2012 BC Budget Highlights
February 22, 2012
On February 21, 2012, British Columbia’s Finance Minister Kevin Falcon introduced the province’s Budget for its 2012/2013 fiscal year. The significant fiscal impact of the June 2011 HST referendum has presented historic challenges to the Minister and his staff. The voters’ rejection of the broadly-based HST in favour of a more focused provincial sales tax system, triggers a legal obligation to repay $1.6 billion in federal HST transition funding and also results in a narrower base on which to apply the sales tax.
The Budget projects modest economic growth of 1.8% for 2012, 2.2% for 2013 and 2.5% for 2014. The Budget anticipates a deficit of $2.5 billion in 2011/12 and $968 million in 2012/13. The $1.6 billion charge has been fully provided for in 2011/12. Going forward, the Minister is committed to holding the line on expenses, restricting overall increases to 2% per year over his three-year fiscal plan. Surpluses are projected for 2013/14 and 2014/15.
Overview of significant tax policy changes
Corporate income taxes for both small and large businesses will be increased as a result of the elimination of scheduled decreases in the small business tax rate and a 1% increase in the general corporate income tax rate. Personal income tax will increase due to a reduction in the general personal tax credit to the pre-HST level. Several tax credits have been introduced, extended or modified. No new information on the HST/PST transition was announced in the Budget, but the Budget confirmed the HST system will give way to a modified PST system effective April 1, 2013 as announced on February 17, 2012. Special transitional rules for new residential real estate purchases were also announced on February 17, 2012. Further details on changes and effective dates are highlighted below.
Corporate Income Tax Rates
The current corporate income tax of 2.5% on active business income of up to $500,000 was scheduled to be eliminated as of April 1, 2012. The rate will be maintained at 2.5% until the fiscal situation has improved.
The general corporate income tax rate has been 10%. It will provisionally increase to 11% effective April 1, 2014, but the Minister stated in his Speech that the 10% rate will be maintained if the Budget’s fiscal estimates are achieved.
Income Tax Credits for Business
- The existing Training Tax Credits will be extended for an additional three years to December 31, 2014. This program provides refundable tax credits to employers and apprentices for salaries and wages paid to eligible apprentices.
- The Budget introduces new training tax credits for shipbuilding and ship repair industry employers. Eligible employers will receive a refundable tax credit of 20% of wages, up to $5,250 per year per eligible apprentice in the first 24 months of an eligible apprenticeship program. The credits will be increased by 50% where the apprentices are First Nations individuals or persons with disabilities. The program will run to the end of 2019.
- The 17.5% Interactive Digital Media Tax Credit is to be retroactively amended to clarify that cutscene productions in respect of video games are eligible activities, retroactive to September 1, 2010, provided all other requirements for the credit are met.
- The 35% Full Film Incentive BC Tax Credit is to be amended to remove the copyright grind, and the copyright ownership requirement is amended for interprovincial co-productions with principal photography starting on or after January 1, 2012. The tax credit is also amended to clarify that cutscene productions are not eligible for the credit retroactive to September 1, 2010.
- The Book Publishing Tax Credit will be extended for an additional five years to March 31, 2017.
Small Business Venture Capital Program
An additional $3 million of tax credits will be made available for the Small Business Venture Capital program effective for the 2012 program year.
BC’s carbon tax was introduced on July 1, 2008. The tax is paid on the purchase or use of fossil fuels. BC is the first and only jurisdiction in North America with a carbon tax. As previously scheduled, the carbon tax will be increased by $5 per tonne on July 1, 2012 to $30 per tonne of carbon dioxide equivalent. No additional carbon tax increases are scheduled. The Minister announced that there will be a comprehensive review of the carbon tax before the 2013 Budget to assess its revenue neutrality and its impact on the competiveness of BC’s industry sectors. BC’s agriculture and food sector has campaigned against the tax on the basis that as it is a large fuel consumer, the carbon tax increases production costs relative to competitors in other Canadian and US jurisdictions.
Jet Fuel Tax
The provincial jet fuel tax for international flights, including flights to the US, will be eliminated effective April 1, 2012.
Property Tax Caps for Major Ports
The Budget provides for a permanent cap on municipal port property tax rates for BC’s major port terminals replacing the current temporary cap.
HST Transition to PST
Timing of Return to PST
Just prior to the 2012 BC Budget announcement, on February 17, 2012, the BC and federal governments announced the transitional rules for BC’s return to the PST on April 1, 2013.
New Housing Transitional Rules
The transitional rules for newly-built homes have been much anticipated, as homebuyers and developers have been left to speculate about the timing and method of transition back to the PST.
The following are highlights of the new housing rules:
- Transitional dates:
- Ownership/possession transfers prior to April 1, 2013 — HST applies.
- Construction more than 10% completed as of April 1, 2013 and ownership/possession transfers before April 1, 2015 –GST applies plus 2% temporary transition tax.
- Construction begins on or after April 1, 2013 — GST applies.
- The BC 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 will increase to $42,500 from $26,250.
- Purchasers of new second or recreational homes outside the Greater Vancouver and Capital regional districts priced up to $850,000 will be eligible to claim a provincial grant of up to $42,500 effective April 1, 2012 as a temporary measure during the transition period.
Other Transitional Measures
Our website will be updated to review other significant matters as we move to the April 1, 2013 PST implementation date.
Personal Tax Credit
Personal income taxes will increase as a result of a reduction in the amount of the personal tax credit. The personal tax credit was raised from $9,373 to $11,000 in 2009 when HST was introduced. With the elimination of the HST, the credit will revert to $9,373 with adjustments for inflation indexing for the period from 2009 to date.
Dividend Tax Credit
The dividend tax credit for eligible dividends received by an individual will increase to 10% from 9.76% for dividends received after December 31, 2011. This will decrease the maximum combined federal and BC tax rate on eligible dividends from 26.11% to 25.78%.
Other Tax Credits
- The Budget has introduced a temporary First-time New Home Buyers’ Bonus of up to $10,000. This will be a one-time refundable income tax credit for first-time home buyers during the period February 21, 2012 to March 31, 2013 The home must be newly constructed and the purchase must be subject to HST with a written agreement entered into on or after February 21, 2012. The credit will be 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 for each home.
- A refundable Senior’s Home Renovation Tax Credit of up to $1,000 for 2012 and subsequent tax years has also been introduced for individuals age 65 and over. The credit will be available on the cost of permanent home renovations made on or after April 1, 2012. Examples of eligible expenditures are provided on the government website. General maintenance, including roof repairs, is excluded.
- A new Children’s Fitness Credit and a new Children’s Arts Credit have been introduced. These credits will be up to $500 each for 2012 and subsequent tax years.
- The $10,000 limit that applied to medical expenses claimed for the Medical Expense Tax Credit in respect of dependents, other than a spouse or minor child, is eliminated.
- HST credits for low income British Columbians will be replaced by a reinstated PST credit. The maximum annual tax credit will be $75 per adult.
- The Budget confirms 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 valued in excess of the threshold. A grace period of one year has been added for qualifying homeowners to claim the homeowner grant where they have moved into a residential facility. A supplement has also been introduced for low-income Canadian Forces veterans of particular ranks under the age of 65 have also been introduced.
Medical Service Plan
Medical Service Plan premiums will increase on January 1, 2013 by approximately 4% resulting in increases of between approximately $2.50 and $5.00 per month depending on the size of the family.
Information is current to February 22, 2012. The information contained in this 2012 BC Budget Highlights 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 your Smythe Ratcliffe tax advisor.