Saskatchewan Budget Report 2017

On March 22, 2017, Finance Minister Kevin Doherty presented his third budget as Finance Minister.

The budget includes material changes to personal, corporate and provincial sales tax rates.

Highlights

  • Deficit of $685 million for 2017-18
  • A deficit of $304 million is projected for 2018-19
  • A surplus of $15 million in 2019-20 and $183 million in 2020-21
  • Changes proposed to both personal and corporate taxes
  • The Provincial Sales Tax (PST) rate is being raised by one point, from 5 to 6%.

To balance the budget by 2020, the government has focused on both spending cuts (ranging from rollbacks of public sector wages to spending reductions in a wide range of areas) and a slight shift from income taxation to consumption taxation.

Personal Tax Measures

Taxes decreases for 2017

The minister proposed to reduce personal tax rates by 0.5% effective 1 July 2017 and by another 0.5% effective 1 July 2019

Saskatchewan personal tax rates

Bracket

Pre-budget rate

2017

2018

2019

$0 to $45,225

11.00%

10.75%

10.50%

10.25%

$45,226 to $129,214

13.00%

12.75%

12.50%

12.25%

Above $129,214

15.00%

14.75%

14.50%

14.25%

For taxable income in excess of $129,214, the 2017 combined federal–Saskatchewan personal income tax rates are as follows:

Bracket

Ordinary income*

Eligible dividends

Non-eligible dividends

$129,215 to $142,353

40.75%

20.67%

31.43%

$142,354 to $202,800

43.75 %

24.81 %

34.94 %

Above $202,801

47.75 %

30.33 %

39.62 %

Personal tax credits for 2016 will be indexed by 1.013%. The maximum tax credit amounts and actual Saskatchewan tax credits for 2016 and 2017 are set out below.

Saskatchewan Non-Refundable Tax Credits

 

2016

2017

Maximum Amount

Saskatchewan Tax Credit

Maximum Amount

Saskatchewan Tax Credit

Basic Personal Amount

$15,843

$1,743

$16,065

$1,727

Spousal Amount

15,843

1,743

16,065

1,727

Eligible dependent amount

15,843

1,743

16,065

1,727

Age amount

4,826

531

4,894

526

Infirm dependent amount

9,334

1,027

9,464

1,017

CPP Contributions

2,544

280

2,564

276

EI Contributions

955

105

836

90

Pension income amount

1,000

110

1,000

108

Disability amount

9,334

1,027

9,464

1,017

Disability supplement

9,334

1,027

9,464

1,017

Tuition and education amounts

Variable

Variable

   

Adoption expenses

N/A

 

N/A

 

Medical expenses

Variable

Variable

Variable

Variable

Medical expenses (other dependents)

Variable

Variable

Variable

Variable

Caregiver amount

9,334

1,027

9,464

1,017

Interest on student loans

Variable

Variable

Variable

Variable

Donations & Gifts
-first $200
- over $200


200
75% of income


22
Variable


200
75% of income


22
Variable

In general, credits are multiplied by 10.75% to arrive at the deduction from Saskatchewan Tax. In the case of donations and gifts over $200, the credit is 15%

Tuition and Education Credit

Effective July 1, 2017, the personal tax credit for tuition and education amounts is being eliminated.

The tuition and education credit provided those attending post-secondary education with a tax credit equal to 11% of total eligible tuition fees paid and 11% of the total of $400 per month of full-time attendance ($120 per month of part-time attendance).

Unused amounts carried forward from previous taxation years will remain available but no new credits can be earned after June 30, 2017.

Saskatchewan Employee’s Tools Tax Credit

Budget 2017-2018 proposed to eliminate the Saskatchewan employee’s tools tax credit effective for the 2017 taxation year.

Prior to 2017, an employee resident in Saskatchewan who, as a condition of employment, was required to provide eligible tools for use in a certain trade occupation, the employee could claim a credit that would vary based on the qualifying tools expense.

Labour-Sponsored Venture Capital Tax Credit

Individuals investing in the shares of a provincially or federally-registered labour-sponsored venture capital corporation (LSVCC) are eligible for a provincial tax credit on the cost of their investment.

Effective for the 2018 taxation year, the tax credit rate for individuals investing in the shares of a LSVCC will be reduced from 20% to 15% of the investment amount, to a maximum credit of $750 (previously $1,000).

Dividend Tax Credit – Eligible Dividends

The dividend tax credit rate for eligible dividends will be reduced in quarter-point increments for each of the 2017 through 2020 taxation years, to integrate the decrease in the general corporate income tax rate.

First Home Plan for Recent Graduates

This program is being suspended.

Through the First Home Plan, individuals in the Graduate Retention Program were eligible for an interest-free loan of up to $10,000 to use towards the down payment on the first home they purchase in Saskatchewan.

Saskatchewan Low-Income Tax Credit

The Saskatchewan Low-Income Tax Credit (SLITC) provides a refundable credit for families with income of up to $67,697 (adjusted based on the level of income).

A family income of $32,643 will earn the full amount of the credit; the credit is reduced as income increases, with full elimination at $67,697.

Budget 2017-2018 proposes to enhance the credit available to low-income families by:

  • increasing the maximum basic adult component and the spousal/equivalent from $246 to $346;
  • increasing the child component from $96 to $136 per child, to a maximum of $272 per family; and
  • increasing the benefit claw back rate from 2.0% to 2.75%.

Indexation

A temporary suspension on the indexation of the personal income tax system commencing 2018

taxation year is declared.

Corporate Tax Measures

Corporate Tax Rates

Budget 2017-2018 proposes to reduce the general corporate income tax rate from the current 12% to 11.5% effective July 1, 2017, and to further reduce it to 11% effective July 1, 2019.

In conjunction with this change, the 11% dividend tax credit rate for eligible dividends will be reduced to 10% over the period beginning 2017 and ending in 2020 (utilizing a 0.25% reduction per year).

 

Current Rate

Proposed Rates

2017

2018

Sask

Federal & Sask Combined

Sask

Federal & Sask Combined

Small-business tax rate

2.0%

2.0%

12.5%

2.0%

12.5%

General manufacturing and processing tax rate

10.0%

9.75%

24.75%

9.5%

24.5%

General corporate tax rate*

12.0%

11.75%

26.75%

11.5%

26.5%

Saskatchewan Commercial Innovation Incentive

Commonly known as a “patent box” tax incentive, the Saskatchewan Commercial Innovation Incentive will reduce the general corporate income tax rate to 6% on taxable income earned from the commercialization of qualifying intellectual property in the province for a 10 year period.

That period can be extended to 15 years if the qualifying intellectual property is substantially developed in Saskatchewan.

The government indicates that the program will be available to a wide range of intellectual property, including patents, plant breeder rights, trade secrets and copyrights.

The program will also be open to any corporation operating in any sector provided it is solely engaged in the commercialization of qualifying intellectual property and it meets the eligibility requirements.

Saskatchewan Research and Development Tax Credit

Effective April 1, 2017, in an attempt to better target smaller and medium-sized innovation companies, the government is proposing a new 10% refundable component of the Saskatchewan Research and Development Tax Credit (SRDTC).

The refundable component of the credit will be limited to the first $1 million in annual qualifying expenditures incurred in Saskatchewan by a Canadian-controlled private corporation.

The 10% non-refundable credit currently available will continue to be available for expenditures in excess of $1 million but the total SRDTC is capped at $1 million per year.

Manufacturing &Processing (M&P) Investment Tax Credit (ITC)

Effective March 23, 2017, the refundable rate increases from 5% to 6% of eligible capital acquisitions made on or after March 23, 2017.

The Saskatchewan M&P Investment Tax Credit (ITC) is a refundable credit available to all M&P corporations.

The amount of the credit is a specified portion of the cost of eligible new and used M&P buildings, machinery and equipment.

Corporation Capital Tax Rate on Large Financial Institutions

Effective April 1, 2017, the tax rate is proposed to be increased from 3.25% to 4%.

The corporation capital tax is imposed on financial institutions which have paid-up capital in excess of $10,000,000.

Provincial Tax Preference for Credit Unions

Beginning in 2017, the rate reduction is proposed to be phased out over 4 years.

Credit unions in the province are eligible for preferential rate treatment by paying a lower tax rate on a portion of their income.

Provincial Sales Tax (PST)

With the release of Saskatchewan’s 2017-18 budget, Premier Wall has carried through on his promise to shift Saskatchewan’s taxation system away from “income, growth and productivity” and toward a focus on consumption taxes.

In particular, the budget has confirmed an increase to the rate of Saskatchewan’s provincial sales tax (PST), an increase in tobacco tax, the elimination of PST and fuel tax exemptions, and the expansion of the PST system to include insurance and real property contracts.

As of midnight on 22 March 2017, Saskatchewan’s PST rate will increase from 5% to 6%.

The lack of any warning in respect of these rate increases is certain to cause some significant concerns in Saskatchewan’s retail sector, as these changes must be implemented into accounting systems immediately.

Children’s Clothing, Restaurant Meals and Snack Food

Effective 1 April 2017, children’s clothing, restaurant meals and snack food, which are currently exempt from PST, will become taxable.

Also, the value of vehicle trade-in allowances will no longer be deductible when determining the PST payable on new vehicle purchases made in the province.

Permanently Mounted Equipment

The PST exemption that is currently in place for permanently mounted equipment used in the oil and gas sector will also be eliminated as of 1 April 2017.  

The elimination of this exemption is projected to result in $16.7m of additional provincial revenue.

Taxation of Real Property

Saskatchewan’s budget announced a major change in the taxation of real property contracts, which is projected to increase revenue by $344.6m.

To place that in perspective, the 1% increase in the PST rate is forecasted to increase tax revenues by $242.1m.

PST will apply to contracts for the repair, renovation or improvement of real property that are entered into on or after 1 April 2017, while contractors will be permitted to purchase the materials used to fulfill these contracts on a PST-free basis.

Contractors will still, however, be required to pay PST on the tools and equipment they use to perform these contracts.

This shift in the provincial sales tax base is certain to significantly impact the mining, oil and gas, and construction sectors, each of which relies heavily on contractors to perform these works.

For example, this measure will increase the cost of drilling and completing an oil or gas well in Saskatchewan by 6%, as the service companies that perform this work will now need to register and charge and collect PST on their fees. The same applies to drilling in the mining sector.

Even newly built residential homes and commercial buildings will now be subject to 6% PST — albeit only on the cost of the building and not the land.

Insurance Premiums

Saskatchewan has also moved to expand the PST base to include the taxation of insurance — a measure anticipated to bring in an additional $210.5m of additional tax revenue annually.

On 1 July 2017, PST will apply to insurance premiums, including those premiums in respect of policies covering life, accident, health, property, vehicle, casualty, and agricultural insurance.

Bulk Fuel

The budget also announced that the fuel tax exemption for bulk purchases of gasoline will be eliminated and the exemption for bulk purchases of diesel will be reduced to 80%, effective 1 April 2017.

Other Measures (Not Related to Tax)

They include:

  • Eliminating the exemption for bulk purchases of gasoline and reducing the exemption for bulk purchases of diesel fuel to 80% of purchases
  • Increasing tobacco tax rates from $0.25 to $0.27 per cigarette
  • Liquor mark-ups
  • Education property tax increases.

Carbon Tax

Absent from the budget was any discussion of a made-in-Saskatchewan carbon pricing regime.

With the federal government’s announcement on the same day of its own “backstop” carbon pricing regime, Saskatchewan appears to be in a position where it will need to either introduce its own carbon pricing system prior to 2018, or rely on the “to be announced” federal pricing and collection mechanism.

One of the benefits of Saskatchewan introducing its own carbon pricing system is that the province would be able to retain control over the industries that are subject to carbon pricing by defining its own exemptions (for example, exemptions for agricultural or oil and gas activities similar to the ones currently in place in Alberta).

Expect further announcements from Saskatchewan on this front over the coming months.

Agriculture Sector

Modernizing and Expanding the Tax System

In the review of the Saskatchewan Budget papers there was very little reference to farmers specifically.

The Minister of Finance did make reference to farmers as it pertained to the bulk purchases of gasoline and bulk purchases of diesel fuel.  

Several tax expenditure programs are changing, including eliminating the exemption for bulk purchases of gasoline and reducing the exemption for bulk purchases of diesel fuel to 80 per cent of purchases, recognizing the changing nature of farming and primary production operations and the on-road and personal uses of some of this fuel.

(Source: Saskatchewan Government)

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