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Introduction
On Tuesday, February 20, 2007, the British Columbia Minister of Finance, the Honourable Carole Taylor, introduced the province’s 2007 budget. According to the Minister, the B.C. economy remains strong, with a low unemployment rate and strong business investment. The budget is balanced for the fourth consecutive year, with an estimated surplus of $400 million for 2007/08 and $150 million for both 2008/09 and 2009/10. These projected surpluses are based on an economic growth forecast of 3.1% for 2007 and 3.0% to 3.3% in each of the following four years.
The budget includes a forecast allowance of $750 million for 2007/08 to cushion the fiscal plan from contingencies and other unexpected events. Total government expenditures are forecast to increase by an average of 2.8% annually over the next three years. The total capital spending for 2007/08 is estimated to be $5.2 billion and $14.6 billion over the next three fiscal years. Taxpayer-supported debt is forecast at $27.8 billion in 2007/08, with an average annual increase of 3.2% over the next three fiscal years. British Columbia now has a triple-A credit rating for the first time in over 20 years.
The budget reduces personal income tax rates but does not reduce corporate income tax rates. The budget contains a number of tax amendments, outlined below. For help determining how these changes affect you or your corporation, please contact your PricewaterhouseCoopers adviser or:
Brad McDougall
Bryan Moul
Income Tax
Personal Income Tax Reduction
Commencing 2007, British Columbia will reduce:
the four lowest personal income tax bracket rates (as shown in the table below); and
the phase-out rate for the B.C. Tax Reduction.
As a result, all B.C.-resident individuals will receive a reduction in personal income taxes, and those with up to just over $100,000 in taxable income will have the lowest personal income tax burden of any province in Canada.
As previously announced, British Columbia implemented an enhanced dividend tax credit of 12%, commencing 2006.
Scientific Research and Experimental Development (SR&ED) Tax Credit
The SR&ED Tax Credit is extended:
five years to August 31, 2014, for eligible taxpayers that undertake qualifying SR&ED activities in British Columbia; and
to qualifying corporations that are active members of partnerships, for eligible expenditures incurred after February 20, 2007. The active member may claim its proportionate share of the partnership’s non-refundable tax credit for SR&ED carried on in British Columbia.
Training Tax Credit
As previously announced, effective January 1, 2007, a package of refundable income tax credits for employers and employees engaged in apprenticeship programs administered through the Industry
Training Authority is introduced to help address the British Columbia skill shortage. The main elements include basic credits and completion credits, as well as enhanced credits for First Nations individuals and persons with disabilities. Employer credits are effective for wages paid after 2006. Employee credits are available commencing 2007. The credits expire January 1, 2012.
Enhanced Mining Exploration Tax Credit
Effective for eligible expenses incurred after February 20, 2007, mining exploration in prescribed Mountain Pine Beetle affected areas will be eligible for an enhanced 30% tax credit that will expire December 31, 2016.
Other Changes
Book Publishing — The Book Publishing tax credit program, which provides a refundable tax credit to book publishing corporations that carry on business primarily in British Columbia, is extended five years to April 1, 2012.
Adoption Expenses — Commencing 2007, the province will provide a non-refundable tax credit for qualified adoption expenses. The new credit will parallel the federal adoption expense tax credit.
Universal Child Care Benefit — Commencing 2006, the federal Universal Child Care Benefit will be excluded from the definition of income used for determining the B.C. Sales Tax Credit.
Alternative Minimum Tax — Commencing 2007, taxpayers who are subject to alternative minimum tax may claim a foreign tax credit.
Provincial Sales Tax
Over the past few years, the Ministry of Small Business and Revenue has undertaken to simplify, streamline and enhance the fairness of the Social Service Tax (PST). Most statutory and policy changes listed below appear to have resulted from this review. Many of the changes to the PST rules have also affected the Hotel Room Tax (HRT), Motor Fuel Tax (MFT) and Tobacco Tax (TT).
Tax Reporting and Compliance
Due Dates — Effective April 1, 2007, the due date for remitting returns and payments for PST and HRT is extended from the 15th day to the 23rd day of the following month. PST and HRT returns and payments will be treated as remitted on time only if they are received by the province on or before the due date.
Reporting Frequency — Effective February 21, 2007, the ability to report PST and HST less frequently than monthly has been expanded. The new reporting periods depend on remittance amounts.
Registration Threshold — Effective February 21, 2007, certain persons with annual gross retail sales under $10,000 that do not maintain established business premises may have the option to not register as a vendor for PST purposes. Those who choose not to register must pay tax on all items purchased, including raw materials for incorporation into a final product for resale.
Audits, Refunds and Record Keeping
Audit Assessments — Effective February 21, 2007, audit assessment limitation periods are reduced to four years from six for PST, HRT, MFT and TT. Generally tax assessments issued after February 20, 2007, will be limited to four years even if the audit started before February 21, 2007.
Refunds — Effective May 1, 2007, the limitation period for applying for a refund is reduced to four years from six for PST, HRT, MFT and TT.
Record Retention — Effective February 21, 2007, record retention periods are reduced to five years from seven for PST, HRT, MFT and TT.
Liquor Sales — Effective February 21, 2007, PST assessments for tax on sales of liquor will be reduced to three years from six.
Exemptions — General
Oil and Gas Exploration and Development — Effective February 21, 2007, the production machinery and equipment exemption is expanded to include the following equipment used exclusively in the exploration, discovery or development of petroleum or natural gas: portable doghouses, winches, pickers, boilers and steamers required for heating blowout preventers and certain machinery mounted on pump trucks. The automotive unit used to transport this type of equipment remains taxable.
Roadside Tire Services — Effective February 21, 2007, emergency roadside vehicle tire change services are PST exempt.
Prescription Drugs — Effective February 21, 2007, prescription medications provided for promotional purposes by pharmaceutical companies to physicians, dentists and veterinarians are PST exempt.
Leases — Historically, businesses that occasionally used equipment from their lease inventory under an agreement to supply equipment with an operator were required to remit PST based on the depreciated value of the equipment. Effective February 21, 2007, PST will apply to the normal lease price of the equipment without an operator and PST will no longer be payable on the depreciated value of the equipment.
Catalysts and Direct Agents — The PST exemption for catalysts and direct agents will be administered based on the results of a recent B.C. Court of Appeal decision. British Columbia is considering whether a change is required to the legislation.
Agricultural Feeds Exemption — Effective February 21, 2007, a clarification will provide that grain, mill and other agricultural feeds and seeds are exempt when purchased for agricultural purposes.
Exemptions — Environmental
Windows, Doors and Skylights — Effective February 21, 2007, only pre-manufactured storm windows, doors and skylights that are listed as being “Energy Star Qualified” by Natural Resources Canada will qualify for a PST exemption. The exemption will expire on April 1, 2009.
Heating Equipment — The exemption for the purchase or lease of certain heating equipment listed as being “Energy Star Qualified” has been extended and expanded.
Hybrid Vehicles — The exemption of up to a maximum of $2,000 for hybrid electric passenger vehicles is extended to March 31, 2011.
Purchase Price — Motor Vehicles
Manufacturers’ Rebates — Effective February 21, 2007, the value of manufacturers’ rebates can be deducted from the taxable purchase price of motor vehicles for purposes of calculating PST. This will ensure that motor vehicle purchasers are not liable for PST on the rebate portion that is collected by the dealer on the sale.
Medical Equipment Acquired by Registered Charities
Registered charities and members of the British Columbia Association of Health-Care Auxiliaries will be eligible for a tax rebate on medical equipment acquired after February 21, 2007. The refund is available only if the purchase is made with the entity’s own funds and the medical equipment is used to treat or diagnose patients.
PST Review — Consultation Items
While no changes have been made to the following items, the Ministry of Small Business and Revenue will enter into consultations with business and industry groups to identify improvements to administrative procedures or amendments to the Social Service Tax Act:
modernize audit sampling techniques to enhance objectivity and fairness;
review the definition of “well head” as it is used in the production machinery and equipment exemption for the oil and gas industry;
review procedures relating to the list of 300 prescribed farmers’ exemptions with the goal of simplifying the process for both farmers and retailers;
develop a special registration program to simplify access to:
the production machinery and equipment exemption; and
the refund system for purchases of property for export from the province;
review the exemption for prescribed work-related safety equipment worn by workers to simplify and clarify the items that qualify for the exemption;
review the distinction between real property and tangible personal property for the purpose of determining what is a taxable service for the construction or repair industry to reduce complexity;
review the issue of transferring property to and from partnerships to eliminate uncertainty; and
review the issue of transferring property to and from trusts and by way of an amalgamation of corporations to eliminate uncertainty.
Mineral Tax
Effective February 21, 2007, the new mine allowance is extended to January 1, 2016. The allowance encourages new mine development by effectively providing a deduction of 133.3% of capital costs for mines that commence production. This deduction reduces the net revenue mineral tax payable by taxpayers.
Motor Fuel Tax
Effective February 21, 2007:
all biodiesel fuel will be eligible for alternative motor fuel status, making all biodiesel fuel in all forms exempt from tax; and
the legislation will clarify that propane used for farming purposes in any motor vehicle or machinery is exempt from tax.
Property Transfer Tax
Effective for registrations after February 20, 2007:
the fair market value threshold for eligible residential property under the First Time Home Buyers' Program is increased to:
$375,000 for the Capital Region District, Fraser Valley Regional District and the Greater Vancouver Regional District; and
$265,000 for other areas of the province; and
families purchasing houses from B.C. affiliates of Habitat for Humanity Canada will have greater access to the First Time Home Buyers’ exemption.
Home Owner Grant and Property Tax Deferment Program
Effective for the 2007 tax year:
the threshold for the phase-out of the home owner grant is increased to $950,000 of assessed value;
eligibility is extended to some low-income homeowners who, but for the high assessed value of their home, would receive the additional home owner grant; and
the age at which an owner may begin to defer property taxes on his or her principal residence is reduced from 60 to 55. This program provides a low interest loan that enables qualifying homeowners to defer annual property taxes on their home.
