Canada: Canada's Budget 2014

BC's Finance Minister Mike de Jong introduced BC's Budget and Fiscal Plan 2014/15 (the "Budget") on February 18. He has described it as a "boring, balanced budget". That appears to be a fair characterization, although the proposals for the LNG income tax will not be boring for those working in that industry. Below we describe the Budget's pertinent income tax, PST, and property tax measures.

Before getting into the detailed tax measures, we note that the Budget forecasts a surplus of $184 million for 2014/15, with only a slightly larger surplus of $206 million for the following 2015/16. The Budget documents acknowledge how small the forecast surplus is at only 0.5% of forecasted revenues of $44.8 billion, and as a result the BC government must "proactively monitor its fiscal plan to ensure budget targets are achieved." The forecasted surplus assumes that there is "no additional funding for the teachers' contract pending the outcome of the appeal regarding the recent BC Supreme Court decision", and also that there is no revenue from LNG development in the province (which are not anticipated to arise for another few years). 

In terms of BC's debt, total provincial debt is projected to increase to $68.9 billion by 2016/17. There do not appear to be any plans to reduce the debt. Instead, the Budget notes that the debt to GDP ratio is expected to decline in the next couple of years.

Income Tax Measures

LNG Income Tax

The most notable income tax measure in the Budget is the proposed income tax applicable to the liquefied natural gas ("LNG") industry.

The LNG income tax will apply to income from liquefaction of natural gas at LNG facilities in the province. The "Tier 1" tax rate of 1.5% will apply to an operator's net proceeds after commercial production begins. The Tier 1 tax will be deductible from the "Tier 2" tax. 

The Tier 2 tax will be charged at up to 7%, though the final rate has not yet been determined. It will be charged on an operator's net proceeds less up to 100 percent of the operator's capital investment account. A capital investment account will include the operator's costs associated with constructing a plant that is built to liquefy natural gas. 

The LNG income tax will apply to sales proceeds of LNG, rents and fees payable for the use of a LNG facility, and fees for processing natural gas at a LNG facility. The LNG tax will apply to all LNG facilities, whether the gas they produce is exported or used domestically.

The tax rate and the features of the Tier 2 tax will be further reviewed until legislation regarding those rates and features is introduced in the fall of this year.

The government continues to plan to establish a Prosperity Fund, into which a portion of revenues from LNG development will flow, once the LNG income tax is put in place. The Prosperity Fund might be used for "a package of programs and strategic investments that would benefit British Columbians for many generations to come."

Business Income Tax Measures

As happens every year, the BC Mining Flow-Through Share Tax Credit is extended still further, to the end of 2014.

Similarly, the Scientific Research and Experimental Development Tax Credit is extended to September 1, 2017.

Personal Income Tax Measures

The Budget proposes a benefit of $55 per month per child under the age of six. Families apply for the monthly benefit by applying for the Canada Child Tax Benefit. This benefit begins to phase out when family income reaches $100,000 and phases out completely at family income of $150,000.

Although not technically an income tax measure, it is appropriate to note here that the Budget proposes to increase the maximum monthly MSP premiums by $2.75 per month to a total of $72 for single persons, $5 per month to a total of $130.50 for two person families and $5.50 per month to a total of $144 for families of three or more persons. Persons receiving premium assistance will not be affected by this increase.

PST Measures

The PST tax measures that received the most explanation in the Budget are relatively minor:

  • the expansion of exemption for goods brought into BC by new residents (e.g., new BC residents who bring boats that they have owned for at least 30 days before becoming resident in BC are now exempt from PST);
  • a change to the calculation of the accommodation portion (which is subject to PST) when an accommodation provider provides a package of accommodation, meals and services for a single price; and
  • the calculation of the exit tax for multi-jurisdictional vehicles. 

The Budget also announced a number of "technical amendments", but the details were contained in revisions to Bulletins published by the Consumer Taxation Branch. The Bulletins identify a number of changes, but it is not always clear which changes are administrative (e.g., the changes to the Bulletin on the exemptions for First Nation Bands and status Indians) and which changes will be enacted in legislation.  According to the budget, the amendments will clarify:

  • various exemptions and refunds;
  • the taxation of leases;
  • the original purchase price of certain passenger vehicles subject to the one to three per cent surtax;
  • the taxation of vehicles brought, sent or received in British Columbia and registered under vehicle registration legislation;
  • the purchase price of software purchased with qualifying educational programs for a single price;
  • tax payment agreements;
  • the taxation of tangible personal property used to improve real property; and
  • various other administrative matters.

Given the limited details provided and the lack of draft legislation or a notice of ways and means, we cannot yet provide any commentary on the significance of any of the changes.

Property Tax

The Budget proposes a number of property tax measures.

Home Owner Grant

Of broadest interest may be the decrease in the threshold for the phase-out of the Home Owner Grant. The threshold is decreased from $1,295,000 to $1,100,000 for the 2014 tax year. For properties valued above the threshold, the grant is reduced by $5 for every $1,000 of assessed value in excess of the threshold. This is effectively a property tax increase for some home owners.

Rural Property Tax Rates

A single rural area residential property tax rate will now apply province-wide. Average residential rural property taxes will increase by the previous year's provincial inflation rate and non-residential rural area property tax rates will be set so that total non-residential rural area tax revenue will increase by inflation plus new construction. 

Land Tax Deferment

Under the property tax deferment programs, eligible homeowners can defer property taxes until the home is sold, transferred to a new owner or becomes part of an estate, if they meet a minimum equity requirement. Currently, repayment of deferred taxes is required if the property becomes subject to an easement, statutory right of way or similar interest. Effective on Royal Assent, the Land Tax Deferment Act will be amended to allow the deferment to continue when the property becomes subject to an easement, statutory right of way or similar interest if the homeowner continues to meet the minimum equity requirements of the program.

Ports

As announced in Budget 2012, the Ports Property Tax Act will be amended to extend the municipal tax rate caps on designated port property and new improvements past 2018, to remove the condition that new improvements under the Act must be added to an assessment roll before 2019, and to extend the provisions for compensation to municipalities.

Exemption from Property Tax for Affiliated Colleges Clarified

The University Act will be amended to confirm that property (i.e. land and improvements) of a university that is leased to a college affiliated with the university is exempt from property taxation so long as it is held for college purposes.

Other Tax Measures

Effective April 1, 2014, the tax rate on cigarettes is increased from $44.60 to $47.80 per carton of 200 cigarettes.

The fair market value threshold for property eligible for the First Time Home Buyers' exemption from property transfer tax is increased to $475,000 from $425,000, and the partial exemption will now apply to homes valued between $475,000 and $500,000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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