March 21, 2012
Today Saskatchewan Finance Minister Ken Krawetz delivered the province’s 2012 budget. The budget anticipates a surplus of $14.8 million for 2012-13. The budget introduces a 10% reduction in the general corporation income tax rate on income earned from the rental of certain new housing and restricts the refundability of the Research and Development (R&D) Tax Credit to Canadian-controlled private corporations, among other changes. The budget does not include any corporate or personal income tax rate changes.
Highlights of tax measures announced in today’s budget are summarized below.
Corporate income tax rebate on new rental housing
The budget introduces a tax rebate that will reduce the general corporation income tax rate on income earned from the rental of newly constructed qualifying multi-unit residential projects by 10%. While the rebate is available for a period of 10 consecutive years based on the eligible corporation’s fiscal year-end, the corporation may defer eligibility for the tax rebate until the initial year the new housing project is complete and ready for occupancy.
All private and public Canadian-resident corporations qualify for the rebate as long as they have a permanent establishment in Saskatchewan and are solely engaged in the construction and rental of eligible new rental housing in Saskatchewan.
Eligible rental housing
Eligible rental housing will include newly constructed multi-unit rental housing projects, including:
- New construction, including modular construction
- Conversion of non-residential space to residential space (e.g., warehouse space conversion).
Eligible housing projects must consist of at least eight fully self-contained rental units (i.e., bathroom and kitchen facilities are available in each suite). Certain multi-unit assisted living projects for seniors are also eligible. The Saskatchewan Housing Corporation will also consider newly constructed multi-unit residential rental projects that don’t specifically meet eligibility conditions on a case-by-case basis.
Residential construction that will not be eligible for the rebate includes living accommodation that is located:
- In a hotel, motel, motor hotel, or resort where a person resides there for less than six consecutive months
- In a hospital, health centre or special-care home
- On property that is being farmed if the living accommodation is rented by the person that farms the property.
Projects and units that are eligible to receive direct funding under the Saskatchewan Housing Corporation’s Rental Development Program are excluded from being eligible rental housing.
For the purposes of determining the tax rebate, the eligible rental income will pertain specifically to the rental of eligible rental housing and will be based on terms and conditions outlined in the federal Income Tax Act. However, the rules specifically exclude income from the disposition of eligible new rental housing, including recapture of depreciation and capital gains.
Small business corporations will be able to apply for the rebate on eligible income that does not benefit from the 2% small business income tax rate that applies on the first $500,000 of active business income of Canadian-controlled private corporations.
An eligible corporation can contract with another party for the construction of the eligible new rental housing or the business of renting the eligible new rental housing. However, the corporation must retain ownership of the housing and must be able to clearly identify income earned from the owning and renting of that housing in order to access the tax rebate. The budget mentions that it will carefully scrutinize non-arm’s length transactions to ensure that the eligible corporation or its owners do not artificially benefit from this tax rebate.
Rental housing that is registered under a building permit dated on or after March 21, 2012 and before January 1, 2014 will be eligible for the tax rebate, up to a maximum of 10,000 rental units. Eligible units must be constructed and available for rent before the end of 2016.
R&D Tax Credit
Currently, all corporations with a permanent establishment in Saskatchewan are eligible for a 15% refundable R&D Tax Credit on qualifying expenditures incurred in Saskatchewan. For qualifying R&D expenditures incurred on or after April 1, 2012, the 15% R&D Tax Credit will continue to be refundable for Canadian-controlled private corporations, subject to a maximum annual limit of $3 million in qualifying expenditures. Qualifying expenditures in excess of this limit, as well as all qualifying expenditures by other corporations, will instead be eligible for a new 15% non-refundable R&D Tax Credit. Non-refundable tax credits earned in a year can be applied against Saskatchewan corporation income tax otherwise payable for that year or in any of the subsequent 10 taxation years (or the previous three taxation years).
Film Employment Tax Credit
The Film Employment Tax Credit will be eliminated for productions after April 1, 2012. Generally, this credit provides a refundable corporate income tax credit equal to 45% of eligible labour costs, to a maximum of 50% of a film production’s total eligible budget.
First-Time Homebuyers Tax Credit
A Saskatchewan First-Time Homebuyers’ Tax Credit will be introduced, effective January 1, 2012. This non-refundable credit, which is based on the first $10,000 of a qualifying home purchase, results in a Saskatchewan income tax credit of up to $1,100. The credit will apply to eligible first-time homebuyers that have a “closing date” of January 1, 2012 or later. The tax credit will also be extended to individuals eligible for the Disability Tax Credit (DTC) in a manner similar to the federal First-Time Home Buyers' Tax Credit.
Active Families Tax Benefit
The Active Families Benefit will be expanded to all children under the age of 18 (previously ages 6 to 14). This refundable personal income tax credit rebates up to $150 per child per year in eligible registration fees for cultural, recreational and sports activities.
The budget also:
- Converts the Graduate Retention Program Tax Credit to a non-refundable tax credit (from a refundable tax credit)
- Notes that Saskatchewan's sales tax exemption on children's clothing was recently expanded to children under 18 years of age (from under 15 years of age), as promised in the province's 2011 budget
- Announces that the government will review the effectiveness of the Labour-sponsored Venture Capital Corporations Tax Credit.
Your KPMG adviser can help you assess the effect of the tax changes in this year’s Saskatchewan 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 Saskatchewan Ministry of Finance.
Information is current to March 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.
KPMG LLP, the audit, tax and advisory firm (kpmg.ca), a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.
KPMG's Canadian web site is located at http://www.kpmg.ca/
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.