Tax memo: 2013 British Columbia budget

Tax Highlights

Memo No. 2013-06

Download the budget highlights as a PDF file.

Introduction

On Tuesday, February 19, 2013 the British Columbia Minister of Finance, the Honourable Michael de Jong, Q.C., introduced the province’s 2013 budget.

The budget:

increases certain income tax rates, both corporate and personal;
introduces a one-time registered education savings plan (RESP) grant and the B.C. Early Childhood Tax Benefit;
increases Medical Services Plan premiums;
expands the Property Tax Deferment Program for Families with Children; and
increases tobacco tax rates.

This Tax memo discusses these and other tax initiatives in the budget, after outlining the fiscal aspects. Fiscal projections, shown in $millions, are summarized in the following table:

2013 BC Budget

Annualized, forecast annual government revenue increases by an average of 3% over the next three years, while expenditures grow by an average of 1.5% annually. The budget refers to the province’s continued commitment to infrastructure spending, within the context of a balanced budget. The province now expects to spend $18.3 billion on capital projects (schools, hospitals, roads and other infrastructure) over the next three years.

The budget assumes that the costs of the following tax measures with sunset dates will continue beyond their expiry dates:

interactive digital media tax credit;
scientific research and experimental development tax credit;
training tax credits for businesses and individuals; and
small business venture capital tax credit for individuals.

Business tax measures

Corporate income tax rates

General corporate income tax rate

This budget increases the general corporate income tax rate (which also applies to manufacturing and processing (M&P) income) as follows:

2013 BC Budget

The budget accelerates the increase by one year. The 2012 budget had announced that the increase would occur on April 1, 2014, and would be triggered only if the province’s fiscal situation worsened.

Small business income tax rate

The province’s small business income tax rate will remain 2.5% and its small business limit will remain $500,000.

Combined corporate income tax rates

The following combined federal/British Columbia rates apply to December 31 year ends:

2013 BC Budget

PST re-implementation

As previously announced, on April 1, 2013, British Columbia will revoke the Harmonized Sales Tax (HST) and return to a 7% Provincial Sales Tax (PST) and 5% Goods and Services Tax (GST) tax regime.[1] Certain improvements to the PST are intended to reduce the administrative and compliance requirements for businesses.

PST is expected to apply to the same goods and services that were subject to PST before implementation of the HST. Permanent PST exemptions that applied under the former Social Service Tax are expected to be reinstated. Specific provisions will be released with the regulations to the Provincial Sales Tax Act.

PST transitional rules

Generally, PST will apply when tax becomes payable and is paid after March 31, 2013. However, various PST transitional rules will apply. These mirror the HST transitional rules, with specific PST transitional rules for certain transactions, such as when goods enter British Columbia. The transitional rules for new housing are discussed in our Tax memo “Returning to B.C.’s Provincial Sales Tax: Transitional rules for new housing (Updated November 29, 2012)” at www.pwc.com/ca/taxmemo.

With the transition back to PST, certain levies and taxes have been reintroduced, including:

the Passenger Vehicle Rental Tax of $1.50 per day;
a surtax on passenger vehicles with a purchase price of $55,000 and over;
the multijurisdictional vehicle tax for certain commercial carriers;
the Innovative Clean Energy Fund levy on the purchase of natural gas, fuel oil and propane, but not electricity; and
the 10% PST on liquor (however, liquor mark-ups are expected to be adjusted to generally keep the shelf prices constant).

Both an 8% tax on short term accommodation (formerly the Hotel Room Tax) and an additional 2% tax on accommodations in designated areas will apply, as they did before the HST.

Private sales of vehicles, boats and aircraft will be subject to a 12% PST.

Natural gas royalties

The budget introduces a minimum 3% royalty for all natural gas wells that qualify for the Deep Well Royalty Credit Program and it terminates the Summer Drilling Credit Program.

Personal tax measures

Personal income tax rates and brackets

For 2014 and 2015, taxable incomes above $150,000 will be subject to a provincial personal income tax rate of 16.8%, up from the current rate of 14.7%.

Top personal tax rates

Top combined federal/British Columbia rates that apply to 2012 and later years follow:

2013 BC Budget

B.C. Training and Education Savings Program

The B.C. Training and Education Savings Program will pay a one-time $1,200 grant to an RESP for a beneficiary that is:

born after 2006 and is six years old;
a resident of British Columbia when the grant application is made; and
enrolled in an educational program.

The grant application must be made between the child’s sixth and seventh birthdays. Therefore, the RESP must be in place before the child turns seven. However, for children born in 2007, the deadline to establish an RESP is extended to February 28, 2014, and there will be a further grace period to apply for the grant.

B.C. Early Childhood Tax Benefit

Commencing April 1, 2015, the B.C. Early Childhood Tax Benefit will provide eligible families up to $55 per month ($660 annually) for each child under six. The maximum benefit will be paid when family net income is under $100,000. The benefit will start to phase out when net family income is $100,000 and will be eliminated when it reaches $150,000.

The benefit will be administered through the Canada Child Tax Benefit system. To be eligible individuals must file their annual personal income tax returns.

Medical Services Plan

Effective January 1, 2014, Medical Services Plan monthly premiums will increase for:

single individuals – by $2.75 to $69.25;
two-person families – by $5.00 to $125.50; and
families of three or more – by $5.50 to $138.50.

Premium assistance will be enhanced to ensure those receiving assistance will be unaffected.

Home owner grant

As previously announced, the threshold for the phase-out of the home owner grant will increase from $1,285,000 to $1,295,000 for the 2013 tax year. The grant is reduced by $5 for every $1,000 in assessed value exceeding this threshold.

Retroactive to January 2011, relief will be provided to homeowners who were disentitled from the home owner grant because they incorrectly applied for a grant on a second residential property, rather than on their principal residence.

Carbon Tax

Carbon tax rates will be frozen at $30 per tonne of carbon dioxide equivalent. In addition, the carbon tax base will not be expanded or broadened to include industrial process or other non-combustion emissions.

Commencing 2013, a carbon tax relief grant will be provided to commercial greenhouse vegetable and floriculture growers equal to 80% of the carbon tax paid on specified fuels. Eligibility criteria will be similar to those for the 2012 temporary carbon tax relief grant for commercial greenhouse vegetable and floriculture growers.

A carbon tax exemption will be available to farmers on the purchase of coloured motor fuel for use in their farm equipment, such as tractors as well as certain on-highway farm vehicles.

Land tax deferment

Effective the later of March 19, 2013, and royal assent, the Property Tax Deferment Program for Families with Children will allow homeowners who support a child 18 or over to defer taxes if the child is enrolled in an educational institution or is disabled.

Effective on royal assent, deferment can continue when the homeowner disposes of a portion of the property if, among other things, the homeowner continues to own the portion of the property on which the principal residence is located.

Property transfer tax

The property tax exemption for the transfer of a family farm from a deceased’s estate will apply to a family farm owned by the deceased that, immediately before the death, was used and farmed by one or more of the deceased, the deceased’s family members or a family farm corporation. This change will apply on royal assent.

School Act

The school property tax credits for light industry (class five) will be halved f0r 2013 and eliminated in 2014.

Rural Area Tax

For 2013, average residential rural area taxes will increase by the previous year’s provincial inflation rate. Non-residential rural area tax rates will be set so that total tax revenue from this source will increase by the provincial inflation rate plus the cost of new construction.

Tobacco Tax

With the return to a PST regime, tobacco tax rates will be adjusted to generally keep the overall tax on tobacco constant. As a result, on April 1, 2013, the tax rates imposed on tobacco products will increase from:

$37.00 to $42.60 per carton of 200 cigarettes (i.e., an increase from 18.5¢ to 21.3¢ cents per cigarette);
18.5¢ to 21.3¢ per gram of fine-cut tobacco; and
77% to 90.5% of the sale price for cigars. (with the maximum tax on cigars also increasing, from $6 to $7 per cigar.)

On October 1, 2013, the rates will further increase to:

$44.60 per carton of 200 cigarettes; and
22.3¢ per gram of fine-cut tobacco.

Forest Act

Effective upon royal assent, authority will be given to:

the commissioner to impose penalties for failing to comply with information and records requests made under the Forest Act; and
the Supreme Court of British Columbia to grant orders to enforce compliance.

Hydro and Power Authority Act

Effective on royal assent, BC Hydro will be authorized to pay grants to taxing Treaty First Nations.

[1]. The Provincial Sales Tax Act received royal assent on May 31, 2012 and the Provincial Sales Tax Transitional Provisions and Amendments Act, 2013 was introduced in the B.C. Legislature earlier this month. The Ministry of Finance has stated that the regulations to the Provincial Sales Tax Act will be announced following royal assent of the Provincial Sales Tax Transitional Provisions and Amendments Act, 2013.