2007 B.C. budget highlights

Economic Context
Reduced Personal Income Taxes
Measures Concerning Business
Other Measures Concerning Individuals

February 20, 2007

Finance Minister Carole Taylor presented the BC government's 2007 budget this afternoon. The following is a summary of the tax highlights contained in the budget.

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Economic context
British Columbia's economy remains strong in all sectors with expected GDP growth of 3.9% for 2006. The growth in BC's economy is supported by positive consumer and business confidence, robust residential and non-residential construction, and a low unemployment rate. The result is a projected surplus of $2.8 billion compared to the budgeted surplus of $600 million.

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Reduced Personal Income Taxes
The budget includes a reduction in personal income tax rates at all but the top tax bracket. These reductions, phased in over two years, will lower personal provincial income taxes by at least 10% for individuals with taxable income below $100,000. Those with higher income levels will also benefit from these rate reductions but, as the top rate remains unchanged, their proportionate savings will be less than 10%. These reductions will result in tax savings of up to $430 in 2007 and $864 in 2008 for someone with taxable income of $100,000.

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Measures Concerning Business
BC's general corporate rate remains unchanged at 12%, which compares well with rates of 10% in Alberta and 14% in Ontario.

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Incentive Programs

BC Training Tax Credit
The budget implements a package of training tax credits for employers and employees that were previously announced. The training tax credits will complement and extend the federal government's incentives which are limited to the first two years participation in Red Seal apprenticeship programs. The three main tax credits are:

• Basic credit;
• Completion credits; and
• Enhanced credits for First Nations and people with disabilities.

Employers will be eligible for a credit equal to 10% of wages paid, up to $2,000 per apprentice, in the first 24 months of a non-Red Seal apprenticeship program. The basic credit for employees will be $1,000 for completing the first year and $1,000 for completing the second year levels of any non Red Seal apprenticeship program. The provincial credits mirror the federal credits that are available for participation in a Red Seal apprenticeship program.

Completion credits are an extension of the federal program and will be available to employers and employees in both Red Seal and non-Red Seal apprenticeship programs. The employer credits are equal to 15% of wages paid to a maximum of $2,500 per apprentice that completes level 3 of any apprenticeship program. This maximum amount increases to $3,000 for apprentices that complete level 4 or higher of any apprenticeship program. Employees will be eligible for a tax credit equal to $2,000 and $2,500 for an apprentice that completes level 3 and level 4 or higher, respectively.

Enhanced credits equal to 150% of the basic credit or completion credit are available to individuals that are First Nations people or persons with disabilities and their employers.

These BC training tax credits are effective for wages paid after December 31, 2006 and are scheduled to expire January 1, 2012.

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Enhancements for Resource Sector
Effective February 21, 2007, mining exploration in prescribed Mountain Pine Beetle affected areas will be eligible for an enhanced tax credit of 30%. The credit is increased from the current 20% credit on grassroots mining exploration conducted by individuals, corporations, or partnerships. The enhanced credit is scheduled to expire by December 31, 2016.

The adjustments to BC taxable income for the royalty and deemed income rebate for companies that carry on mining operations are being eliminated. These adjustments were put in place in the 1970's as the province did not want to parallel the federal resource allowance. The federal government has now eliminated the resource allowance and, with the elimination of the BC royalty and deemed income rebate adjustment, federal and provincial taxation of the resource sector is now harmonized.  This should reduce the administrative burden for companies in the resource sector.

In addition to harmonization, the budget has extended the new mine allowance to January 1, 2016 from January 1, 2010. This allowance provides an enhanced deduction equal to 133.3% of capital costs for mines that commence production between December 31, 1994 and January 1, 2016. The enhanced deduction is also available to mines that expand during the same period. This deduction reduces the net revenue mineral tax payable by companies in the resource sector.

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Scientific Research & Experimental Development Credit Extended
The Scientific Research & Experimental Development ("SR&ED") Tax Credit in BC was scheduled to expire on September 1, 2009.  This credit, equal to 10% of eligible research and development expenditures carried on in the province,  is extended to September 1, 2014.

The SR&ED Tax Credit is also extended to include qualifying expenditures incurred by a partnership after February 20, 2007. Corporations that are active members of a partnership will now be able to claim the credit.

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Provincial Sales Tax
Changes Relating to PST Administration

Limitation periods for assessments and refunds
The limitation period for audit assessments has been reduced from six years to four years. This change will impact assessments under the Social Service Tax Act, Hotel Room Tax Act, Motor Fuel Tax Act, and Tobacco Tax Act. All assessments issued on or after February 21, 2007 will be limited to four years, including assessments for audits commenced prior to this date and not yet completed. As a consequence of this change, the record retention period is reduced from seven years to five years, although records may still need to be retained for longer periods for other statutory purposes.

The time period for claiming refunds of tax has also been reduced to four years. However, this change will not be effective until May 1, 2007. Therefore, applications for refunds of tax paid more than four years ago must be received by April 30, 2007.

In addition, with effect from February 21, 2007, audit assessments of liquor licensees for differences between the amount of tax remitted on liquor sales and the expected amount of tax on liquor purchases will be reduced from six years to a maximum three year period.

Extension of remittance filing dates
The due date for remitting PST returns has been extended from the 15th day to the 23rd day of the month. Payments will only be considered remitted on time if they are received by the province on the due date (23rd). 

Threshold introduced for PST registration
Persons with annual gross revenues of $10,000 or less from sales of all tangible personal property, other than motor vehicles, aircraft, vessels, liquor or parking rights, who do not regularly make sales or leases from established commercial premises and who do not maintain an established business premises are not required to register as vendors or collect and remit tax on those sales. Such persons must pay tax on all inventory acquired for resale.

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New and Clarified Exemptions
Oil and gas industry
The Production Machinery and Equipment ("PME") exemption is expanded for specific equipment used exclusively in the exploration, discovery, or development of petroleum or natural gas. The exemption now includes portable doghouses, winches, pickers, boilers and steamers required for heating blowout preventers. In addition, pump truck parts including pumps, tanks, lines, pipes, controls, manifolds, drop boxes, mixing hoppers, valves, engines, and transmissions are now exempt. 

Equipment lessors
Prior to February 21, 2007, companies that leased equipment both with an operator or without an operator ("Bare Lease") were required to maintain separate inventories for PST purposes, to avoid double taxation. From February 21, 2007, such companies will only be required to self-assess tax on the Bare Lease price of this equipment.

Automotive retailers
Effective February 21, 2007, automobile manufacturers' rebates are excluded from the taxable purchase price of a motor vehicle if the rebate is a condition of the sale.  As a result, the purchaser is liable for tax only on the net selling price of the vehicle. 

The PST relief for hybrid electric passenger vehicles will be extended to March 31, 2011. Such vehicles are eligible for a 100% PST reduction to a maximum of $2,000.

Construction materials
Purchases and leases of ENERGY STAR® Qualified home heating equipment are exempt as follows: 

• ENERGY STAR® Qualified oil fired forced-air furnaces are now exempt until April 1, 2009.
• ENERGY STAR® Qualified gas fired forced-air furnaces purchased before January 1, 2008 are also exempt.
• Boilers, air-source heat pumps and ground source heat pumps are exempt if purchased before April 1, 2009.

The exemption for storm windows and storm doors, multi-glazed windows, and doors containing multi-glazed windows is restricted to products that are listed as "ENERGY STAR® Qualified" by the Office of Energy Efficiency Natural Resources Canada.  This exemption will expire completely on April 1, 2009. 

Medical equipment
Registered charities and members of the British Columbia Association of Health-Care Auxiliaries qualify for a refund of tax paid on medical equipment purchases used by a health facility made on or after February 21, 2007. The administration of the refund process will be released at a future date. 

Prescription drug samples
Pharmaceutical distributors will receive a new exemption on sample prescription medications provided to a physician, dentist, or veterinarian for promotional purposes. This exemption is effective February 21, 2007. Prior to this date, the distributor was required to self-assess tax on the cost of sample prescription medications provided free of charge.

Motor fuel
The regulations to the Motor Fuel Tax Act have been amended effective February 21, 2007.  Biodiesel fuel is now eligible for alternative motor fuel status. As a result, biodiesel fuel in all blends of diesel fuel, as well as 100% biodiesel fuel, is exempt from tax.  Propane used in any motor vehicle or machinery for farming purposes is now also exempt from tax.

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Future PST Consultations
During 2006, the Ministry of Small Business and Revenue entered into consultations with industry and individuals to determine how the PST legislation and administrative practices could be simplified or improved.

The PST changes announced in the 2007 budget remedy some of the issues that were identified during the consultation process. The government has announced that it will continue consultation with regard to a number of areas including:

• Transfer of Business Assets for Partnerships
• Application of Tax to Real Property Improvements
• Trusts and Amalgamations
• Audit Sampling
• Special Registration Permits

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Other Measures Concerning Individuals
Enhanced Dividend Tax Credit
The budget implements the previously announced enhanced dividend tax credit at a rate of 12% effective for 2006 and subsequent tax years. This change parallels the proposed federal enhanced dividend tax credit mechanism. Dividends qualifying under the proposed federal rate reduction include dividends from public and private companies that have been subject to the general (high rate) corporate tax.

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