TAX ALERT – 2017 PROVINCIAL BUDGET UPDATE COMMENTARY

On September 11, 2017, BC Finance Minister Carole James released the 2017 provincial budget update.

The Government has delivered a provincial budget update with predicted surpluses of $246 million for the current year, $228 million in 2018/2019, and $257 million in 2019/2020.  The provincial budget update includes an increase to the general corporate income tax rate, a new top personal tax bracket for income over $150,000, an increase to carbon tax rates and a reduction to Medical Services Plan premiums for all BC residents.

Business Tax Measures

Change to Corporate Income Tax Rates

In this provincial budget update, there is an increase in the general corporate income tax rate from 11.0% to 12.0% effective January 1, 2018, and a decrease in the small business tax rate from 2.5% to 2.0% effective April 1, 2017.

As a result, BC corporate income tax rates – as of January 1, 2017 – will be as follows:

British Columbia Combined Federal and British Columbia
General 11.0% / 12.0%1 26.0% / 27.0%1
M&P 11.0% / 12.0%1 26.0% / 27.0%1
Small business2 2.5% / 2.0%3 13.0% / 12.5%3

1 effective January 1, 2018

2 on first $500,000 of active business income

3 effective April 1, 2017

Extension of Existing Tax Credits

The provincial budget update confirms the extension of several existing tax credits:

  • Extension of the SR&ED tax credit to August 21, 2022;
  • Extension of the mining flow-through share tax credit to the end of 2017;
  • Extension of the training tax credits to the end of 2018; and
  • Extension of the book publishing tax credit to March 31, 2018.

Preferential Tax Benefit for Credit Unions

The provincial budget update cancels the previously announced planned phase-out of the preferential tax treatment for credit unions and restores the full preferential income tax treatment effective January 1, 2017.

International Business Activities

The provincial budget update restricts international business activities from qualifying for personal and corporate income tax refunds, effective September 12, 2017.

Reintroduced Measures

The provincial budget update reintroduces certain measures that were announced in the Winter 2017 provincial budget that were not fully enacted.  These measures include:

  • No longer requiring corporations that have annual qualifying BC labour expenses of more than $2 million for the interactive digital media tax credit to have, as their principal business in the taxation year, the development of interactive digital media products;
  • Allowing interactive digital media corporations participating in the small business venture capital program to be eligible for the interactive digital media tax credit;
  • Expanding the mining exploration tax credit to allow the costs of environmental studies and community consultations incurred after February 28, 2015 to be included in the calculation of the mining exploration tax credit; and
  • Adjusting the boundary for the regional film tax credit to apply in all of the City of Langley and the Township of Langley.

Personal Tax Measures

Change to Personal Income Tax Rates

The provincial budget update introduces a new top personal tax bracket for taxable income in excess of $150,000, and effective January 1, 2018, taxable income in excess of $150,000 will be subject to a provincial tax rate of 16.8%

As a result of the increase to the general corporate tax rate, the provincial budget update increases the dividend tax credit rate on the taxable amount of eligible dividends from 10.0% to 12.0% effective for 2019 and subsequent years.

As a result of the decrease in the small business tax rate, the provincial budget update decreases the dividend tax rate on ineligible dividends from 2.47% to 2.18% effective for 2017 and subsequent years.

As a result, BC personal income tax rates will be as follows:

Personal Combined Federal and British Columbia Top Marginal Rates (Taxable Income > $150,000 and < $202,800)

2017 2018 2019
Interest and regular income 43.70% 45.80% 45.80%
Capital gains 21.85% 22.90% 22.90%
Eligible dividends 25.78% 28.68% 25.92%
Non-eligible dividends 36.27% 38.73% 38.73%

Personal Combined Federal and British Columbia Top Marginal Rates (Taxable Income > $202,800)

2017 2018 2019
Interest and regular income 47.70% 49.80% 45.80%
Capital gains 23.85% 24.90% 24.90%
Eligible dividends 31.30% 34.20% 31.44%
Non-eligible dividends 40.95% 43.41% 43.41%

Medical Services Plan Premium (MSP) Reduction

The provincial budget update reduces MSP premiums by 50% for all BC residents and increases the threshold at which households are fully exempt from MSP premiums by $2,000.  These measures are effective January 1, 2018.

Elimination of Children’s Tax Credits

The provincial budget update eliminates the children’s fitness tax credit, children’s fitness equipment tax credit and children’s arts tax credit for the 2018 and subsequent tax years.

Education Tax Credit

The provincial budget update maintains the education tax credit (which was previously set to be eliminated effective January 1, 2018 in the Winter 2017 provincial budget).

Low Income Climate Action Tax Credit

The provincial budget update increases the maximum annual low income climate action tax credit from $115.50 to $135.00 per adult and from $34.50 to $40.00 per child, effective April 1, 2018.  Single parent families will receive the adult amount for the family’s first child.

Reintroduced Measures

The provincial budget update reintroduces certain measures that were announced in the Winter 2017 provincial budget that were not fully enacted.  These measures include:

  • A new non-refundable volunteer firefighter and search and rescue volunteer tax credit; and
  • A new non-refundable back-to-school credit amount for 2016 only.

Indirect Tax Measures

The provincial budget update changes the effective date of certain indirect tax measures that were announced in the Winter 2017 provincial budget to be a date specified by regulation.  This change affects the following measures previously slated to take effect October 1, 2017:

  • Phase-out of the provincial sales tax on taxable electricity;
  • Increase the tax rate on cigarettes and fine-cut tobacco; and
  • Exemption of the $0.03 per litre tax on locomotive fuel for certain natural gas.

Reintroduced Measures

The provincial budget update reintroduces the increase to the fair market value threshold for eligible residential property under the First Time Home Buyers’ Program to $500,000 (from $475,000), as announced in the Winter 2017 provincial budget but not fully enacted.

Other Tax Measures

Carbon Tax Increase

The budget announces an annual increase to carbon tax rates by $5.00 per tonne of carbon dioxide equivalent emissions until rates are equal to $50.00 per tonne on April 21, 2021.  This measure is effective April 1, 2018.

Reintroduced Measures

The budget update reintroduces certain measures that were announced in British Columbia’s Winter 2017 budget that were not fully enacted. These measures include:

  • Increasing the small business venture capital tax credit budget;
  • Increasing the threshold for the phase-out of the home owner grant to $1.6 million (from $1.2 million) for the 2017 tax year; and
  • Allowing information sharing between the Income Tax Act and Home Owner Grant Act.

To learn more or if you have any questions regarding the above information, please contact your Facet Advisors professional, or call us at 604-534-3004.