Budget 2010 projects deficits over the next three years of $1.7 billion in 2010/11, $945 million in 2011/12, and $145 million in 2012/13. BC does not expect to return to a balanced budget until 2013/14.
The province also announced that all revenues from the new Harmonized Sales Tax ($3.7 billion in the first fiscal year) to take effect in July, will be diverted into health care spending.
A summary of the limited tax-related and other noteworthy measures that were unveiled in this budget are highlighted below.
Film and Digital Media – Budget 2010 introduces the following changes to enhance BC’s competitiveness in film and digital media, as previously announced February 3, 2010:
Tax on Cigars Clarified and Maximum Tax Rate Increased - Effective March 3, 2010, the calculation of the 77 per cent tax on cigars is clarified as follows:
Retail Tobacco Fee Introduced - The Tobacco Tax Act is amended to impose an annual fee payable by tobacco retailers as a condition for selling tobacco products in the province. The fee start-up date and reporting requirements will be provided later this year.
Provincial Sales Tax Eliminated – Transition to HST - The 7% provincial sales tax (PST) is eliminated to coincide with the implementation of the HST. As a consequence, certain levies are eliminated and transitional provisions are provided to avoid the imposition of PST on payments for goods and services to which the HST applies.
Effective July 1, 2010, the following taxes and levies are eliminated:
Transitional PST Refund Provided for Construction Materials - As part of the transition to the HST, effective July 1, 2010, a refund of provincial sales tax is provided to contractors for PST paid on construction materials purchased by the contractor, held in inventory at the end of the day on June 30, 2010 and used by the contractor on or after July 1, 2010 to repair or improve residential real property under a contract to which the HST applies. Improvement of residential real property does not include construction of residential housing for which a PST Transitional New Housing Rebate is available. A refund is not available in respect of tax paid on construction materials if the PST is recoverable by the contractor or any other party. To obtain a refund, applications must be received by government on or before December 31, 2010.
Medical Services Plan (MSP) Premiums Increased - Effective January 1, 2011, Medical Services Plan premiums will be increased. Maximum monthly premium rates will increase by $3.50 per month to $60.50 for single persons, by $7.00 per month to $115.00 for two person families and by $7.00 per month to $121.00 for families of three or more persons.
Property Tax Deferment Program for Families with Children Introduced - The property tax deferment program allows certain home owners to defer property taxes until their home is sold, transferred to a new owner or becomes part of an estate. Eligibility for the program is being expanded to include families with children under age 18, starting July 1, 2010. To be eligible, a home owner must financially support at least one child under age 18, meet the basic eligibility criteria for the program, and have at least 15 per cent equity in their home. Simple interest is charged on deferred taxes at the prime rate. Applications for the expanded program will be available before property tax notices are sent out in May, and will be available from municipalities, Government Agents/Service BC offices and from the Ministry of Finance website.
Mining Exploration Tax Credit (METC) (2005 BC Budget) – The 20% METC available to both individuals and corporations that have eligible BC mining exploration expenditures was extended for an additional ten years to 2016. The credit was set to expire in August 2006 but is now extended to December 31, 2016.
BC Training Tax Credits (December 6, 2006) – Since January 1, 2007, the BC Training Tax Credit Program provides refundable tax credits for employees and employers engaged in apprenticeship programs administered through the Industry Training Authority. There are three main elements to the BC Training Tax Credit Program: basic credits for non-Red Seal training programs, completion credits for both Red Seal and non-Red Seal training programs and enhanced credits for First Nations individuals and persons with disabilities. BC’s basic credits complement the federal government’s incentives for training. The federal incentives are limited to the first two years’ enrollment in Red Seal apprenticeship programs and offer a tax credit of 10% of wages up to $2,000 for employers and a $1,000 taxable grant for apprentices. BC’s basic training tax credits provides similar incentives to the 79 BC-recognized (non-Red Seal) apprenticeship programs not currently eligible for the federal incentives. The BC training tax credits are scheduled to expire January 1, 2012.
Scientific Research & Experimental Development (SR&ED) Tax Credit (2007 BC Budget) – The 10% BC SR&ED Tax Credit (scheduled to expire on September 1, 2009) is extended to September 1, 2014. The SR&ED Tax Credit is also extended to include qualifying expenditures incurred by a partnership after February 20, 2007 so that corporations that are active members of a partnership can now claim the credit.
Book Publishing Tax Credit (2007 BC Budget) – This credit is extended to April 1, 2012 from April 1, 2007.
Hybrid Vehicles (2007 BC Budget) – The reduction of sales tax for hybrid electric passenger vehicles is extended to March 31, 2011 from March 31, 2009. The maximum reduction had been set to decrease to $1,000 on April 1, 2008. These vehicles are now eligible for a 100% reduction of PST, up to a maximum of $2,000 on a purchase or lease on or before March 31, 2011.
BC Carbon Tax (2008 BC Budget) – The new carbon tax starts at a rate based on $10 per tonne of carbon emissions (greenhouse gas emissions) on July 1, 2008 and will rise by $5 a year for the next four years – reaching $30 per tonne by 2012. This works out to 2.34 cents per litre for gasoline, rising gradually to 7.24 cents a litre by 2012. For diesel and home heating oil, it works out to 2.69 cents per litre, rising to 8.27 cents over the same four-year period.
Administratively, the carbon tax is applied and collected at the wholesale level, similar to the existing application of motor fuel taxes. The consumer bears the final cost of the carbon tax.
Low Income Climate Action Tax Credit (2008 BC Budget) – To help offset the cost of the carbon tax, lower-income British Columbians began receiving a new refundable Climate Action Tax Credit of $100 per adult and $30 per child effective July 2008. Single parent families receive the adult amount for the first child of the family. The maximum annual credit is reduced by 2% of family income from the prior year in excess of $30,000 for single individuals and $35,000 for families. The reduction thresholds are indexed to BC inflation starting in 2009. The maximum tax credit amounts for 2009 will increase by 5% each to $105 per adult and $31.50 per child.
Temporary Sales Tax Exemption for “ENERGY STAR Qualified” Refrigerators, Clothes Washers and Freezers (2008 BC Budget) – Effective February 20, 2008, a PST exemption is provided for residential refrigerators, clothes washers and freezers listed as being “ENERGY STAR Qualified”. This exemption expires on March 31, 2010.
Dividend Tax Credit Rate Reduced (2009 BC Budget) – Effective January 1, 2010, the BC personal income tax dividend tax credit rate applicable to ordinary dividends is reduced to 3.4% from 4.2%.
General Corporate Income Tax Rate (2009 BC Budget) – The BC general corporate income tax rate is reduced from 11% to 10.5% effective January 1, 2010. Effective January 1, 2011, the rate will be further reduced to 10%.
Temporary Sales Tax Exemption for Energy Efficient Residential Gas-fired Water Heaters Extended (2009 BC Budget) – The exemption for residential gas-fired water heaters with an energy factor of 0.80 or greater is extended to March 31, 2011.
Temporary Sales Tax Exemption for ENERGY STAR Residential Heating Equipment and Qualified Windows, Doors and Skylights Extended (2009 BC Budget) – The existing exemption for these ENERGY STAR items purchased or leased for residential use is extended to March 31, 2011.
Temporary Sales Tax Exemption for Energy Efficient Commercial Boilers (2009 BC Budget) – A new temporary exemption is introduced for commercial boilers fired by natural gas or propane with a boiler input rating of at least 200,000 BTU/h if they have a combustion efficiency of at least 90% as per prescribed standards. This exemption takes effect February 18, 2009 and expires March 31, 2011.
Temporary Sales Tax Exemption for Devices to Reduce Idling (2009 BC Budget) – A new temporary exemption is introduced for auxiliary power units, cabin heaters and engine heaters for trucks with a gross vehicle weight of at least 5000 kg. This exemption takes effect February 18, 2009 and expires March 31, 2012.
BC intends to harmonize its 7% provincial sales tax (PST) with the 5% federal GST effective July 1, 2010, for a single sales tax of 12%. The federal government will provide BC with $1.6 billion in transitional funding as an incentive to adopt sales tax harmonization. The full cost of administration will be borne by the federal government, saving the province an estimated $30 million annually in administration costs. The BC HST will generally use the same rules and tax base as the federal GST.
Similar to PST exemptions, the BC HST will provide consumers with point-of-sale rebates on a number of products including gasoline and diesel fuel for motor vehicles, books, children’s clothing and footwear, children’s car sets and car booster seats, children’s diapers and feminine hygiene products.
The proposed BC HST will include the following measures for individuals:
A new refundable BC HST Credit paid quarterly with the GST and Low Income Climate Action tax credits to offset the impact of the tax on those with low incomes. The credit will provide $230 for single individuals with income up to $20,000 and $460 for couples or a single parent with one child with incomes up to $25,000. The credit will be phased out by 4% for incomes above those thresholds. The first payments under this program will start in July 2010. With the elimination of the provincial sales tax, the BC Sales Tax Credit is integrated with the new BC HST Credit effective for the 2010 tax year.
The proposed BC HST will include the following measures for businesses:
[Note: The BC government announced in an Information Bulletin (February 19, 2010) that these temporary ITC restrictions would not apply to items acquired for use in farming activities by a person whose chief source of income is farming as defined in the federal Income Tax Act.]
General HST Transitional Rules (Ontario and BC) – CRA GST/HST Notice No. 247 (October 2009) contains guidelines to assist businesses and consumers in understanding how the transitional rules for the proposed HST and wind down of the RST would apply to transactions made by GST/HST registrants that straddle the July 1, 2010 implementation date for the proposed Ontario and BC HST. For the most part, the two provinces have chosen identical dates and rules. Also see HST Notice #1 General Transitional Rules for British Columbia that provides additional details of BC’s transitional measures for the HST.
Tangible Personal Property (Goods) - The HST would generally apply to goods when the goods are delivered, and ownership is transferred, to the purchaser on or after July 1, 2010. The HST would apply to prepaid amounts that are paid or payable after May 1, 2010 for goods provided on or after July 1, 2010. Neither the Ontario nor BC component of the HST applies to a prepayment of consideration that was due or paid before October 15, 2009.
A non-consumer such as a business or NPO must self-assess the provincial component of HST on a prepayment due or paid after October 14, 2009 and before May 1, 2010 if the non-consumer does not acquire goods for use exclusively in its commercial activities; if it uses “simplified” remittance methods under the ETA; or if it qualifies as a selected listed financial institution.
Services - The HST would generally apply to the portion of services performed on or after July 1, 2010. The HST would apply to prepaid amounts that are paid or payable on or after May 1, 2010 for services provided on or after July 1, 2010. The HST would not generally apply, however, to a service where substantially all (90% or more) of the service is performed before July 2010. As in the case of a sale of goods, prepayments due or paid after October 14, 2009 and before May 1, 2010 for services may be subject to the above self-assessment rules.
There are specific transitional rules for funeral and cemetery services, passenger transportation services, freight transportation services, and prepaid subscriptions to newspapers, magazines and other periodicals.
For services to be performed on or after July 1, 2010, with prepayment between March 26, 2009 and May 1, 2010, HST will apply to a prepayment from a “business” customer, but only the 5% GST will apply to prepayments from an individual (i.e. a consumer). For prepayments due from May 1 to July 1, 2010, the portion of the prepayment relating to services performed after July 1, 2010 will be subject to HST.
Leases and Licenses – The RST would generally apply to a supply of taxable goods by way of lease, license or similar arrangement for the part of a lease interval that occurs before July 1, 2010. The HST would generally apply to a supply of property – including certain goods and non-residential real property – for the part of a lease interval that occurs on or after July 1, 2010. However, the RST would continue to apply, and the HST would not apply, to a lease interval that begins before July 2010 and ends before July 31, 2010.
Real Property (other than residential housing) – The HST would generally apply to a supply of real property (other than residential housing) by way of sale if both ownership and possession of the property are transferred to the purchaser on or after July 1, 2010.
New Housing Rebate (November 19, 2009) – The province is proposing to increase the threshold for the BC HST new housing rebate from $400,000 to $525,000. Purchasers of new homes would be eligible for a rebate of 71.43% of the provincial portion of the HST on a new home, up to a maximum of $26,250.
Transitional Rules for New Housing (November 19, 2009) – the provincial portion of the HST would not apply to sales of new homes where ownership or possession is transferred before July 1, 2010. Also, sales of new homes under written agreements of purchase and sale entered into before November 18, 2009, would generally not be subject to the provincial portion of the HST, even if both ownership and possession are transferred on or after July 1, 2010.
Status of HST Legislation - Legislation to enact the HST has been passed into law by the Governments of Canada and Ontario. Similar legislation is expected to be introduced soon in the province of British Columbia and, subject to legislative approval, would also provide for the implementation of HST in British Columbia beginning July 1, 2010.
Basic Personal Amount Tax Credit – Effective January 1, 2010, the basic personal amount tax credit is increased to $11,000 from the 2009 amount of $9,373. The spouse and eligible dependant amount are also increased by $1,627 above the 2009 amounts to $9,653 (reduced when spousal income exceeds $965).
BC Mining Flow-through Share Tax Credit (MFTS) – The expiry date for the 20% BC MFTS tax credit is extended for an additional year to December 31, 2010. [Note: On January 21, 2010, BC announced that the MFTS would be extended for three additional years, until 2013.]
Corporate Income Tax Small Business Threshold – Effective January 1, 2010, the small business limit to which the small business corporate income tax rate may be applied is increased from the current $400,000 to $500,000 (matching the current federal limit). Corporations will pro-rate their business limits based on the number of days in the taxation year before and after January 1, 2010.
Medical Services Plan (MSP) Premiums – Effective January 1, 2010 Medical Services Plan premium rates are increased by about 6% - a maximum of $3 per month for single people, or $6 per month for families. The MSP Premium Assistance program is enhanced by increasing the adjusted net family income thresholds by $2,000 each.
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