2018 British Columbia budget: Tax highlights

February 21, 2018

Issue 2018-09

In brief

On February 20, 2018, British Columbia’s Minister of Finance, Carole James, presented the province’s budget. The budget:

  • introduces an employer health tax (maximum rate of 1.95% applies if total payroll is $1.5 million or more)
  • increases the property transfer tax rate on the value of residential property above $3 million
  • increases the additional property transfer tax rate and expands this tax to more areas of the province
  • introduces an annual speculation tax on residential properties and a corresponding income tax credit

This Tax Insights discusses these and other tax initiatives outlined in the budget. 

In detail

Business tax measures

Corporate income tax rates

The budget did not revise BC’s corporate income tax rates. The following changes were previously announced.

  • General and M&P income tax rate – On January 1, 2018, the provincial rate increased from 11% to 12% and the combined federal/BC rate increased from 26% to 27%.
  • Small business income tax rate (on the first $500,000 of active business income) – This rate decreased from 2.5% to 2% on April 1, 2017. After taking into account the decline in the federal small business rate from 10.5% to 10% on January 1, 2018, and to 9% on January 1, 2019, the results follow:

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%

12.0%

December 31, 2019

11.0%

Business tax credits

The budget extends the following BC business tax credits:

  • interactive digital media tax credit – by five years to August 31, 2023
  • book publishing tax credit – by three years to March 31, 2021
Film incentive BC tax credit

Effective for expenditures incurred after February 20, 2018, the film incentive BC tax credit is expanded to include scriptwriting expenditures on BC labour incurred by a corporation before the completion of the final script stage of the production. Previously, only scriptwriting expenditures incurred after the final script stage were eligible for the tax credit.

Employer health tax

To help fund the elimination of the medical services plan premiums (see below), an employer health tax (EHT) is introduced, starting January 1, 2019. For employers with payroll:

  • of $500,000 or less – no EHT will be imposed
  • between $500,000 and $1.5 million – the rate will be phased in until it reaches 1.95% on $1.5 million in total payroll
  • of $1.5 million or more – the maximum rate of 1.95% will apply on total payroll

Legislation, to be introduced in 2018, will include rules on the frequency of instalment payments and will define how payroll amounts are to be aggregated among associated businesses before applying deductions and tax rates.

Personal tax measures

Personal income tax rates

As previously announced, starting 2018, taxable income above $150,000 will be subject to a provincial personal income tax rate of 16.8%, up from 14.7%.

Eligible dividends

As a result of the increase in the province’s general corporate income tax rate from 11% to 12% on January 1, 2018, BC’s dividend tax credit rate for eligible dividends will increase from 10% of grossed-up dividends to 12% for 2019 and later years.

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 decreased from 2.47% of grossed-up dividends to 2.18% for 2017. Federal changes further decrease the rate to 2.07% in 2018 and to 1.96% after 2018.    

Top personal income tax rates

The table below shows top combined federal/BC personal income tax rates. These rates apply to individuals who have taxable income above $202,800 in 2017; $205,842 in 2018 (2019 and 2020 thresholds to be indexed). The table reflects the changes to the province’s top personal income tax rate and eligible and non-eligible dividends tax credits rates, discussed above.

Top combined federal/BC rates

2017

2018

2019

Ordinary income & interest

47.70%

49.80%

Capital gains

23.85%

24.90%

Canadian dividends

eligible

31.30%

34.20%

31.44%

non-eligible

40.95%

43.73%

44.63%

Medical Services Plan (MSP)

Effective January 1, 2020, MSP premiums will be eliminated. Maximum monthly MSP premiums for 2017 and 2018 are shown in the table below.

 

2017 (1)

2018 (1)

Singles

No children

$75

$37.50

With children

Couples

No children or with children

$150

$75

(1) For 2017 and 2018, these rates apply when annual household net income is over $42,000 for single adults or over $45,000 for couples (different thresholds apply to senior couples and families).

New BC caregiver credit

Starting 2018 taxation years, a new BC caregiver credit will replace the existing caregiver tax credit and the infirm dependent tax credit. The amounts of the new credit are consistent with the existing credits, providing a benefit of up to $231 for 2018 (indexed thereafter). The new credit will not require the dependant to live with the caregiver.

BC education tax credit

The education tax credit will be eliminated on January 1, 2019. Unused credits from years before 2019 can be claimed in 2019 and later years.

BC mining flow-through share tax credit

The mining flow-through share tax credit is extended by one year to the end of 2018.

Farmers’ food donation tax credit

The farmers’ food donation tax credit is extended by one year to the end of 2019.

Home owner grant

As announced on January 3, 2018, the threshold for the phase-out of the home owner grant will increase by $50,000 to $1.65 million for 2018. The grant is reduced by $5 for every $1,000 in assessed value exceeding this threshold.

Property transfer tax measures

Property transfer tax rates

Effective February 21, 2018, the general property transfer tax rate will increase to 5% (from 3%) on the portion of a property’s fair market value above $3 million. The rates on the first $3 million of a property’s fair market value will not change.

Additional property transfer tax for foreign purchasers

Effective February 21, 2018:

  • the additional property transfer tax rate will increase to 20% (from 15%)
  • the area in which the additional property transfer tax applies, is expanded to:

-       the Capital Regional District
-       the Regional District of Central Okanagan
-       the Fraser Valley Regional District
-       the Regional District of Nanaimo

Transitional rules may exempt eligible property transactions entered into before February 21, 2018, unless the transaction is in Metro Vancouver.

Speculation tax

Starting 2018, an annual speculation tax will be imposed on residential property in BC. This new property tax will target foreign and domestic home owners who do not pay income tax in BC, including those who leave their homes vacant. Households with high worldwide income that pay little income tax in BC will also be liable for the tax.

Initially, the tax will apply to the Metro Vancouver, Fraser Valley, Capital and Nanaimo Regional Districts and in the municipalities of Kelowna and West Kelowna. The tax rate will be $5 per $1,000 of assessed value in 2018 and will rise to $20 per $1,000 of assessed value in 2019.

Up-front exemptions will be available for most principal residences and for qualifying long-term rental properties and certain special cases. Persons who do not qualify for an up-front exemption, but who pay income taxes in BC, can claim a new non-refundable income tax credit (that can be carried forward) to offset the tax. Further information on how to apply for an exemption and income tax credit is forthcoming.

The tax will be administered by the province, outside of the normal property tax system and property tax cycle. Draft legislation has not been released yet.

Transfers of principal residence in bankruptcy cases

For transactions occurring after February 20, 2018, transfers of a bankrupt’s principal residence from a trustee in bankruptcy to the bankrupt or the bankrupt’s spouse or former spouse will be exempt from tax. Previously, these transactions were exempt only if no consideration was exchanged.

Other taxes

Provincial sales tax (PST)

PST changes:

  • increase the luxury surtax on passenger vehicles (both new and used), effective April 1, 2018, as follows:

–      purchase price from $125,000 to $149,999 – from 10% to 15% (general rate on private sales: from 12% to 15%)
–      purchase price of $150,000 or more – from 10% to 20% (general rate on private sales: from 12% to 20%)

  • expand the exemption for avalanche airbag backpacks to include all avalanche airbag backpacks, effective April 1, 2018
  • enable online accommodation platforms to register as collectors, and to collect and remit provincial sales tax and the municipal and regional district tax on accommodation, effective on a date to be specified by regulation
  • allow revenue from the municipal and regional district tax collected by municipalities, regional districts and eligible entities (e.g. tourism-focused non-profits) to fund affordable housing initiatives, effective on a date to be specified by regulation
  • clarify that PST applies to software provided in optional as-needed maintenance agreements, retroactive to April 1, 2013
  • permit services to be included in Tax Payment Agreements between BC and interjurisdictional railways, effective on royal assent
  • provide that retailers operating on cruise ships in BC waters will not be required to collect PST on sales made during the course of scheduled sailings, retroactive to April 1, 2013
Motor fuel tax

As a result of changes affecting motor fuel tax:

  • the refund rates for International Fuel Tax Agreement licensees will increase to reflect annual increases in the carbon tax each April 1 from 2018 through to 2021
  • effective April 1, 2018, marine diesel fuel used in interjurisdictional cruise ships and ships prohibited from coasting trade under the Coasting Trade Act will be exempt from motor fuel tax
  • effective April 1, 2018, the motor fuel tax rates on clear gasoline and clear diesel in the Capital Regional District will increase to 5.5¢ cents per litre from 3.5¢
Carbon tax

Retroactive to February 18, 2014, refiner collectors that acquire fuel for retail sale from other refiner collectors will be exempt from the requirement to pay security on that fuel, and a refund will be provided for security paid by refiner collectors on fuel purchased in BC and sold to another refiner collector.

School (property) tax rates

In 2018, British Columbia will continue to apply its longstanding rate-setting policies for:

  • residential property taxes (see exception below for residential property values exceeding $3 million)
  • non-residential property taxes
  • residential rural property taxes
  • non-residential rural property taxes
Residential property values exceeding $3 million

Starting the 2019 tax year, residential property tax rates will increase on high-value properties in the residential class, including detached homes, stratified condominium or townhouse units and most vacant land. The following tax rates will apply on the portion of a residential property’s taxable assessed value that exceeds:

  • $3 million, but is under $4 million – 0.2%
  • $4 million – 0.4%
Property tax exemption for purpose-built rental housing

Starting 2019 tax years, municipal revitalization property tax exemptions for eligible new purpose-built rental housing will also apply to provincial property taxes if the municipality issues the revitalization tax exemption certificate after February 20, 2018, under a revitalization program that includes as a goal the creation of new rental housing.

Tobacco tax

Effective April 1, 2018, the tobacco tax rate will increase on:

  • cigarettes – to 27.5¢ per cigarette from 24.7¢ (to $55 from $49.40 per carton of 200 cigarettes)
  • loose tobacco (tobacco in a form other than cigarettes or cigars) – to 37.5¢ from 24.7¢ per gram
Hydro and Power Authority Act

The Hydro and Power Authority Act is clarified to limit BC Hydro’s school tax liability to land it owns in fee simple and to improvements; this does not affect Nisga’a Lands or Taxing Treaty First Nation lands.

Administration and information sharing

To enhance tax administration and information sharing, various amendments will be made. For example, amendments to the:

  • Property Transfer Tax Act will:

–      increase the limitation period for property transfer tax assessments to six years
–      enable additional information to be collected on property transfer tax forms, including tax identification numbers for transferees through bare trusts
–      introduce administrative penalties for non-compliance
–      extend the general anti-avoidance rule to the entire Property Transfer Tax Act
–      enable tax administrators to access additional information on property transactions, including information in a Multiple Listing Service (MLS) database

  • Income Tax Act will:

–      introduce a reportable transaction rule, effective for transactions entered into after February 20, 2018, or a series of transactions that is completed after February 20, 2018
–      revise the general anti-avoidance rule (GAAR) to parallel the federal GAAR and to ensure that any misuse or abuse of a provision in another act that the Income Tax Act relies on will be subject to the GAAR

  • Provincial Sales Tax Act, Carbon Tax Act and Motor Fuel Tax Act will allow for a fee to be charged to taxpayers to recover costs associated with out of province audits

Also, steps will also be taken in the real estate sector to:

  • require developers to collect and report on pre-sale condo assignments
  • track beneficial ownership

 

Contact us

William Holms

Western Canada Tax Leader, PwC Canada

Tel: +1 604 806 7052

James Capobianco

Partner, PwC Canada

Tel: +1 604 806 7788

Sean Wilson

Partner, PwC Canada

Tel: +1 604 806 7187

Ken Ghag

Senior manager, PwC Canada

Tel: +1 604 806 7208

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