BUDGET AND FISCAL PLAN — 2002/03 to 2004/05
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BUDGET AND FISCAL PLAN — 2002/03 to 2004/05 |
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APPENDICES |
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Effective for the 2002 and subsequent taxation years, the rate at which BC alternative minimum tax (AMT) is charged and the rate at which it is credited is set at the ratio of the BC first tax bracket rate to the federal first tax bracket rate. As a result, the BC AMT rate for 2002 will be reduced to 37.8 per cent from 49.5 per cent. This is consistent with the recent reductions in BC and federal personal income tax rates.
BC AMT is added to regular BC income tax and is calculated as a percentage of the additional federal tax attributable to the federal AMT calculation. BC AMT for 2002 can be expressed as:
BC AMT = 37.8 per cent × (Federal AMT – Federal Tax)
AMT charged in one year is creditable against taxes payable in subsequent years. As a result of these changes, the BC AMT credit for 2002 will be 37.8 per cent of federal AMT credit claimed.
Effective for the 2002 and subsequent taxation years, the rate used to calculate BC's Overseas Employment Tax Credit (OETC) is changed from 49.5 per cent to the ratio of BC tax to federal tax.
BC OETC for 2002 can be expressed as:
BC OETC = Federal OETC × (BC tax before OETC)/(Federal Tax before OETC)
Effective for the 2002 tax year, the province's disability-related credit amounts are increased. In addition, in future years the credit amounts will be indexed to provincial inflation.
The credits include:
The enhancements will provide additional assistance for families dealing with physical or mental impairment and are summarized in the following table:
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Effective for the 2002 tax year, the BC refundable sales tax credit is increased to $75 from $50 for each adult family member. As a result, eligible credit applicants will receive the increased amount when they file their tax returns for 2002 and subsequent years.
The increase in the sales tax credit will more than offset the increase sales tax paid by most of the 660,000 individuals and families who currently receive the credit. With the increase to the credit, single individuals with up to $18,750 in net income will receive at least some credit and families will receive some credit up to $25,500 in family net income.
In response to federal changes to the National Child Benefit supplement, effective July 2002, the basic BC Family Bonus is adjusted by reducing the province's contribution to the combined BC Family Bonus and National Child Benefit supplement. The policy for the next three years will be to allow annual increases in the combined benefit equal to one half the federal inflation adjustment. Thus, families will receive an increase in benefits each year.
The maximum amount of taxable income to which the small business corporate income tax rate may be applied, or the "business limit", is increased from $200,000 to $300,000 effective April 1, 2002. This change parallels similar increases in five other provinces.
Corporations will be required to pro-rate their business limits based on the number of days in the taxation year before and after April 1, 2002. When allocating the business limit among associated corporations, the provincial business limit will continue to be allocated in the same proportion as the federal business limit.
Effective May 1, 2002, medical services plan premiums are increased by 50 per cent. The additional revenue will assist in funding compensation increases in the health sector. The premium assistance program is enhanced to ensure that people currently qualifying for premium assistance will be protected from the increase.
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Premium assistance is available to lower income individuals and families at five levels ranging from 100 per cent to 20 per cent of premiums otherwise payable.
Premium assistance is enhanced by increasing the adjusted net family income thresholds by $4,000 each (see Table A1.3). The government will continue to review the combined impact of the premium increase, premium assistance enhancements and the 25 per cent personal income tax cut implemented in 2001.
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The following table shows the impact of these changes for a single person, a senior couple and a family of four at various income levels. For example, the adjusted net income of a senior couple with $30,000 annual income is $21,000. This couple will be eligible for the 60 per cent level of assistance and pay monthly premiums of $57.60 per month, or $691.20 annually.
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To ensure that all financial institutions are treated consistently under the Act, an investment allowance is introduced for banks and trust companies, effective for taxation years starting on or after September 1, 2002. The investment allowance will be available to a bank or trust company that has shares in another financial institution with a permanent establishment in BC. The allowance, which is a deduction from total paid up capital, will be calculated as the proportion of the total paid up capital of the bank or trust company that the carrying value of the qualifying shares bear to the total assets of the bank or trust company. Previously, only credit unions were entitled to the investment allowance. The change will provide consistent treatment for all financial institutions operating in the province.
The formula for calculating the aggregate paid up capital of authorized foreign banks is adjusted, effective immediately, to ensure that the tax paid by branches of foreign banks is equivalent to the amount of tax that domestic banks of a similar size pay under the Act.
Specifically, the formula is adjusted to require that certain amounts that must be deducted from capital under the capital adequacy requirements of the Superintendent of Financial Institutions be added back for purposes of calculating tax under the Act. The formula is also adjusted to allow for a deduction of subordinated debt, which is not included in the tax base for domestic banks.
Since the Act will no longer apply to general corporations for taxation years starting after August 31, 2002, the legislation will be streamlined by removing all references and calculations for general corporations, effective September 1, 2002. Special calculations for partnership interests will be eliminated. Previous requirements to add together all associated corporations for purposes of various calculations under the Act will be limited to associated corporations that are financial institutions.
A new royalty formula, recognizing the unique features of coalbed methane production, is implemented effective March 1, 2002. Specifically, the natural gas royalty formula is amended with respect to coalbed methane to:
Similar changes will apply to the freehold production tax, applicable to freehold interests in coalbed methane. The freehold production tax credit for wells drilled before February 29, 2004 will be $30,000 to reflect the fact that the freehold production tax is roughly 60 per cent of the royalty applicable to Crown lands.
To encourage interest in land acquisition for natural gas production, the opportunity for acquiring land to which the preferential Base 9 royalty structure for nonconservation gas applies will be extended for two more years until December 31, 2003. The extension will be retroactive to January 1, 2002 so that land acquired in January will also qualify for the Base 9 royalty structure.
To assist in funding compensation increases in high-demand occupations in the health sector, the general provincial sales tax rate is increased from 7 per cent to 7.5 per cent effective February 20, 2002. The 10 per cent tax rate on beverage alcohol and the 8 per cent, 9 per cent and 10 per cent vehicle surtax rates are unchanged. The annual multijurisdictional tax rates on eligible multijurisdictional vehicles will be adjusted effective October 1, 2002 to reflect the increase in the general rate.
The 7.5 per cent tax rate applies to all purchases made after February 19, 2002. For purchases that are billed at regular intervals, such as telephone, cablevision and hydro, the 7.5 per cent rate applies to the first billing period that begins after February 19, 2002.
A tax refund is provided for the difference between the tax payable at 7 per cent and the tax paid at 7.5 per cent where:
The 7.5 per cent rate applies to the first payment for a lease period that begins after February 19, 2002 and to each subsequent lease payment.
Effective February 20, 2002, the following changes are made to the list of items that can be purchased or leased exempt from provincial sales tax by bona fide farmers for farm purposes:
Effective February 20, 2002, the exemption for parts to repair or recondition exempt machinery or equipment is expanded to include all parts when purchased for use on eligible machinery and equipment. Previously, the exemption only applied to parts "designed for" the repair and reconditioning of exempt machinery or equipment.
The change will simplify administration and compliance and improve the fairness of the machinery and equipment exemption.
To meet a New Era commitment, a refund of provincial sales tax is available for goods purchased after June 30, 2002, with funds raised by public school PACs. To qualify, the goods must be given to a school for use by the school and its students.
PACs may claim one refund per school year for the tax paid on eligible purchases. School boards may claim up to two refunds per school year for purchases made with PAC-raised funds. Refunds may be claimed only for the tax paid on that portion of the purchase price paid with PAC-raised funds.
Purchases of chemicals used to produce ammonium bisulfite are exempt from tax when the ammonium bisulfite qualifies as a catalyst or direct agent and is used in a pulp manufacturing process. The exemption is retroactive to March 31, 1998.
This exemption parallels an existing exemption for chemicals used to make chlorine dioxide and sodium hydrosulfide in a pulp manufacturing process which was introduced on March 31, 1998. The new exemption provides tax parity for different pulp production processes.
In the July 30 Update, the government promised to consult with business and other stakeholders about the application of provincial sales tax to boats and travel trailers owned by non-residents. As a result of these consultations, effective February 20, 2002 boats and travel trailers brought into BC by non-resident individuals for a non-commercial purpose are exempt from provincial sales tax.
Amendments are also made to clarify and relax the circumstances under which non-residents are required to pay tax on other taxable goods brought into the province for non-commercial long-term use. Currently, non-residents are required to pay tax on such goods if they own real property in BC or have some other form of real property interest with a term of at least 12 months. The goods become taxable after they are used primarily in the province for 12 months following their date of entry.
Effective February 20, 2002, the timing requirement for leaseholds is relaxed. Only non-residents who lease real property under a lease with a term of at least five years including all options to extend or renew are required to pay tax. Non-residents continue to pay the tax on taxable goods purchased in BC, including the tax on parts and labour to repair exempt boats and travel trailers, unless the goods are delivered outside of the province by the vendor.
The Social Service Tax Act is amended retroactive to January 1, 1996 to allow pick-up trucks and service vehicles used interjurisdictionally and registered under the International Registration Plan (IRP) and other pro-rate registration and licensing plans to be eligible for the MJV tax.
IRP allows commercial vehicles that travel in more than one jurisdiction to register in their home jurisdiction and to pay pro-rated licensing fees to the other jurisdictions based on the extent to which they operate in those other jurisdictions. The MJV tax is an annual tax-in-lieu of the provincial sales tax that is pro-rated to reflect the extent to which a multijurisdictional vehicle operates in BC. The amendment harmonizes the application of the MJV tax with ICBC licensing policies for pro-rate vehicles.
The Social Service Tax Act is amended retroactive to March 31, 1998 to correct a legislative error made at that time. In some cases, goods are purchased for a price plus royalty payments or licence fees that continue to be paid after the date of purchase. The 1998 amendment clarified the long-standing administrative practice that those royalty payments and licence fees are part of the purchase price and subject to tax. The 1998 amendment was also intended to ensure that those payments were taxable even if the item was originally purchased prior to the six year audit limitation period under the Act, but did not do so. The Act is amended to correct this error.
Effective February 20, 2002, the tax rate on cigarettes is increased to $30 from $22 per carton of 200 cigarettes, and the tax rate on fine-cut tobacco to 15 cents per gram from 11 cents per gram. The additional revenue will contribute to funding compensation increases for high-demand occupations in the health sector.
(See Consumer Taxation website at: www.gov.bc.ca/ctb for more details on consumption tax changes.)
The Hospital District Act and the Assessment Authority Act are amended to ensure that property tax exemptions are consistent among all taxing authorities which use the hospital roll. Hospital districts and the BC Assessment Authority levy a property tax on the basis of the hospital roll. The amendments will ensure that exemptions for taxpayers under both acts are consistent with each other and with current administrative practice. Changes are retroactive to December 31, 2001, so that they apply for the 2002 taxation year.
In general, a separate residential tax rate is set for each school district. For the 2002 calendar year, average residential school taxes before application of the home owner grant will be increased by 2 per cent. The increase on a medium-valued home will be less than $20 annually. Residential school property tax rates will reflect changes in average assessed values in accordance with the residential school tax formula, which has been used since 1991.
Residential tax rates will be set in April when authenticated assessment roll data are available to calculate the rates according to the provincial residential school tax rate formula.
Even though the average residential tax is increased, the change in individual tax bills will vary. Some homeowners will experience an increase in their school taxes, while others will have reductions. The variation in individual tax bills will occur because changes in the assessed value of any individual property are likely to differ from changes in average provincial and school district assessed values.
For each of the eight non-residential property classes, a single, province-wide rate is set. Non-residential school tax rates will remain unchanged from 2001 levels.
Effective January 1, 2002, authority is provided for the province to set more than one provincial school tax rate within a school district. In general, the residential school tax rate formula, in effect since 1991, has successfully balanced the residential school tax burden among various school districts. School districts with higher average values pay tax at lower tax rates which partially offset the effect of the higher values.
The amendment will allow the province to deal with situations where there is considerable variation in values among municipalities within a single school district. This can occur when one community has properties with unique attributes that the market considers significantly more desirable than properties elsewhere in the same school district. Under the residential school tax rate formula, the higher valued municipalities within the school district attract more of the school district's tax burden. While there will always be variations about the averages, the amendment will enable the province to address situations where the variation becomes excessive by creating a second tax rate for part of the school district.
These cases will be defined as situations where a municipality meets two tests:
In 2002, the only municipality that passes both tests is Tofino.
For the 2002 calendar year, average residential provincial rural area taxes will be increased by 2 per cent. Since average rural residential values were essentially unchanged for 2002, the provincial rural residential tax rate will increase from $1.02 per thousand to $1.04 per thousand.
Non-residential rural area tax rates remain unchanged.
The Home Owner Grant program is administered by municipal collectors in incorporated areas and by the provincial Surveyor of Taxes in rural areas of the province, and is applied as a reduction of provincial school property taxes.
The additional grant for persons with disabilities, introduced in 1981, provides an additional $275 annually to home owners with a permanent disability or who are living with a person with a permanent disability. The intent of the additional grant is to provide financial relief to persons who, due to a loss of mobility, are required to make costly modifications to their home or to pay for physical assistance to allow them to live independently.
In 1997, changes were made to improve the consistency of administration of the grant. The Certificate of Persons with Disabilities and Property Owner (Form B) in the Home Owner Grant Act regulations was amended to ask a physician to provide more information on the nature of the disability. Applicants were also asked to complete a supplementary form to verify, among other things, that costs were incurred for physical assistance or structural modifications in the home.
Legislative amendments will confirm the use of the supplementary form for the years 1997-2001 inclusive. The amendments also confirm the requirement that applicants have incurred substantial costs for physical assistance or structural modifications in the home.
The program will continue on this basis in 2002 while the government reviews options to provide these benefits more effectively in the future.
In addition, effective for 2002, regulatory changes are introduced to eliminate the supplementary form and replace it and the old Form B with a new simplified form. Under the new regulation, the home owner, rather than a physician, will verify that costs are incurred for physical assistance or structural modifications to the home.
The amendments will ensure that home owners who qualified for the grant in 2001 will continue to qualify for the grant in 2002.
As part of an overall agreement with TransLink, effective April 1, 2002 the tax rates on clear gasoline and diesel fuel purchased in the Greater Vancouver transportation service region are increased by 2 cents per litre. The tax is collected on behalf of TransLink by the provincial government.
The 2 cents per litre increase will help TransLink meet the growing cost of development and maintenance of roads and bridges, as well as the expansion and operation of the public transit system in the Greater Vancouver transportation service region. There is no change to provincial revenues as a result of the additional tax.
As required by agreement between the province and TransLink, effective June 1, 2002, the Social Service Tax Act is amended to allow TransLink to raise the tax rate on parking up to 21 per cent. TransLink currently levies a tax of 7 per cent on parking.
The tax does not apply to parking sold or leased to residents of residential dwelling units or to street-metered parking.
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BUDGET AND FISCAL PLAN — 2002/03 to 2004/05 |
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