Tax memo: 2013 Manitoba budget

Tax Highlights

Memo No. 2013-14


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Sales Tax Measures | Business Tax Measures | Personal Tax Measures

On Tuesday, April 16, 2013, Manitoba’s Minister of Finance, Stan Struthers, presented the province’s 2013 budget. The budget:

  • increases the provincial sales tax rate from 7% to 8%;
  • increases the small business limit from $400,000 to $425,000;
  • increases the Corporation Capital Tax on Financial Institutions from 4% to 5%;
  • extends tax credits for film and video, and for interactive digital media, as well as the Small Business Venture Capital Tax Credit;
  • introduces a tax credit for the capital cost of new rental housing construction; and
  • reduces the dividend tax credit rate on non-eligible dividends.

This Tax memo discusses these and other tax changes announced in the budget.

For help determining how the changes affect you or your company, please contact your PricewaterhouseCoopers LLP advisor, or:

David Loewen +1 204 926 2428
Carol Stockwell +1 204 926 2449
Joe Eyolfson +1 204 926 2492
Danny Wright +1 204 926 2427

Sales Tax Measures

Manitoba’s provincial sales tax rate will increase from 7% to 8% from July 1, 2013, for a ten-year period ending June 30, 2023.

For the same ten-year period, the following retail sales tax rates will also increase:

  • the sales tax rate on mobile, modular and ready-to-move homes, to 4.5% (from 4%);
  • the reduced sales tax rate for electricity used by qualifying manufacturers, mining companies and oil well operators, to 1.6% (from 1.4%); and
  • the prorate vehicle tax rates (varies depending on vehicle type and year of acquisition).

Effective July 1, 2013, the following will be exempt from provincial sales tax:

  • child safety restraint systems, such as car seats and booster seats;
  • baby supplies, including diapers, strollers, cribs, gates, monitors, and items used for nursing, feeding or bathing; and
  • bicycle helmets (both child and adult).

Furthermore, the sales tax exemption for qualifying sand and salt mixtures purchased by municipalities will be expanded.

Business Tax Measures

Corporate Income Tax Rates

Manitoba’s corporate income tax rates will remain as follows:

Small Business Income Limit

The income eligible for the 0% small business rate will increase from $400,000 to $425,000 on January 1, 2014.

Combined Corporate Income Tax Rates

The following combined federal/Manitoba rates apply to years ending December 31, 2012, and later:

Corporation Capital Tax on Financial Institutions

Manitoba’s Corporation Capital Tax on Financial Institutions rate will increase from 4% to 5%, for taxation years ending after April 16, 2013. It had increased from 3% to 4% for taxation years ending after April 17, 2012.

Banks and trust and loan corporations with taxable paid-up capital (on an associated basis) under $4 billion will continue to be exempt.

Research and Development Tax Credit

The following changes to the Manitoba Research and Development Tax Credit parallel changes to the federal Scientific Research and Experimental Development Tax Credit:

  • the 65% prescribed proxy amount will be reduced to 60% in 2013 and to 55% in 2014; and
  • contract payments incurred after 2012 will be 80% (instead of 100%) claimable. (However, contract payments to eligible institutes will remain fully eligible for Manitoba’s credit.)

Manitoba will not adopt federal changes that remove capital expenditures from the investment tax credit base.

Technical amendments will be made to Manitoba’s credit to ensure it operates as intended.

Manufacturing Investment Tax Credit

As a result of the increase in the sales tax rate from 7% to 8%, the refundable portion of the 10% Manufacturing Investment Tax Credit will increase from seven-tenths to eight-tenths refundable for qualified property acquired after June 30, 2013.

In addition, technical amendments will be made to this credit to ensure it operates as intended.

Data Processing Investment Tax Credit

The Data Processing Investment Tax Credit is extended to companies that are not engaged primarily in data processing in Manitoba but that make a significant incremental investment in data processing equipment in Manitoba.

A taxable Canadian corporation with a permanent establishment in Manitoba that acquires at least $10 million of incremental eligible data processing equipment in a taxation year will qualify for an 8% refundable investment tax credit. Eligible property includes Class 46 and Class 50 data processing equipment purchased, leased and made available for use in Manitoba after April 16, 2013, and before 2016.

Because the credit effectively offsets Manitoba sales tax on data processing equipment and buildings commensurate with the increase in the sales tax rate, the credit for corporations that are primarily engaged in data processing in Manitoba will increase from 7% to 8% on “data processing centre equipment” and from 4% to 4.5% on “data processing buildings.”

Rental Housing Construction Tax Credit

A new tax credit is introduced, equal to 8% of the capital cost of new rental housing construction in Manitoba. The credit is intended to offset Manitoba sales tax payable by landlords on new rental housing construction.

Eligible landlords must be residents of Manitoba or have a permanent establishment in Manitoba, and can operate as a:

  • for-profit entity, qualifying for a non-refundable credit, claimable over a minimum of five years; or
  • not-for-profit entity, qualifying for a refundable credit.

Eligible projects include the construction of five or more new residential rental units. The maximum credit is $12,000 per eligible rental unit. At least 10% of the units on an eligible project must qualify as affordable rental housing units.

Film and Video Production Tax Credit

The Manitoba Film and Video Production Tax Credit will expire on December 31, 2016, instead of on March 1, 2014, as previously scheduled.

Interactive Digital Media Tax Credit

The Interactive Digital Media Tax Credit will be extended three years and will expire December 31, 2016, instead of on December 31, 2013.

In addition, the following enhancements will be made for projects that have been issued an eligibility certificate by Manitoba Innovation, Energy and Mines after 2011, and that commence production after 2012:

  • up to $100,000 in eligible marketing and distribution expenses that are directly attributable to that eligible project can be claimed;
  • financial support from the Canada Media Fund that is recoupable or repayable will not be treated as “government assistance”;
  • an eligible product that is developed under contract for an arm’s-length purchaser does not need to demonstrate the product will be resold or licensed by that arm’s-length purchaser; and
  • a broader interpretation of the sale requirement will provide Manitoba with added flexibility in determining which types of commercialization projects will be eligible.

Small Business Venture Capital Tax Credit

The Small Business Venture Capital Tax Credit, which was set to expire December 31, 2013, is extended to December 31, 2016.

Personal Tax Measures

Dividend Tax Credit – Non-eligible

Manitoba’s dividend tax credit on non-eligible dividends will decline from 1.75% to 0.83%, starting 2014. This change “offsets the federal changes to the dividend gross-up.” As a result of the federal and Manitoba changes, the top tax rate on non-eligible dividends will increase as shown in the table under “Top Personal Tax Rates” below.

See our Tax memo “2013 Federal budget: Staying the course” for more on the federal changes.

Top Personal Tax Rates

Top combined federal/Manitoba rates follow:

Basic Personal Tax Credit

The budget provides a reminder that Manitoba’s basic tax credit increased by $250 for 2013 and will increase a further $250 for 2014.

Seniors’ School Tax Rebate

Manitoba will eliminate the school division special levy paid by eligible senior homeowners on qualifying residential properties.

In 2014, 50% of the estimated total savings will be delivered to seniors. Additional details (e.g., on eligible seniors and qualifying residences) are forthcoming.

Other Tax Measures

Retail Fuel Dealers

To reduce the administration requirements for retail fuel dealers, a fuel tax licence will no longer be required.

Land Transfer Tax

Land Transfer Tax will be amended to provide the Registrar-General authority to, among other things, exempt property subject to Retail Sales Tax from Land Transfer Tax.

Farmers

The following measures affect farmers:

  • The Odour Control Tax Credit will be fully refundable to agricultural producers, including individual farmers, on qualifying property acquired after 2012.
  • Starting with the 2013 property tax year, the following changes will be made to the Farmland School Tax Rebate:
    • the rebate will be available only to eligible farmland owners who are Manitoba residents;
    • the rebate will be capped at $5,000; and
    • rebate applications for a given tax year must be filed no later than March 31 of the following year. However, the deadline for rebate applications related to the 2011 and 2012 property tax years is March 31, 2014.

Tobacco Tax

Effective midnight April 16, 2013, the tobacco tax will increase by 4¢ per cigarette, and per gram of fine-cut tobacco and raw leaf tobacco.

Natural Gas Fuel Tax

A fuel tax rate for natural gas used in motor vehicles will be phased in as follows:

  • 3¢ per cubic metre for sales after April 16, 2013, until March 31, 2014;
  • 6¢ per cubic metre from April 1, 2014, to March 31, 2015; and
  • 10¢ per cubic metre after March 31, 2015.