On February 21, 2012, Finance Minister and Deputy Premier Kevin Falcon announced British Columbia’s 2012 budget. Designed to keep the province on track for a balanced budget in 2013-14, despite very modest economic growth projections over the next three years, this year’s budget attempts to limit spending while preserving funding for health care, education and social services – all with a view to next year’s provincial election.
Several interesting tax changes were introduced as part of the budget announcement, including further details on the province’s plans for returning to a Provincial Sales Tax (“PST”).
Commodity Tax Measures
Return to PST
On the heels of the February 17 release of transitional rules to eliminate the HST in British Columbia by the federal Department of Finance (see Transitional Rules to Eliminate the British Columbia HST for further details), the British Columbia government has used this year’s budget as an opportunity to provide further insight into its plans for the re-implementation of the PST.
For starters, the government has once again confirmed that, subject to the approval of the provincial legislature, the PST will be re-implemented on April 1, 2013 at a general rate of 7%. This new retail sales tax will be payable on all taxable goods or services acquired for use or consumption in British Columbia. Perhaps to alleviate the concerns of some residents, the province also announced that the new PST will apply to the same goods and services that were previously subject to the Social Service Tax, prior to the implementation of the HST. In other words, the tax base for the new PST will be essentially the same as it was under the old system. In addition, all permanent exemptions, including those applicable to business, will be reintroduced as part of the new PST.
General Transitional Rules
The transitional rules governing the move back to PST will be similar to those for the elimination of the British Columbia HST released last week. In general, PST will apply where tax becomes payable on or after April 1, 2013, with tax generally becoming payable on the earlier of the date the consideration becomes due or the date when the consideration is paid without becoming due. There will not be a pre-payment period for the PST, as was the case during the transition to the HST in 2010. Specific transitional rules for various types of transactions and further details for vendors were not made available in the budget, but the province has committed to making this information available as soon as possible.
Transitional Rules for New Housing
British Columbia currently provides an HST rebate for new housing purchased as a primary residence, which reduces the net provincial tax payable to an amount comparable to the provincial tax that was embedded in the price of a new home under the previous PST system. With the transition back to PST, certain measures will be introduced to ensure that the amount of provincial tax payable in respect of a new home purchased prior to the reintroduction of the PST is similar to the amount of tax payable in respect of a home fully constructed under the PST, regardless of when the construction begins. These measures, which will be administered by the Canada Revenue Agency and will be in place for two years, from April 1, 2013 to March 31, 2015, are summarized as follows:
- Temporary Housing Transition Tax - A temporary tax of 2% will apply to purchases of new housing that is not subject to HST and where construction was completed, or partially (at least 10%) completed, prior to April 1, 2013. This tax will also apply to certain deemed sales of new housing on or after April 1, 2013.
- Temporary Housing Transition Rebate – Builders of newly constructed housing will be entitled to claim a transitional rebate, based on the degree of completion as of April 1, 2013 and the new housing price, where they have paid PST on materials incorporated into the construction of new housing on or after April 1, 2013. Builders will also be required to share certain information with purchasers regarding the taxes and rebates affecting the purchase price.
Transitional Relief for New Housing
As previously announced, the current BC HST New Housing Rebate threshold will increase from $525,000 to $850,000, where HST is payable on or after April 1, 2012, increasing the maximum rebate from $26,250 to $42,500. In addition, purchasers acquiring new housing outside the Capital Regional District and the Greater Vancouver Regional District, for use as a second or recreational residence, may also be eligible for a new grant equal to the BC HST New Housing Rebate. This grant, which will be administered by the province, will not be available for new homes acquired for commercial use.
Return of Other Taxes and Levies
As the PST, itself, is only one element of British Columbia’s provincial sales tax regime, the re-implementation of the PST will also result in the reintroduction of several associated taxes and levies, including:
- The Passenger Vehicle Rental Tax of $1.50 per day;
- The surtax, ranging from 1% to 3%, on passenger vehicles with a purchase price of $55,000 or more;
- The Multijurisdictional Vehicle Tax for inter-jurisdictional commercial carriers licensed under the International Registration Plan;
- The Innovative Clean Energy Fund levy of 0.4% on certain energy purchases (excluding residential and commercial purchases of electricity);
- The tax on propane used in motor vehicles, levied at 2.7 cents per litre under the Motor Fuel Tax Act; and
- The special 10% PST rate on liquor (note that liquor mark-ups will be reduced to pre-HST levels to compensate for this change).
The 8% tax on short-term accommodation will also be re-implemented. However, to help streamline the administration of provincial taxes, this tax on short-term accommodation will be levied under the new PST legislation, with the Hotel Room Tax Act to be repealed. As previously announced, the 2% municipal and regional district hotel room tax levied on behalf of local government entities to promote tourism initiatives will remain in place. The government also noted that funding for eligible resort municipalities will continue under the new PST.
The tax on private sales of vehicles, boats and aircraft will also continue at a rate of 12%, as this tax is needed to ensure the equal tax treatment of private sales and sales by registered businesses. However, the government noted that sales of these items will not be subject to both the PST and the tax on private sales.
The government also advised taxpayers that the TransLink parking tax, now administered under the South Coast British Columbia Transportation Authority Act, will be unaffected by these changes.
Not all levies previously in place prior to the implementation of the HST will be reintroduced. For instance, the battery levy, which was eliminated on July 1, 2010, will not be returning, since the introduction of an industry stewardship program for the recycling and disposal of lead-acid batteries has rendered the former levy unnecessary.
Impact on Income and Other Taxes
From a personal income tax perspective, the re-implementation of the PST will result in several interesting changes, as follows:
- The BC HST Credit of up to $230 annually per family member will be eliminated, with the last payment being issued in January 2013;
- Effective 2013 onward, the BC Sales Tax Credit will be re-implemented based on the same eligibility requirement and benefit calculation that existed prior to the implementation of the BC HST Credit (the maximum annual tax credit will be $75 per adult, which will be reduced by 2% of the family income in excess of $15,000 for individuals and $18,000 for couples);
- The increase to the basic personal amount tax credit due to the implementation of the HST (from $9,373 in 2009 to $11,000 in 2010), will be reversed back to $9,373, plus indexing for inflation, with the re-implementation of the PST; and
- For the year 2013, a blended amount will be used for the basic personal amount, in order to reflect the existence of the HST in the province for the first 3 months of the year, and the PST for the remaining 9 months of the year (the actual tax credit amount for 2013 will be released in late 2012).
In addition, a temporary new home buyers’ bonus refundable income tax credit equal to 5% of the purchase price on a newly constructed home will be made available to first-time home buyers, provided that HST applies on the purchase and the written agreement is entered into on or after February 21, 2012. The home must also be intended to be an individual’s primary residence. The maximum credit available is $10,000 to eligible purchasers. Individuals will have their credit entitlement phased out at a rate of 20% of their net income in excess of $150,000, while families will have their credit entitlement phased out at a rate of 10% of family net income in excess of $150,000. Only one credit will be claimable per home.
As expected, with the elimination of the HST in British Columbia set to reduce the final price of tobacco products, the province will adjust its tobacco tax rates to ensure that the overall tax on tobacco remains constant.
As previously indicated, the government intends to make administrative improvements to the PST upon re-implementation. In this regard, the province has assured businesses and consumers that the tax treatment of goods and services “will be substantially the same” under the new PST. However, the budget notes that, in an effort to reduce the compliance burden on businesses, there will be certain differences, and it remains to be seen whether any such changes are limited to administrative issues.
Interestingly, as part of its work in re-building an administrative structure to support the new PST, the government has indicated that it is implementing new registration, compliance and reporting software to further streamline the administration of provincial sales taxes.
Carbon tax rates will increase, as planned, on July 1, 2012 to $30 per tonne of carbon dioxide equivalent emissions. The province has indicated that this rate will continue beyond June 30, 2013.
Refunds of carbon tax are available for certain fuel purchases used inter-jurisdictionally. For this reason, clarifications will be made to distinguish between an intra-provincial leg and an inter-jurisdictional leg of a marine trip by a commercial marine service, effective February 22, 2012.
As required under the Carbon Tax Act, the government also reported that it achieved revenue-neutrality in respect of the carbon tax for 2010/2011. In fact, a revised government forecast indicates that reductions in other personal and business tax revenue measures will exceed carbon tax revenue by $192 million for 2011/2012.
In addition, the government has announced that it will review the carbon tax and its impact on British Columbia residents. The review will cover all aspects of the tax, including revenue neutrality, and its impact on the province’s competitiveness. Potential changes will be considered as part of the 2013 budget process.
Amendments will also be made to both the Carbon Tax Act and Motor Fuel Tax Act in relation to the obligations imposed on collectors, dealers and purchasers for fuel imported by ship, in order to ease the compliance burden on importers.
Motor Fuel Tax
Effective April 1, 2012, the refund of motor fuel tax for jet fuel used in the cargo portion of a flight that begins or ends outside North America will be expanded to provide an exemption and refund for jet fuel used in all international passenger and cargo flights, including flights to the U.S.
Income Tax Measures
The budget has proposed a temporary 1% increase in the general corporate tax rate to 11%, effective April 1, 2014. This increase is to be re-evaluated in the next British Columbia budget, to determine if the increase is still required.
In addition, the previously announced decrease in the small-business tax rate to 0% on April 1, 2012 has been postponed. The small-business tax rate in British Columbia will stay at its current rate of 2.5%, and will be reviewed in the next budget.
Further information on British Columbia’s 2012 budget may be found on the province’s web site at:
2012 British Columbia Budget.