FBC – Canada's Small Business Tax Specialist

February 15, 2011

Budget 2011 forecasts deficits of $925 million in 2011/12 and $440 million in 2012/13, and a surplus of $175 million in 2013/14.  The total provincial debt is forecast at $53.4 billion in 2011/2012, $57.6 billion in 2012/2013 and $60.4 billion in 2013/2014.  

Budget 2011 was prepared with the assumption that the HST will continue under the current laws and agreements in place today.  If as a result of the referendum currently scheduled for September 24, 2011, it became necessary to cancel the HST and reinstate the GST and PST, this course of action would have major fiscal implications to the BC Budget, including repayment of $1.6 billion to the federal government.   

Described by the BC Finance Minister as a “status quo” budget, as such, today’s budget did not set out any new direction for the BC government.   It’s intended to provide greater flexibility for future decisions by the new premier who will be announced in 11 days. There were few tax-related measures unveiled in this budget.  Highlights are outlined below.

Business Measures

Small Business Income Tax Rate– The Budget reaffirmed the promise to cut the small business income tax rate to zero by April 1, 2012.

Other Measures

Medical Services Plan (MSP) Premiums Increase - Effective January 1, 2012, Medical Services Plan premiums will be increased by about 6%.  Maximum monthly premium rates will increase by $3.50 per month to $64.00 for single persons, by $7.00 per month to $116.00 for two person families and by $7.00 per month to $128.00 for families of three or more persons.   For premium assistance recipients, the increase in premiums will range from 0% to 80% of the increased amount.

Exemption for Land Used for a Farm Purpose - Qualifying land (excluding improvements) used for a farm purpose is exempt from taxation on 50% of its value. Amendments will be made to the School Act to clarify that managed forest land is not being used for a farm purpose and does not qualify for the exemption.   

British Columbia- Phased-in Measures (previously announced)

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.

[Note: As announced April 7, 2009, the BC Government doubled the BC Training Tax Credit effective July 1, 2009 so that employers are eligible to claim up to $4,000 annually per employee.]

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) was extended to September 1, 2014.  The SR&ED Tax Credit was 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 was extended to April 1, 2012 from April 1, 2007.

* Hybrid Vehicles (2007 BC Budget) – The reduction of sales tax for hybrid electric passenger vehicles was 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.

General Corporate Income Tax Rate (2009 BC Budget) – The BC general corporate income tax rate was reduced from 11% to 10.5% effective January 1, 2010.  Effective January 1, 2011, the rate was 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 was 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 was 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.

[* Note: With the implementation of HST on July 1, 2010, these temporary sales tax (PST) exemptions/rebates originally intended to end at a later date, will not apply if HST applies to the transaction.] 

Status of HST Legislation- Legislation providing for the implementation of HST beginning July 1, 2010 in BC and the elimination of the 7% PST was passed by the BC legislature on April 29, 2010.

[Note: As a result of a successful petition challenging the HST in BC under recall legislation, the BC government has called for a province-wide referendum vote for September 24, 2011on killing the tax.  Premier Gordon Campbell said he is prepared to accept the outcome of a simple majority of voters who take part in the poll.  If a majority of the people who turn out for the referendum vote against the HST, he said, he will set to work to undo the deal with the federal government.]

BC Mining Flow-through Share Tax Credit (MFTS) (BC’s September 2009 Budget Update) – 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.]

Medical Services Plan (MSP) Premiums Increased (2010 BC Budget) - Effective January 1, 2011, Medical Services Plan premiums were increased.  Maximum monthly premium rates increased by $3.50 per month to $60.50 for single persons, by $7.00 per month to $109.00 for two person families and by $7.00 per month to $121.00 for families of three or more persons. 

Tax Relief for British Columbians (October 27, 2010)– The BC Premier announced a 15% reduction in personal income tax rates effective January 1, 2011.  The 2011 tax rates for the first two personal income tax brackets will be reduced from 5.06% to 4.30% for the first bracket and from 7.70% to 6.525% for the second bracket.  The three upper tax brackets will remain unchanged for 2011 (10.50%, 12.29%, and 14.70%).  [Note:  The BC Premier suspended this tax reduction that would have been effective January 1, 2011 and applicable to the first $72,293 of taxable income.  In suspending the tax cut, the premier also announced his resignation and that a status-quo 2011 budget will be tabled on February 15, 2011.]

Previously announced tax reductions for small and large businesses were confirmed.  The current small business income tax rate of 2.5% (applicable to the first $500,000 of taxable income) will be reduced to zero by April 1, 2012 and the general corporate income tax rate (currently 10.5%) will be reduced to 10% by January 1, 2011.

Higher Homeowner Grant Threshold (January 3, 2011)– The Homeowner grant threshold is being raised by 10% (from $1.05 million to $1.15 million) for the 2011 tax year.   The Homeowner grant provides a maximum reduction in residential property taxes of $570.  n additional grant of $275 – for a total of $845 – may be available if the homeowner is 65 or over, permanently disabled or eligible to receive certain war-veteran allowances.

A further measure of relief from residential property taxes for northern and rural homeowners takes effect in 2011, with the start of the Northern and Rural Area Homeowner Benefit.  This benefit provides up to $200 for homeowners living outside of the Capital, Greater Vancouver and Fraser Valley regional districts.  To be eligible, homeowners must meet the requirements to receive the basic or additional homeowner grants.  The new benefit will be included with property tax notices in the spring, and eligible homeowners will not need to apply separately.

Another change taking effect this year will establish a credit of 50% of school property taxes for land classified as “farm”.