TAX ALERT – BC Budget 2018

On Tuesday, February 20th, 2018 the BC Minister of Finance, Carole James, delivered the NDP’s first annual budget. The announcements made on Tuesday seek to implement a number of the NDP’s electoral promises. The budget projects a small surplus through 2020.

Phase Out of MSP Premiums and Introduction of EHT

The NDP government announced a four-year phase out of MSP Premiums in Budget 2017. Budget 2018 introduced an accelerated phase out to be completed by January 1, 2020. To fund the phase out, Budget 2018 introduced an Employee Health Tax (“EHT”) for businesses (similar to Ontario, Quebec, and Manitoba), effective for the 2019 calendar year. The EHT will be based on a business’ gross payroll as follows:

Annual B.C. Payroll EHT As a Percentage of Payroll Annual Tax
$500,000 or less 0.00% $0
$750,000 0.98% $7,313
$1,000,000 1.46% $14,625
$1,250,000 1.76% $21,938
$1,500,000 1.95% $29,250
Over $1,500,000 1.95% $29,250 + 1.95% of Payroll in Excess of $1,500,000

The government has not announced how the EHT will be administered, however details should be forthcoming.

Provincial Property Transfer Tax

Budget 2018 increases the provincial Property Transfer Tax (“PTT”) on residential properties valued in excess of $3,000,000 from 3% to 5%.

The Budget further increases the PTT applicable to foreign purchasers of residential property from 15% to 20%. Formerly, the tax applied to purchases within the Greater Vancouver Regional District. Budget 2018 expands that jurisdiction to include the Central Okanagan, Fraser Valley, Capital, and Nanaimo regional districts.

The above measures are effective February 21, 2018. Transitional measures may exempt the increased PTT applicable to foreign purchasers of the newly expanded jurisdictions for transactions entered into prior to February 21, 2018, although no additional details were provided in the Budget.

Speculation Tax

Targeting foreign and domestic homeowners who do not pay tax in B.C., the Budget announcement included a new speculation tax to be introduced in 2018:

  • The tax will be assessed at a rate of $5 per $1,000 of assessed value and will rise to $20 per $1,000 of assessed value in 2019.
  • The tax will initially apply to Metro Vancouver, Fraser Valley, Capital and Nanaimo regional districts, as well as Kelowna and West Kelowna municipalities.
  • Exemptions will be available for most principal residences and qualifying long-term rental properties. Additional exemptions may be announced in the future.
  • Individuals who otherwise pay tax in B.C. but are not eligible for an exemption may be entitled to a non-refundable personal tax credit to offset the assessed speculation tax.

The government has indicated they will provide additional details before the proposed tax is implemented.

Corporate and Personal Tax Rates

Budget 2018 did not announce any changes to the current corporate and personal tax rates.

  • No changes were announced to the B.C. general corporate tax rate of 12% and small business rate of 2% (on active business income of $500,000 or less). The small business rate was reduced from 2.5% to 2% effective April 1, 2017 while the general corporate rate was increased from 11% to 12% effective January 1, 2018, as announced in Budget 2017.
  • No changes were announced to the B.C. top marginal B.C. personal tax rate of 16.8%. The top marginal B.C. personal tax rate for taxable income in excess of $150,000, effective January 1, 2018, was announced in Budget 2017.

Other Measures

Child Care

Budget 2018 did not introduce $10 per day child care as promised by the NDP during the provincial election, however the government is introducing significant investments in child care spaces and certain relief for families with children in licenced daycare.

Provincial Sales Tax (“PST”)

The PST luxury surtax on vehicles priced between $125,000 and $149,999 will increase from 12% to 15% for private sales, and will increase from 10% to 15% for commercial sales.

The surtax on vehicles priced $150,000 or more will increase from 12% to 20% for private sales, and will increase from 10% to 20% for commercial sales.

Homeowner Grant

The threshold for Homeowner Grant phase out will be increased from $1,600,000 to $1,650,000.

Elimination of the Education Tax Credit

The B.C. education tax credit will be eliminated for 2019 and subsequent tax years. This follows the elimination of the federal education tax credit in 2017.

New Provincial Caregiver Tax Credit

A new B.C. caregiver tax credit will be available for 2018 and subsequent tax years. The credit will be available to B.C. residents who care for an adult infirm dependant. The credit will be $4,556 which will provide a benefit of up to $230.53.

What’s Next?

The federal government is set to table its budget on February 27th, 2018 – just 6 days away. Your Facet Advisors will provide you with a Tax Alert shortly thereafter and will be ready to assist you with the accounting and tax assistance you need to maximize the opportunities and minimize the negative impact of the announcement. Stay tuned.

                                                                                                                                   

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.