodies will continue as before. Also, the current rebate for first time home buyers will continue to provide the same tax relief for new housing purchases, but there will be changes to eligibility for builders to claim on behalf of home buyers and in the administration of the rebate.
New Point-of-Sale Rebates
The Minister announced that effective July 1, 2010, the government will provide point-of-sale rebates of the provincial portion of the HST on the following products:
- children's clothing
- children's footwear
- children's diapers
- feminine hygiene products
These rebates are in addition to rebates currently in effect for books and residential energy.
Tax on Sales of Used Vehicles and Designated Tangible Personal Property
On July 1, 2010, the government will increase the tax on the sale of used motor vehicles or other designated tangible personal property, such as boats, aircraft, and boat trailers from 13% to 15%, to coincide with the increase in the HST rate.
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 6, 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(8)
|
|
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(8)
|
|
Qué.
|
48.22
|
29.90
|
29.90
|
19.00
|
7.50(9)
|
|
NB
|
43.30
|
30.00(3)
|
30.00(3)
|
16.00
|
8.00(10)
|
|
NS
|
50.00
|
34.00
|
34.00
|
16.00
|
8.00(11)
|
|
PEI
|
47.37
|
34.00
|
34.00
|
12.00(4)
|
10.00(9)
|
|
Nfld.
|
43.40(5)
|
32.00
|
23.00
|
15.00(6)
|
8.00(10)
|
|
Yukon
|
42.40
|
33.00
|
20.50
|
15.00(7)
|
-
|
|
NWT
|
43.05
|
29.50
|
29.50
|
15.00
|
-
|
|
Nunavut
|
40.50
|
30.00
|
30.00
|
15.00
|
-
|
- The combined small business rate will be reduced to 11% on December 1, 2010.
- The Ontario corporate rates will be reduced on July 1, 2010. The general business rate will be 30%, the M&P rate will be 28% and the small business rate will be 15.5%.
- The combined general business and M&P rates will be reduced to 29% on July 1, 2010.
- The combined small business rate was reduced from 13.1% on April 1, 2010.
- There will be a mid-year reduction in the top personal tax rate resulting in a top rate of 43.4% for 2010. The rate reduction will impact payroll deductions beginning July 1, 2010.
- The combined small business rate was reduced from 16% on April 1, 2010.
- The tax rate for M&P profits eligible for the small business deduction is 13.5%.
- The provincial sales tax will be harmonized with the GST on July 1, 2010 (combined rates will be 13% in Ontario and 12% in BC).
- Provincial sales tax applies on GST. Effective combined rate is 12.875% in Québec and 15.5% in PEI.
- As part of the HST, the combined rate is 13% with GST.
- As part of the HST, the combined rate is 13% with GST and will increase to 15% on July 1, 2010.
The information in this publication is current as of April 6, 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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