Due to mounting financial pressures associated with COVID-19, Manitoba Premier Brian Pallister stated on March 26, 2020 that the the province will not be proceeding with the proposed cut to the provincial retail sales tax rate and introduction of the Manitoba Green Levy. As soon as the government issues a formal News Release we will update our Tax Alert for these developments.
On March 5, 2020, Manitoba Premier Brian Pallister announced that the retail sales tax (RST) will be reduced to 6% from 7% effective July 1, 2020. The premier also announced the province's intent to implement a flat $25-per-tonne carbon tax levy, which will also become effective on July 1, 2020. A further announcement of an increase to the payroll tax thresholds was made by the Manitoba government on March 10. The timing of these announced changes came in advance of the release of the province's 2020 budget, which was to have been tabled on March 11. However, as a result of multiple procedural delays imposed by the NDP opposition, the budget was not released until March 19.
The following is a closer look at the tax measures of interest to you that were either announced prior to the release of the provincial budget, or as part of the budget itself.
RST rate reduction
The recently announced reduction in the RST rate to 6% was highlighted in the March 19 budget will come into effect on July 1, 2020. This change will affect all Manitoba businesses registered for RST, as well as businesses outside the province that are selling or renting goods or selling certain services to Manitoba businesses and consumers. Registered businesses, both within and outside of Manitoba, will need to adjust their point of sale or other sales recording software to account for this change.
Following the release of the budget, the province also released transitional rules to assist businesses to administer this change in the sales tax rate. In general terms, the reduced rate of 6% will apply to goods purchased after June 30, 2020, including goods for which the purchaser has made only a deposit on the purchase. However, goods purchased before July 1, 2020 on credit or by deferred payment arrangement where payment is made after June 30, 2020, and for goods paid for before July 1, 2020 and delivered after that date, the 7% tax rate will apply. The transitional rules for taxable services will vary with the type of service. For real property, the applicable tax rate is not based on the contract date but rather when the goods are supplied or services provided. Documentation should be retained to verify the dates of supply.
With this change coming into effect in less than four months, affected businesses need to start planning for this change now. Contact your BDO advisor for guidance on how this change will affect your business and get ready for the July 1, 2020 change in sales tax rate.
In addition to the one-percent RST rate reduction announced on March 5, the budget proposed that the following RST rates will also decrease, effective July 1, 2020:
- The rate on electricity used by qualifying manufacturing, mining and oil well operators will decrease to 1.2% from 1.4%.
- The rate on mixed uses of electricity and natural gas used for home heating, heating and cooling of farm buildings, and operating farm grain dryers will decrease to 1.2% from 1.4%.
- The rate on mobile home, modular, and ready-to-move homes will decrease to 3.5% from 4%.
- The prorated vehicle tax rates for commercial trucking will be adjusted to 6%.
RST exemption for preparing personal income tax returns
The budget proposed that the preparation of personal income tax returns will be exempted from RST effective Oct 1, 2020. This ensures that the exemption will apply to the preparation of personal income tax returns for the 2020 taxation year.
Made-in-Manitoba green levy
As previously announced, the budget confirmed that Manitoba will be implementing a flat $25-per-tonne carbon levy to replace the federally imposed carbon tax. Named the Made-in-Manitoba green levy, these measures will become effective July 1, 2020. The levy will apply to gas, liquid, and solid fuel products intended for combustion. The type of fuel will determine the applicable green levy rate, and the collection and remittance procedures. Additional administrative guidance will be made available on the collection of the green levy at a future date.
An additional output-based pricing system will also be implemented for large industrial facilities competing in high-risk sectors of the economy.
The budget proposed to exempt the following items from the green levy:
Elimination of probate fees
Currently, the probate fee in Manitoba is $70 on the first $10,000 value of a deceased person's estate, and then $7 per $1,000 or portion of a $1,000 thereafter. Beginning on July 1, 2020, applications made to the Court of Queen's Bench for the probate of an estate of a deceased person will no longer require the payment of any probate fees.
Change to Manitoba's payroll taxes
The province's Health and Post Secondary Education Tax Levy, commonly called the payroll tax, is imposed on wages paid by employers with a permanent establishment in the province. The budget confirmed the province's announcement on March 10 that Manitoba will increase the following payroll tax thresholds, as of Jan. 1, 2021:
- Employers with an annual payroll of $1.5 million or less will be exempt (up from the current $1.25 million exemption threshold).
- Employers with an annual payroll between $1.5 million and $3 million will pay 4.3% on the amount within this range (up from the current range of $1.25 million to $2.5 million).
- Employers with an annual payroll above $3 million will pay 2.15% of the total payroll (up from the current $2.5 million threshold).
These are the first changes to Manitoba's payroll tax thresholds since 2008.
Other tax measures
The following additional measures were also announced in the budget:
- The basic personal amount and personal income tax brackets will continue to be indexed to the rate of inflation.
- Effective for the 2020 taxation year, the requirement to register with the Province of Manitoba as a tax rebate discounter and the associated registration fee is eliminated.
- The Primary Caregiver Tax Credit provisions will be amended to require a renewal every three years.
Amendments will be made to allow optometrists to provide their professional services through a professional corporation.
- Vehicle registration fees applicable to non-commercial vehicles —including passenger vehicles, trucks, trailers, motorcycles/mopeds, and off-road vehicles— will be reduced by 10%, starting with renewals after June 30, 2020.
The following tobacco tax rates will change, effective July 1, 2020: cigarettes from 30.0¢ to 30.5¢ each; fine cut tobacco from 45.5¢ to 46.0¢ per gram; raw leaf tobacco from 27.5¢ to 28.0¢ per gram; other tobacco products from 29.0¢ to 29.5¢ per gram. This ensures that the total retail price of tobacco will remain approximately the same after the RST rate is decreased to 6% on July 1, 2020.
- Effective for principal photography that begins after May 31, 2020, a new Manitoba Production Company Bonus of 8% is added to the 30% cost-of-production credit under the Film and Video Production Tax Credit, increasing the total cost-of-production credit up to 38%.
- The maximum daily amount that can be charged with respect to the Child Care Centre Development Tax Credit is eliminated. This will allow eligible corporations to partner with for-profit child care centres and permit non-profit child care centres developed under the tax credit to establish parent fees that support their business.
- Effective for qualifying property acquired and available for use after June 30, 2020, the refundable portion of the Manufacturing Investment Tax Credit is reduced to 6% from 7% to align with the RST rate reduction. Scheduled to expire on Dec. 31, 2020, the Manufacturing Tax Credit is now permanent.
- Scheduled to expire on Dec. 31, 2020, the Mineral Exploration Tax Credit is extended for three years to December 31, 2023.
- Scheduled to expire on Dec. 31, 2020, the Cultural Industries Printing Tax Credit and the Community Enterprise Development Tax Credit are extended to Dec. 31, 2021
The information in this publication is current as of March 26, 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.