April 16, 2013
Today Manitoba Finance Minister Stan Struthers delivered the province’s 2013 budget. The budget anticipates a deficit of $583 million in 2013, $518 million in 2014, $365 million in 2015 and $164 million in 2016.
The budget increases the provincial sales tax rate to 8% (from 7%), starting July 1, 2013, and also increases the personal tax rate on non-eligible dividends, commencing in 2014. A new tax credit for rental housing construction is introduced, along with changes to several other tax credits for businesses.
Highlights of tax measures in the budget are noted below.
The budget announces an increase to the provincial sales tax (PST) rate to 8% (from 7%), starting July 1, 2013. The Manitoba Finance Minister says this is a “time-limited” increase that will expire after 10 years.
Exemptions from PST for the following items will also take effect July 1, 2013:
- Child safety restraint systems (e.g., car seats)
- Baby supplies (e.g., diapers, strollers, cribs, monitors)
- Bicycle helmets for children and adults.
The PST exemption for qualifying sand and salt mixtures purchased by municipalities will be expanded.
Other sales tax rate changes
Other sales tax rate changes effective July 1, 2013 increase:
- The sales tax rate on mobile, modular and ready-to-move homes to 4.5% (from 4%)
- The reduced sales tax rate for electricity used by qualifying manufacturers, mining companies and oil well operators to 1.6% (from 1.4%).
Further, Manitoba will increase the prorate vehicle tax (PVT) rates effective July 1, 2013.
Manitoba has released transitional rules relating to the retail sales tax increase to 8%. These transitional rules affect many different types of transactions, including transactions that straddle the effective date of July 1, 2013.
Various rules apply to different types of goods and services, including taxable goods, taxable services, utilities, leased goods, insurance and real property contracts.
Corporate income tax rates
The budget did not introduce any new corporate income tax rate changes, but did increase the small business income threshold to $425,000 (from $400,000), effective January 1, 2014. As a result, Manitoba’s corporate income tax rates effective January 1, 2013 remain as follows:
|Corporate Income Tax Rates – As of January 1, 2013|
||Combined Federal and Manitoba|
|*Manitoba’s small business limit threshold will increase to $425,000 (from $400,000) on January 1, 2014.|
Corporation Capital Tax on Financial Institutions
The Corporation Capital Tax on Financial Institutions is increased to 5% (from 4%), commencing for taxation years ending after April 16, 2013.
Rental Housing Construction Tax Credit
The budget introduced a new tax credit equal to 8% of the capital cost of new rental housing construction in Manitoba. Eligible landlords must be residents of Manitoba or have a permanent establishment in Manitoba, and can operate on either a for-profit or not-for-profit basis, including rental housing co-operatives.
Eligible projects include the construction of five or more new residential rental units. New rental units include existing non-residential properties being converted into residential units, in which case capital costs related to the acquisition and conversion of the property are eligible for the credit. The maximum credit is set at $12,000 per eligible rental unit. At least 10% of the units on an eligible project must be affordable housing units for the unit type.
The tax credit is earned on a project when it becomes available for rental and the affordable housing criteria are met. Eligible not-for-profit projects will receive a fully refundable tax credit in the year in which the tax credit is earned, as qualifying units are rented. The tax credit on for-profit projects will be non-refundable, claimable over a minimum of five years, and capped annually by the amount of Manitoba income tax payable by the landlord.
For-profit and not-for-profit landlords will be required to file an annual attestation for five years identifying the affordable units, the monthly rents assessed on those units as well as identifying the total new rental units constructed.
Research and Development Tax Credit
The Manitoba Research and Development Tax Credit is being amended in response to some changes to the federal Scientific Research and Experimental Development Tax (SR&ED) Credit.
The 2012 federal budget removed capital expenditures from the federal investment tax credit base, but Manitoba is not adjusting its tax credit for this change. In addition, contract payments to eligible institutes will remain fully eligible for the Manitoba tax credit.
The 2012 federal budget also announced that the SR&ED tax credit will be adjusted to reduce the 65% prescribed proxy amount – which recognizes overhead costs attributable to eligible projects – from 65% to 60% of direct labour costs in 2013 and to 55% starting in 2014. In addition, contract payments will be 80% claimable instead of fully claimable, so that tax credits will no longer include the profit element under the contract fees.
The Manitoba Research and Development Tax Credit will reflect these changes.
Data Processing Investment Tax Credit
The Data Processing Investment Tax Credit introduced in 2012 is broadened to include companies that are not engaged primarily in data processing in Manitoba but that make a significant incremental investment in data processing equipment in Manitoba.
A taxable Canadian corporation with a permanent establishment in Manitoba that acquires at least $10 million of incremental eligible data processing equipment in a taxation year will qualify for an 8% refundable investment tax credit. Eligible property includes Class 46 and Class 50 data processing equipment purchased, leased and made available for use in Manitoba after April 16, 2013 and before 2016.
Consistent with the change in the sales tax rate to 8% (from 7%) the refundable Data Processing Investment Tax Credit available to corporations that are primarily engaged in data processing in Manitoba will increase to 8% (from 7% ) on “data processing centre equipment” and to 4.5% (from 4%) on “data processing buildings.”
Manufacturing Investment Tax Credit
Commensurate with the change in the sales tax rate to 8% (from 7%), the refundable portion of the 10% Manufacturing Investment Tax Credit will increase from seven-tenths refundable to eight-tenths refundable commencing on qualified property acquired after June 30, 2013.
Tax credits extended
The Manitoba Film and Video Production Tax Credit, Interactive Digital Media Tax Credit and Small Business Venture Capital Tax Credit, which were scheduled to expire in 2013 or 2014, will all be extended to December 31, 2016.
The budget also includes several enhancements to the Interactive Digital Media Tax Credit.
Odour Control Tax Credit
The Odour Control Tax Credit will become fully refundable to agricultural producers, including individual farmers, on qualifying property acquired after 2012. Previously, this 10% credit was refundable to agricultural producers based on income tax and property tax on farmland paid by the farmer. This cap is now eliminated.
This credit is available for investments in capital property for the purpose of preventing, eliminating or significantly reducing nuisance odours arising from the use or production of organic waste.
Dividend tax credit
The budget increases the tax rate on non-eligible dividends by 1.62%, commencing in 2014. This rate increase is accomplished by decreasing the dividend tax credit on non-eligible dividends to 0.83% (from 1.75%), beginning with the 2014 taxation year. The change in the provincial dividend tax credit is in response to the changes in the gross-up on non-eligible dividends beginning in 2014, as announced in the 2013 federal budget.
As a result, the combined federal and Manitoba dividend tax rate on non-eligible dividends increases to 40.77% (from 39.15%) in 2014. Manitoba's combined top marginal tax rates will be as follows for 2013 and 2014:
|Combined Federal and Provincial Top Marginal Personal Tax Rates|
Interest and regular income
The budget announces an increase to tobacco tax effective midnight April 16, 2013. The rate per cigarette will increase to 29.0 cents (from 25.0 cents), on fine-cut tobacco the rate will increase to 28.0 cents per gram (from 24.0 cents), and on raw leaf tobacco the rate will increase to 26.5 cents per gram (from 22.5 cents). The tax rate per cigar remains 75% of its price at retail to a maximum of $5 per cigar.
Manitoba notes that an inventory declaration form will be sent to retailers to be completed and submitted along with any additional taxes payable no later than May 21, 2013.
Natural Gas Fuel Tax
A fuel tax for natural gas used in motor vehicles will be phased in as follows: 3 cents per cubic metre for sales after April 16, 2013 until March 31, 2014, 6 cents per cubic metre from April 1, 2014 to March 31, 2015, and 10 cents per cubic metre after March 31, 2015.
Farmland School Tax Rebate
The budget announced several changes to the Farmland School Tax Rebate:
- The rebate will be available only to eligible farmland owners who are Manitoba residents, beginning with the 2013 property tax year.
- The rebate will be capped at $5,000, beginning with the 2013 property tax year.
- Applications for a rebate for a given tax year must be filed no later than March 31 of the following year, starting with the 2013 property tax year. Applications related to the 2011 and 2012 property tax years have until March 31, 2014 to apply for the rebate for those years.
Land Transfer Tax
Land Transfer Tax will be amended to provide the Registrar-General the authority to do the following, among other things:
- Exempt property subject to Retail Sales Tax from Land Transfer Tax
- Issue an assessment notice under General Anti-Avoidance Rules where the conveyance of title is registered in order to reduce or eliminate tax in a manner that is an avoidance transaction.
Fuel tax license
For retail fuel dealers, a fuel tax license will no longer be required.
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Your KPMG adviser can help you assess the effect of the tax changes in this year’s Manitoba 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 Manitoba Ministry of Finance.
Information is current to April 16, 2013. 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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