February 21, 2012
Today British Columbia Finance Minister Kevin Falcon delivered the province’s 2012 budget. The budget anticipates a deficit of $2.5 billion in 2011/12 and $968 million in 2012/13. The government is projecting a surplus of $154 million in 2013/14 and $250 million in 2014/15.
The budget includes a provisional 1% increase in the B.C. general corporate income tax rate to 11% (from 10%) effective April 1, 2014. The small business corporate income tax rate will remain at 2.5%. The budget also includes an increase to the tax credit for eligible dividends, and new personal tax credits for first-time new home buyers (up to a maximum credit of $10,000), seniors’ home renovation and children’s fitness and arts activities.
The budget also notes that the B.C. government has appointed an Expert Panel on Tax to provide analysis and recommendations to the province on business tax competitiveness and administrative improvements to streamline the Provincial Sales Tax. The seven-member panel includes Elio Luongo, KPMG’s Canadian Managing Partner-Tax. The panel’s report will be submitted by August 31, 2012.
Highlights of tax measures in the budget are noted below.
Corporate income tax
The provincial general income tax rate will be increased to 11% (from 10%) on a temporary basis, effective April 1, 2014. The budget says this general corporate income tax rate increase will only be implemented if the fiscal situation worsens. The government stated that the small business income tax rate will remain at 2.5%.
Small Business Venture Capital Act
The budget expands the small business venture capital tax credit budget by $3 million. Under this program, eligible investors can receive an income tax credit of 30% of their investment in eligible business corporations up to an annual limit of $60,000.
Eligible business corporations must be doing business in targeted sectors, such as prescribed manufacturing and processing, destination tourism, research and development of proprietary technology, community diversification, development of interactive digital media products and clean technology.
Training tax credits for shipbuilding and ship repair industry employers
Eligible shipbuilding and ship repair industry employers will be able to receive a refundable tax credit of 20% of wages per year, up to $5,250 per eligible apprentice in the first 24 months of an eligible apprenticeship program. These credits will be enhanced by 50% for apprentices who are First Nations individuals and persons with disabilities.
These training tax credits will be made effective by regulation and will expire at the end of 2019.
Employers who claim these new credits will not be eligible to claim tax credits under the existing training tax credit program.
B.C. training tax credits
The budget confirms that the B.C. Training Tax Credits are extended for an additional three years to the end of 2014. The program provides employers with refundable tax credits for salary and wages paid to eligible apprentices. Apprentices registered in an eligible program are also eligible for fully refundable income tax credits.
Motor Fuel Tax Act
The provincial jet fuel tax of 2 cents per litre will be eliminated for international flights only, effective April 1, 2012.
Carbon Tax Act
The budget reaffirms the $5 per tonne annual increase in carbon tax which, effective July 1, 2012, will be equivalent to $30 per tonne. This is the final scheduled increase to take effect. The budget states that no further increases or expansions are planned at this time. Over the next year, the government will undertake a comprehensive review of the carbon tax and its impact on British Columbians.
Medical services plan premiums
Medical Services Plan (MSP) Premiums will increase by approximately 4% as of January 1, 2013 to:
- $66.50 per month for single persons
- $120.50 per month for two-person families
- $133 per month for families of three or more persons.
Premium assistance will be enhanced to ensure those receiving assistance will not be affected by the increase.
Tax credit for eligible dividends
The dividend tax credit rate on eligible dividends will increase to 10% (from 9.76%) for dividends received after December 31, 2011. Therefore, a taxpayer paying tax at the top marginal rate that receives an eligible dividend of $100 would pay tax of $25.78 (instead of $26.11).
First-time new home buyer’s credit
Until the change back to provincial sales tax (PST) and goods and services tax (GST) is implemented, a refundable income tax credit will be available for first-time home buyers who purchase a newly constructed home.
The temporary B.C. First-Time New Home Buyers’ Bonus will be effective from February 21, 2012 to March 31, 2013. This bonus will be a refundable income tax credit for first-time homebuyers who purchase a newly constructed home.
The credit will be calculated as 5% of the purchase price of the home up to a maximum credit of $10,000. The credit will be phased out at a rate of 20% of net income in excess of $150,000 for single individuals and at a rate of 10% of family income in excess of $150,000 for couples. Only one credit can be claimed per home.
The credit will only be available for purchases of newly constructed housing where both the HST applies and where a written agreement is entered into on or after February 21, 2012.
To meet the eligibility criteria for the credit, the home must be:
- a newly constructed home located in B.C.
- an individual’s and his or her spouse or common-law partner’s first home, and
- the home must be intended as the individual’s primary residence.
Application forms for this credit will be available on the B.C. Ministry of Finance website later this year.
Seniors’ home renovation tax credit
A new refundable personal income tax credit will assist with the cost of permanent home renovations to provide individuals age 65 and over the flexibility to remain in their own homes longer. The credit will be effective for 2012 and later years.
The maximum annual credit will be $1,000, calculated as 10% of eligible expenditures. The credit will be available to individuals who incur eligible expenditures on or after April 1, 2012. The credit can be claimed by seniors, whether they own their home or rent, and by individuals who share a home with a senior relative. The budget states that legislation will be introduced later this year to list the eligible expenditures that will be available for the credit.
Children’s fitness credit and children’s art credit
New provincial children’s fitness and arts credits are introduced, effective for 2012 and later years. These two non-refundable tax credits of up to $500 each will mirror the qualifications of the federal children’s fitness and children’s art credits.
Medical expense credit expenditure limit for other dependents
The $10,000 limit that applied to medical expenses claimed in respect of dependents, other than a spouse or a minor child, is eliminated, effective for 2012 and later years. This change mirrors a change to the federal medical expense tax credit.
The budget confirms the announcement on January 3, 2012 that the threshold for the phase-out of the homeowner grant is increased from $1.15 million to $1.285 million for the 2012 tax year. For properties valued over $1.285 million, the grant is reduced by $5 for every $1,000 of assessed value in excess of the threshold.
Qualifying homeowners who have moved into a residential facility will be able to apply for the homeowner grant for one additional year, effective for the 2012 and later years. The grant can only be claimed on the home that these homeowners continue to own and that qualified in the previous year.
Homeowner grant — Low-income veteran’s supplement
The budget also confirms the announcement on November 10, 2011 of the creation of a veteran’s supplement for qualifying low-income veterans under 65 years old who have served in the Canadian Forces as officers or non-commissioned members. This supplement is effective for 2012 and later years and is intended to provide low-income veterans with the same homeowner grant enhancements that already apply to seniors, some persons with disabilities and their families and certain veterans of older conflicts and their spouses.
Transition to Provincial Sales Tax
The budget confirms B.C. and the federal governments’ announcement on February 17, 2012 of transitional measures for the province’s return to provincial sales tax (PST) and goods and services tax (GST) from harmonized sales tax (HST). B.C. will return to GST and PST on April 1, 2013.
For details on these measures, see KPMG’s TaxNewsFlash-Canada 2012-07, “B.C. Announces HST-PST Transitional Measures”.
Highlights of the transitional measures include the following:
New housing rebate threshold
Until the PST is re-implemented on April 1, 2013, HST will continue to apply to sales of new housing. Since the HST was implemented, B.C. has provided a rebate of 71.43% of the provincial portion of the HST paid on new housing purchased as a primary residence, to a maximum of $26,250.
The B.C. HST new housing rebate threshold will be increased to $850,000 (from $525,000) for eligible new housing where the HST is payable on or after April 1, 2012. The maximum rebate available to purchasers will increase to $42,500 (from $26,250).
Grant for new second and recreational homes
Certain purchasers of new housing used as a second or recreational residence will be eligible for a grant in an amount that is equivalent to the B.C. HST new housing rebate available for primary residences, effective April 1, 2012.
Eligibility for the grant is limited to purchases made in areas outside the Capital Regional District and the Greater Vancouver Regional District. This program will be a temporary relief measure during the transition to PST.
Your KPMG adviser can help you assess the effect of the tax changes in this year’s British Columbia budget on your personal finances or business affairs, and point out ways to take advantage of their benefits or ease their impact. We can also keep you abreast of the progress of these proposals as they make their way into law and help you bring any concerns you may have to the attention of the B.C. Ministry of Finance.
Information is current to February 21, 2012. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
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