March 27, 2014
Today Newfoundland and Labrador Finance Minister Charlene Johnson delivered the province’s 2014 budget. The budget reduces the small business corporate income tax rate to 3% (from 4%) and increases the tax rate on eligible dividends. The budget projects a deficit of $348.7 million for 2014 and $537.9 million for 2015, with a return to surplus in 2016.
Highlights of tax measures in the budget are noted below.
Corporate income tax
The budget announced that it would reduce the small business corporate income tax rate to 3% (from 4%) effective July 1, 2014. However, no further changes to the corporate income tax rate were announced. As a result, the corporate income tax rates will be as follows:
Build Ventures Fund
The budget announced that the government will invest $10 million in a Build Ventures fund to support innovative start-up businesses. In addition, the fund will expand opportunities for early-stage businesses in the province with a high growth potential.
Dividend tax credit
The budget decreases the eligible dividend tax credit rate to 5.4% (from 11.0%) effective July 1, 2014. The change is intended to make the effective tax rate on eligible dividends equivalent to the effective tax rate on non-eligible dividends.
As a result of the 2013 federal budget changes to the taxation of non-eligible dividends effective for 2014, and the Newfoundland and Labrador’s budget decrease in the non-eligible dividend tax credit to 4.1% (from 5.0%) effective July 1, 2014, the effective provincial tax rate on non-eligible dividends remains essentially the same as 2013. As such, the combined federal-provincial top marginal tax rate on non-eligible dividends for 2014 will be 32.08% (up from 31.01%), the increase largely representing the federal tax rate change.
Newfoundland and Labrador’s combined top marginal tax rates for 2014 are as follows:
Low-Income Tax Reduction
The budget increases the Low-Income Tax Reduction income thresholds to eliminate provincial income tax for individuals with net income up to $18,547 and families with net income up to $31,362. The budget also includes partial tax reductions for individuals with net income up to $22,815 and for families with net income up to $38,006.
Low-Income Seniors’ Benefit
The budget increases the Low-Income Seniors’ Benefit to $1,036 (from $971) This refundable tax credit is for low income seniors who are at least 65 years old at any time during the tax year.
The budget increases the tax per cigarette by three cents and the tax per gram on finer-cut tobacco by six cents effective at 12:01 am on March 28, 2014.
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We can help
Your KPMG adviser can help you assess the effect of the tax changes in this year’s Newfoundland and Labrador 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 Newfoundland and Labrador Ministry of Finance.
For details, contact your KPMG Tax professionals in Newfoundland and Labrador:
Senior Manager, Tax
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