Tax Alert - B.C. increases tax for high income earners

On February 18, Finance Minister Carole James presented British Columbia's 2020 budget. With this budget, the province's NDP government continues to focus on presenting a balanced plan that meets the priorities of British Columbians while also maintaining a moderate surplus.

With an emphasis on education, health, and affordability, this budget directs resources to support the costs of child care and post-secondary education while also increasing taxes for high-income earners and expanding PST registration requirements to the online digital economy. More details on the significant measures from the budget are below.

Personal tax measures

New top personal income tax rate of 20.5% on taxable income over $220,000

The budget proposes a new top personal tax rate of 20.5% on taxable income over $220,000 effective January 1, 2020. Prior to this announcement, the province's top personal tax rate was 16.8%, which has now increased by 3.7%. The new combined federal/BC personal rates on taxable income over $220,000 are as follows:

Owner-managers, who have a greater ability to control how much income they receive in a particular year, may want to consider whether it makes sense to retain more income in their corporation so that their personal income does not exceed $220,000 and therefore, will not be subject to the new top marginal tax rates in 2020. There are many factors to consider when devising a remuneration plan for an owner-manager, and a change in tax rates is one consideration. However, in light of the new tax rates, the benefit of deferring personal tax until the funds are needed for personal use may become a more important consideration when planning an owner-manager remuneration strategy.

Related to this tax rate change, the charitable donation tax credit for individuals is increased to 20.5% for charitable donations over $200 to the extent that the individual has taxable income that is taxed at the new top 20.5% tax rate.

Provincial sales tax measures

New registration requirements expanded to the digital economy

Effective July 1, 2020, Canadian sellers of goods, along with Canadian and foreign sellers of software and telecommunications services, will be required to register as tax collectors if specified BC revenues exceed $10,000. This means that a wide range of popular online media services including video platforms such as Netflix, CraveTV, and Amazon Prime as well as music platforms such as Google Music, will be subject to PST on July 1, 2020. Subject to the final wording of the legislation, these changes may also trigger BC PST registration requirements for Canadian and foreign sellers of Software as a Service (SaaS), Infrastructure as a Service (IaaS), and Platform as a Service (PaaS) to purchasers in BC.

In addition, all Canadian sellers of vapour products will be required to register if their products are delivered to BC consumers.

These changes will result in the collection of provincial sales tax by a greater number of businesses in the digital economy.

Carbonated Beverages Now PST-Taxable

Effective July 1, 2020, carbonated beverages that contain sugar, natural sweeteners, or artificial sweeteners will no longer qualify for the exemption for food products for human consumption. PST will also apply to all beverages dispensed through soda fountains, soda guns, or similar equipment, along with all beverages dispensed through vending machines with the exception of machines that are wholly dedicated to dispensing non-sweetened/carbonated beverages such as coffee and water.

Additional PST Measures

The following changes became effective February 19, 2020:

• The exemptions for machinery and equipment purchased or leased by qualifying manufacturers and resource industry businesses for use in pollution control or waste management are amended to eliminate restrictions regarding the location at which the machinery and equipment is used.
• Electric aircraft are exempt from PST.
• Real property contractors, who perform value-added work to goods and then install them into real property outside BC, can apply for refunds of the PST paid on those goods.
• Regarding bundled leases, in cases where taxable and exempt goods are leased together, the PST must be collected on the fair market value of the taxable goods.

Other budget measures

• As previously announced, the new BC Child Opportunity Benefit will replace the existing BC Early Childhood Tax Benefit effective October 1, 2020. This tax-free benefit will provide monthly payments to families with children under the age of 18, up to an annual maximum amount of $1,600 for a family's first child, $1,000 for a second child, and $800 for each subsequent child. The benefit will decrease where family income is between $25,000 and $80,000, and will be ground-down for families with net income over $80,000 until it is reduced to zero.
• Beginning in September 2020, a new grant will become available for low to middle-income post-secondary students. The BC Access Grant will complement the Canada Access Grant to provide up-front support of up to $4,000 a year to assist with the cost of a program that leads to a degree, diploma, or certificate.
• The training tax credits are extended to the end of 2022.
• The farmers' food donation tax credit is extended to the end of 2023.
• Effective July 1, 2020, corporations intending to claim the production services tax credit must notify the certifying authority of their intent within 60 days of first incurring an expenditure that is not eligible for the tax credit.
• Effective February 19, 2020, the accreditation certificate fee for the production services tax credit is increased to $10,000.
• The new mine allowance is extended for five years to the end of 2025.
• Effective April 1, 2020, the BC Carbon tax rates for 2020 and 2021 are aligned – where applicable - with the federal carbon pricing backstop methodology. BC carbon tax rates are being updated and will be available on the Ministry of Finance's website. These rates will be reviewed in 2022 as part of the federal government's review of the Pan-Canadian Framework on Clean Growth and Climate Change.
• Effective April 1, 2020, in order to ensure that licensees pay the correct carbon tax on fuel they use in BC, the refund rates for International Fuel Tax Agreement licensees will be adjusted to reflect the alignment of the carbon tax with the federal carbon pricing backstop methodology.
• Effective April 1, 2020, a default tax of 29.5 cents per heated tobacco product will be introduced. New disclosure requirements are required for dealers currently selling, or intending to sell, heated tobacco products in BC.
• A new exemption from additional property transfer tax will be introduced for qualifying Canadian-controlled limited partnerships.
• As announced on January 3, 2020, the threshold for the phase-out of the home-owner grant is decreased to $1,525,000 from $1,650,000 for the 2020 taxation year.
• Beginning in the 2020 taxation year, municipalities will have the flexibility to create a distinct municipal tax rate for designated port properties when the municipal major industry tax rate is below the upper tax rate threshold.

The information in this publication is current as of February 19, 2020.

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.