2017 British Columbia budget: Tax highlights

In brief

On February 21, 2017, British Columbia’s Minister of Finance, the Honourable Michael de Jong, presented the province’s budget. The budget:

  • reduces the small business income tax rate from 2.5% to 2.0% on April 1, 2017
  • enhances and extends several business tax credits, including the tax credits for entertainment and media and for scientific research and experimental development
  • reduces the dividend tax credit on non-eligible dividends from 2.47% of grossed-up dividends to 2.18%, starting 2017
  • reduces medical services plan (MSP) premiums by 50%, effective 2018, for households with annual net incomes of $120,000 or less
  • phases out provincial sales tax (PST) on electricity purchased by businesses

This Tax Insights discusses these and other tax initiatives outlined in the budget, some of which were previously announced. 

The budget also provides $87 million additional funding for technology sector support; details will be released at next month’s BC Tech summit.

In detail

Business tax measures

Corporate income tax rates

  • Small business income tax rate (on the first $500,000 of active business income) – This rate will decrease from 2.5% to 2% on April 1, 2017. The results are as follows:
Small business income BC Federal + BC
Taxation
year ending
December 31, 2016 2.5% 13.0%
December 31, 2017 2.12% 12.62%
December 31, 2018 2.0% 12.5%
  • General and manufacturing and processing (M&P) income tax rate – The provincial rate will remain 11% and the combined federal/BC rate will remain 26%. 

Interactive digital media tax credit (IDMTC)

For qualifying BC labour incurred after February 21, 2017, the IDMTC program is expanded to include:

  • augmented reality products – enhance a user’s perception of reality by superimposing digital information onto the user’s field of view for the primary purpose of entertainment
  • virtual reality products – immerse the user in an artificial environment for the primary purpose of entertainment

The tax credit does not apply to films or videos that provide the user with limited or no immersion, including 360°, 270° and 180° videos, and spherical and panoramic videos.

In addition, for taxation years ending after February 21, 2017:

  • corporations that have annual qualifying BC labour expenses greater than $2 million will be eligible for this credit; the corporation no longer has to meet the criteria that its principal business must be the development of interactive digital media products
  • interactive digital media corporations participating in the small business venture capital program will be eligible for this credit

Film incentive BC tax credit and production services tax credit

For productions with principal photography beginning after January 24, 2017, the southern part of the eastern boundary of the designated Vancouver area is moved from 200th Street in Langley to the border between Surrey and Langley, so that the regional film tax credit applies in all of the City of Langley and the Township of Langley.

Business tax credits

The budget extends the following BC business tax credits:

  • scientific research and experimental development tax credit – by five years to August 31, 2022
  • training tax credits – by three years to December 31, 2020
  • book publishing tax credit – by two years to March 31, 2019

Preferential tax treatment for credit unions

The phase-out of BC's preferential tax treatment for credit unions will halt for 2017, pending a review of the Financial Institutions Act and Credit Union Incorporation Act.

Therefore, for the 2017 taxation year, credit unions will continue to receive 80% of the full preferential tax treatment, instead of 60%, as was previously scheduled.  The phase-out, which began January 1, 2016, was to occur over five years.

Small business venture capital tax credit

Starting 2017, the budget for the small business venture capital tax credit will increase from $35 million to $38.5 million, allowing up to $11.7 million in additional equity financing for qualifying corporations annually.

Personal tax measures

Non-eligible dividends

As a result of the reduction in the province’s small business tax rate from 2.5% to 2% on April 1, 2017, BC’s dividend tax credit rate for non-eligible dividends will decrease from 2.47% of grossed-up dividends to 2.18% for 2017 and later years.

Top personal income tax rates

The table below shows top combined federal/BC personal income tax rates. It reflects the change to BC’s non-eligible dividend tax credit rate, discussed above. These rates apply to individuals who have taxable income above $202,800 in 2017 ($200,000 in 2016).

Top combined federal/BC rates 2016 2017
Ordinary income & interest 47.70%
Capital gains 23.85%
Canadian dividends eligible 31.30%
non-eligible 40.61% 40.95%

Education tax credit

The education tax credit will be eliminated on January 1, 2018. Unused credits from years before 2018 can be claimed in 2018 and later years.

Back-to-school tax credit

Parents can claim a new non-refundable back-to-school tax credit that provides a benefit of up to $13 for each child who is 5 to 17 years old at the end of the year. The credit is available for 2016 to 2018, after which it will be reviewed.

Medical Services Plan (MSP)

The budget provides a reminder that the 4% MSP premium rate increase for 2017 (announced in the 2016 budget) was not implemented. Instead, the maximum MSP premium will remain $75 per month per adult, as indicated in the table below.

Further, effective 2018:

  • MSP premiums will be halved for households with annual net incomes up to $120,000; to receive this reduction households will have to register
  • the income threshold at which households are fully exempt from MSP premiums will increase by $2,000
  2016 2017 (1) 2018 (1)
Singles No children $75 $75
With children
See Family
Couples No children or with children $150
Family 2 persons $136
See Singles of Couples
> 2 persons $150

(1) These rates apply when annual household net income is:

        - in 2017 – over $42,000 for single adults or over $45,000 for couples (different thresholds apply to senior couples and families)
        - in 2018 – over $120,000 for all singles, couples and families

Volunteer firefighter and search and rescue volunteer tax credit

Starting 2017, individuals who provide at least 200 hours of volunteer service to a volunteer fire department and/or an eligible search and rescue organization can claim a non-refundable tax credit that provides a benefit of up to $152 per year, in addition to the existing federal tax credit.

Training tax credits

BC’s training tax credits are extended by three years to December 31, 2020.

Mining tax credits

Enhancements to:

  • the BC mining flow-through tax credit – extend this credit by one year to December 31, 2017
  • BC’s mining exploration tax credit – make environmental studies and community consultations incurred after February 28, 2015, eligible for this credit, mirroring a similar incentive provided by the federal government

Commission on Tax Competitiveness 

BC’s 2016 budget announced the establishment of an independent Commission on Tax Competitiveness to make recommendations regarding the PST and other business taxes to help drive business competitiveness, increase investment and enhance BC’s standard of living.

The Commission’s report includes four key recommendations:

1) exempt business capital expenditures, including machinery and equipment, from PST

2) exempt business use of electricity and other energy inputs, software and telecommunications services from PST

3) engage the public in a process to consider and design a made-in-BC value added tax

4) introduce a framework within which major investors and municipalities can negotiate long-term property tax arrangements to increase certainty

Consistent with the Commission’s recommendations, the government is first phasing-out PST on electricity purchased by businesses (see below).

The government acknowledges that further improvements to the PST are a priority and will consider future steps to mitigate the negative effects of the PST and other business taxes. 

Other taxes

PST on electricity

As a result of a recommendation of the Commission on Tax Competiveness (see above), the PST rate on electricity purchased by businesses – currently 7% of the purchase price – will be phased out as follows:

  • October 1, 2017 – to 3.5%
  • April 1, 2019 – fully exempt

Tobacco taxes

On October 1, 2017, tobacco tax rates will increase as follows:

  • cigarettes – from $47.80 to $49.40 per carton of 200 cigarettes
  • fine-cut tobacco – from 23.9 cents to 24.7 cents per gram

More information on the requirement to take an inventory of, and pay additional security on, unsold tobacco products held in BC as of midnight on September 30, 2017, will be provided.

Motor fuel

Effective October 1, 2017, natural gas for use in an internal-combustion engine for any rolling stock or vehicle when run on rails is exempt from the 3¢ per litre tax on locomotive fuel.

Home owner grant

The threshold for the phase-out of the home owner grant will increase by $400,000 to $1,600,000 for 2017. The grant is reduced by $5 for every $1,000 in assessed value exceeding this threshold.

Property transfer tax

Effective for registrations after February 21, 2017, the fair market value threshold for eligible residential property under the First Time Home Buyers’ Program will increase from:

  • $475,000 to $500,000 – full exemption (resulting in a property transfer tax savings of up to $8,000)
  • $500,000 to $525,000 – partial exemption

Property tax rates

In 2017, British Columbia will continue to apply its longstanding rate-setting policies for:

  • residential school property taxes
  • non-residential school property taxes
  • residential rural property taxes
  • non-residential rural property taxes

These rates will be set in the spring, once revised assessment roll data become available.  

Information sharing

To improve administration and enforcement, the Income Tax Act (ITA) and Home Owner Grant Act are amended to allow for information sharing between the two acts. The ITA is also amended to provide income tax administrators with access to assessment data.

Contact us

William Holms

William Holms

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Zaheer Jamal

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James Capobianco

Partner, PwC Canada

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Garry Eng

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