Part 2: Tax Measures

Tax Measures — Supplementary Information

For more details on tax changes see Ministry of Small Business and Revenue website at:
www.sbr.gov.bc.ca/budget/budget.htm

Income Tax Act

Personal Income Tax Reduction

Effective for the 2007 and subsequent tax years, the province will reduce the four lowest personal income tax bracket rates and reduce the phase-out rate for the BC Tax Reduction such that all taxpayers will receive a reduction in personal income taxes payable. The tax rate changes will mean at least a 10 per cent personal income tax cut up to $100,000. The direct benefit to taxpayers will be approximately $515 million on a full year basis.

The four lowest tax bracket rates are reduced by about 5 per cent for the 2007 tax year and by about 10 per cent for the 2008 and subsequent tax years. The phase-out rate for the BC Tax Reduction is reduced from 3.6 per cent to 3.4 per cent for 2007 and to 3.2 per cent for 2008 and subsequent tax years. Table 2.2 shows British Columbia's personal income tax brackets and corresponding rates before and after the changes for 2007 and 2008. The tax rates will be adjusted effective July 1, 2007 for source deduction purposes.

Table 2.3 shows the impact of the tax rate changes to British Columbia personal income taxes payable for a single individual with wage income and claiming basic credits only.

With the 10 per cent tax cut, BC will have the lowest personal income tax burden in Canada for individuals up to about $108,000 in income.

Since 2000, the province has introduced three significant changes to personal income taxes; the 25 per cent tax cut in 2001, the BC Tax Reduction in 2005 and the 10 per cent tax cut in Budget 2007. Table 2.4 shows the impact of these changes by comparing BC taxes payable using rates in effect prior to the changes in 2001 and after the 10 per cent tax cut.

Adoption Expense Tax Credit

Effective for the 2007 and subsequent tax years, the province will provide an Adoption Expense Tax Credit. The credit will be harmonized with the federal adoption expense tax credit and will be calculated using the same expenses used to calculate the federal credit but using the provincial non-refundable tax credit rate. The maximum expenses that can be claimed is $10,445 for 2007 (indexed to national inflation) and will provide parents with a provincial personal income tax reduction of up to $595 for 2007. It is expected that about 600 families will be able to claim the credit each year.

BC Sales Tax Credit and Universal Child Care Benefit Income

Effective for 2006 and subsequent tax years, the Act is amended to exclude the federal Universal Child Care Benefit from the definition of income used for determining the BC Sales Tax Credit. The federal Universal Child Care Benefit is $100 per month per child under the age of six. This change will ensure that families will not receive a reduction in their BC Sales Tax Credit due to the receipt of Universal Child Care Benefit payments.

Foreign Tax Credit and Alternative Minimum Tax

Effective for 2007 and subsequent tax years, the Act is amended to prevent double taxation in certain situations where a taxpayer claims a foreign tax credit and is subject to alternative minimum tax.

Enhanced Mining Exploration Tax Credit

Effective for eligible expenses incurred after February 20, 2007, mining exploration in prescribed Mountain Pine Beetle affected areas will be eligible for an enhanced tax credit rate of 30 per cent, up from 20 per cent. The tax credit is available to eligible individuals, corporations and partnerships conducting grassroots mining exploration in BC. The expiry date for the enhanced tax credit rate will be December 31, 2016.

Book Publishing Tax Credit Extended

The Book Publishing Tax Credit is extended for an additional five years to 2012. The Book Publishing Tax Credit provides BC publishers a credit based on their eligibility for the Aid to Publishers component of the federal Book Publishing Development Incentive Program. The expiry date for the credit is changed to April 1, 2012 from April 1, 2007.

Scientific Research and Experimental Development Tax Credit

The Scientific Research and Experimental Development Tax Credit is extended for an additional five years to 2014. The credit is available to eligible taxpayers that undertake eligible research and development activities in the province. The expiry date for the credit is changed to September 1, 2014 from September 1, 2009.

Scientific Research and Experimental Development Tax Credit and Partnerships

The Scientific Research and Experimental Development Tax Credit is extended to partnerships effective for eligible expenditures incurred after February 20, 2007. Corporations that are active members of a partnership that incurs qualifying expenditures will be able to claim the credit.

Enhanced Dividend Tax Credit

As announced on October 10, 2006, the province is implementing an enhanced dividend tax credit at the 12 per cent rate effective for 2006 and subsequent tax years. The change parallels the new federal enhanced dividend tax credit mechanism and will reduce the extent to which corporate income is taxed at both the corporate and personal level.

Under the new enhanced dividend tax credit mechanism for personal income tax:

• eligible dividends will be determined under federal income tax rules;
• dividends will be grossed up by 45 per cent and added to taxable income;
• a new enhanced dividend tax credit will apply to the grossed up amount (federal rate is 19 per cent and BC rate is 12 per cent).

The existing BC dividend tax credit of 5.1 per cent is unchanged and will continue to apply to dividends that are subject to the existing federal gross up of 125 per cent. This is primarily dividends paid by corporations eligible for the small business deduction.

BC Training Tax Credit

As previously announced, a package of training tax credits for employers and employees is introduced to help address the skill shortage in BC. There are three main elements to the training tax credits:

• basic credits;
• completion credits; and
• enhanced credits for First Nations individuals and persons with disabilities.

British Columbia's basic credits will complement the federal government's incentives for apprenticeship training which are limited to the first two years in Red Seal apprenticeship programs (apprentice programs that are recognized across Canada). British Columbia's basic training tax credits will provide similar incentives to BC-recognized (non-Red Seal) apprenticeship programs not currently eligible for the federal incentives.

The basic credit for employers will be 10 per cent 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 per year for completing the first year or second year levels of any non-Red Seal apprenticeship program.

British Columbia's completion credits will apply to both Red Seal and non-Red Seal apprenticeship training programs and provide further benefits tied to the completion of higher training levels. The employer credits will be the lesser of $2,500 or 15 per cent of wages paid to an apprentice that completes level 3 of any apprenticeship program, and up to $3,000 or 15 per cent of wages paid to an apprentice that completes level 4 or higher of any apprenticeship program. The employee credits will be $2,000 for an apprentice that completes level 3 of any apprenticeship program, and $2,500 for an apprentice that completes level 4 or higher of any apprenticeship program.

To encourage greater participation in trades training in respect of First Nations individuals or persons with disabilities, individual and employer tax credits will be 50 per cent higher than they would otherwise receive. Eligible First Nations individuals are those persons who hold Status Indian cards, and persons with disabilities are those eligible for the disability amount credit on their income tax return.

The employer credits are effective for wages paid after December 31, 2006 and the employee credits are available for the 2007 and subsequent tax years. The credits will be scheduled to expire effective January 1, 2012.

Royalty and Deemed Income Rebate

As announced in Budget 2006, the royalty and deemed income rebate is eliminated effective for tax years starting after 2006. Under the royalty and deemed income rebate taxpayers calculate tax by adding back into income the federal resource allowance, and deducting provincial royalties and taxes paid under the Mineral Tax Act. This provision was put in place in the 1970s because the province did not want to parallel the federal resource allowance.

The federal government has eliminated its resource allowance and, with the elimination of the BC royalty and deemed income rebate, the federal and provincial taxation of the resource sector is now harmonized.

Mineral Tax Act

Extension of New Mine Allowance

Effective February 21, 2007, the new mine allowance is being extended to January 1, 2016 from January 1, 2010. The allowance encourages new mine development in the province by effectively providing a deduction of 133.3 per cent of capital costs for mines that commence production between December 31, 1994 and January 1, 2016 or that expand existing mines during the same period. This deduction reduces the net revenue mineral tax payable by taxpayers.

Social Service Tax Act

Exemption for "ENERGY STAR Qualified" Windows, Doors (Including Side Panels) and Skylights

Effective February 21, 2007, the exemption for storm windows and storm doors, multi-glazed windows, doors containing multi-glazed windows, and glass and other materials purchased by a vendor to make multi-glazed windows is restructured to apply only to windows, doors (including side panels) and skylights that are listed as being "ENERGY STAR Qualified" by the Office of Energy Efficiency, Natural Resources Canada. The exemption will expire on April 1, 2009.

To be listed as "ENERGY STAR Qualified", products must meet or exceed technical specifications to ensure they are among the most energy efficient in the market place.

Energy Efficient Residential Heating Equipment Exemption Extended

The exemption for the purchases or leases of home heating equipment, listed as being "ENERGY STAR Qualified" by the Office of Energy Efficiency, Natural Resources Canada, is extended in the following manner:

• Gas fired forced-air furnaces if purchased before January 1, 2008.
• Boilers, air-source heat pumps and ground source heat pumps if purchased before April 1, 2009.

In addition, effective February 21, 2007 a new exemption is implemented for the purchase or lease of "ENERGY STAR Qualified" oil fired forced-air furnaces. This exemption will expire on April 1, 2009.

The exemption for oil-fired forced-air furnaces that have a Seasonal Energy Utilization Efficiency Rating of at least 85 per cent, as established under the federal Energy Efficiency Act, will expire on April 1, 2007, as indicated in Budget 2005.

Relief for Hybrid Vehicles Extended

The existing provincial sales tax relief for hybrid electric passenger vehicles is extended to March 31, 2011. Hybrid electric passenger vehicles will be eligible for a 100 per cent reduction of sales tax up to a maximum of $2,000 if purchased or leased before April 1, 2011.

Previously, these vehicles were eligible for the maximum $2,000 sales tax relief until March 31, 2008 and then a maximum of only $1,000 from April 1, 2008 to March 31, 2009 at which time the concession was scheduled to expire.

Concession for Manufacturers' Rebates on Vehicles

Effective February 21, 2007, the Act is amended to exclude the value of manufacturers' rebates from the taxable purchase price of motor vehicles if the rebate is provided by the manufacturer to the seller of the vehicle as a condition of the sale of the vehicle.

This amendment ensures that customers who purchase a motor vehicle are not liable for tax on a rebate payment that the motor vehicle dealer receives from the manufacturer for the sale of that vehicle.

Refund Program for Registered Charities Purchasing Medical Equipment

Refunds of provincial sales tax will be available to a registered charity or an eligible hospital auxiliary on medical equipment purchased on or after February 21, 2007. The refund is only available when the purchase is made with the charity's or auxiliary's funds and the medical equipment is used by a health facility to treat or diagnose patients.

The legislation enabling these refunds will be brought into effect by regulation after the government consults with representatives of the British Columbia Association of Health-Care Auxiliaries, hospital foundations and health authorities to develop the details of the refund claim process.

Agricultural Feeds and Seeds Exemption Clarified

Effective February 21, 2007, the Act is amended to clarify that grain, mill and other agricultural feeds and seeds are exempt when purchased and used solely for an agricultural purpose.

Feeds for animals that are raised ordinarily as food for human consumption or for animals that are sold in the regular course of business continue to be exempt.

Motor Fuel Tax Act

Alternative Motor Fuel Classification for Biodiesel Fuel

Effective February 21, 2007, the Motor Fuel Tax Regulation is amended to allow all biodiesel fuel to be eligible for alternative motor fuel status. As a result, biodiesel fuel in all blends of biodiesel fuel with diesel fuel, as well as 100 per cent biodiesel fuel, is exempt from tax.

Use of Propane Motor Fuel for Farming Purposes

Effective February 21, 2007, the Motor Fuel Tax Regulation is amended to clarify that propane used in any motor vehicle or machinery for farming purposes is exempt from tax.

Property Transfer Tax Act

Fair Market Value Threshold for Eligibility under the First Time Home Buyers' Program

Effective for registrations after February 20, 2007, the fair market value threshold for eligible residential property under the First Time Home Buyers' Program is increased and will apply throughout the province. The new threshold will be $375,000, which is increased from $325,000 in the Capital Regional District, Fraser Valley Regional District and Greater Vancouver Regional District, and from $265,000 in other areas of the province.

A proportional exemption is provided for principal residences that have a fair market value up to $25,000 above the new threshold.

With this change, eligible first time homebuyers can save up to $5,500 in property transfer tax on the purchase of their home.

Habitat for Humanity Families and the First Time Home Buyers' Program

Effective for registrations after February 20, 2007, families purchasing homes from BC affiliates of Habitat for Humanity Canada (Habitat) will have greater access to the First Time Home Buyers' exemption. Under the First Time Home Buyers' Program, eligible purchasers can claim an exemption if the fair market value of the home is less than a threshold.

Habitat families contribute a minimum number of hours in building their own home and accept a first mortgage from Habitat. The Act is amended to base eligibility under the First Time Home Buyers' Program on the principal amount of the first mortgage which is the total amount Habitat families pay for their homes.

Home Owner Grant Act

Increase in Threshold for Home Owner Grant Phase-out

As announced January 12, 2007, effective for the 2007 tax year, the threshold for the phase-out of the homeowner grant is increased to $950,000 of assessed value from $780,000 of assessed value. This change ensures that more than 95 per cent of homeowners are eligible for the full grant. Without the threshold increase taxpayers would pay about $14 million more in property taxes this year.

For properties valued above the threshold of $950,000, the grant is reduced by $5 for every $1,000 of assessed value in excess of the threshold. The basic grant is eliminated for properties valued at $1,064,000 and above and eliminated for those recipients of the additional grant, available to seniors, veterans and the disabled, whose properties are valued at $1,119,000 and above.

Extension of Home Owner Grant Eligibility

Effective for the 2007 tax year, the homeowner grant is provided to some low-income homeowners who, but for the high assessed value of their home, would receive the additional home owner grant. Key eligibility criteria for the supplement are that a homeowner:

• would qualify for the additional home owner grant amount (seniors, certain veterans and certain persons with disabilities), except that their home is assessed above the threshold; and
• meets low-income criteria.

This measure ensures that low-income seniors and other qualified individuals who own and reside in properties that have increased in value beyond the threshold but who may face financial hardship receive some of or all the homeowner grant.

The Ministry of Small Business and Revenue will administer the program and applications must be made directly to the Ministry. Further details about the program and application forms will be available before property taxes for 2007 become due.

Land Tax Deferment Act

Extension of Homeowner Eligibility

Effective for the 2007 tax year, the age at which an owner may begin to defer property taxes on their principal residence is lowered to 55 from 60 years of age. The Property Tax Deferment Program is a low interest loan program that enables qualifying BC homeowners to defer the annual property taxes on their homes.

Ports Property Tax Act

Applicability of Tax Rate Cap in the Case of Occupation of Crown Land

The Ports Property Tax Act is amended to allow eligible ports property that becomes taxable during the year through the occupation of Crown Land to be designated for the ports property tax rate cap in the year the property becomes taxable.

School Act

Provincial Residential School Property Tax Rates

For the 2007 tax year, average residential school property taxes before application of the homeowner grant will be increased by the provincial inflation rate from the previous year. For 2007 the increase will be 2.0 per cent. This rate setting policy has been in place since 2003.

Provincial Non-Residential School Property Tax Rates

A single province-wide rate is set for each of the seven non-residential property classes.

In response to increases in assessed values, the rates for 2007 will be set so that the change in total non-residential school tax revenue will be limited to inflation plus new construction. This adjustment to rates may differ by property class to reflect differences in relative changes in assessed values by class. The rates will be set when revised assessment roll data are available.

School Tax Exemption for Alternative Energy Power Projects

Effective for the 2007 tax year, an exemption from school tax is introduced for specified improvements of wind power projects. Similar tax relief was provided to eligible hydroelectric power projects in Budget 2005.

The exemption is for the towers that support wind turbines and for the foundations for those towers.

Taxation (Rural Area) Act

Provincial Rural Area Property Tax Rates

A single provincial rural residential tax rate applies province-wide. For the 2007 tax year, the average residential provincial rural area taxes will increase by the 2006 provincial inflation rate of 2.0 per cent.

Non-residential provincial rural tax rates will be set so that the change in total non-residential rural tax revenue will be limited to inflation plus new construction.

Provincial Sales Tax Review

For a description of the results of the review, see the topic box at the end of this Part.

Police Act

New Property Tax to Help Fund Police Services

As previously announced, the province will introduce a new funding model for policing. In 2007, taxpayers in municipalities with populations under 5,000 and in rural areas will pay up to 50 per cent of the total annual provincial policing costs for these areas.