BUDGET AND FISCAL PLAN 2003/04 – 2005/06
February 18, 2003	Ministry of Finance
Part 2: Revenue Measures

Summary of Revenue Measures

Revenue Measures: Supplementary Information

INCOME TAX ACT

Equity Capital Programs

LABOUR-SPONSORED VENTURE CAPITAL TAX CREDITS

The budget is increased by $4 million annually for personal income tax credits that may be claimed for share purchases in qualifying labour-sponsored venture capital funds registered under the Employee Investment Act. The increase will allow for a third labour-sponsored fund to raise up to almost $27 million in equity capital for investing in qualifying BC businesses each year.

Currently, two labour-sponsored venture capital funds are registered under the Employee Investment Act and are authorized to raise a total of $80 million in equity annually. Individuals that purchase shares in these funds receive a 15 per cent provincial tax credit and a 15 per cent federal tax credit that can be used to reduce personal income taxes payable. The capital raised by the funds is then invested in small and medium-sized BC businesses. The increase to the tax credit budget will create an annual pool of equity capital totalling $107 million.

NEW MEDIA EQUITY CAPITAL

A $5 million pool of income tax credits is made available to provide an incentive to attract seed capital investment to foster BC's new media industry. New media is interactive digital media that educates, informs or entertains the user. The tax credits will be provided by enhancing the province's venture capital programs administered under the Small Business Venture Capital Act.

Individuals and corporations that purchase shares in qualifying new media companies, or shares in qualifying venture capital corporations that are established in support of new media companies, will receive a 30 per cent tax credit on their share purchases. The budget for the credits will be $5 million annually. This enhancement will provide up to $17 million in capital for new and expanding businesses engaged primarily in the development of new media products.

VENTURE CAPITAL PROGRAMS

A number of amendments are made to the Small Business Venture Capital Act with minor amendments to the Income Tax Act to revamp the province's venture capital programs. Under the venture capital programs, the province provides a 30 per cent income tax credit as an incentive for investments in qualifying BC businesses. The changes will fulfill the recommendations of the Premier's Technology Council to accelerate early stage technology investment. In addition, a number of amendments are introduced to streamline the administration of the program and reduce red tape for program participants.

The amendments include:

• Allow RRSP and RRIF trusts to purchase shares and flow the tax credit to the annuitant.
• Starting in 2004, allow the tax credit to be claimed for investments made in the first 60 days after a calendar year.
• Expand the types of investments that can be made by a venture capital corporation to include non-voting equity shares and warrants, options or rights that are convertible into equity shares.
• Allow for investment models other than the Investor-VCC-Eligible Business model to include:
  • Investor-Eligible Business (direct investment);
  • Investor-VCC-Holding Company-Eligible Business; and
  • Investor-VCC-Limited Partnership-Eligible Business.
• Remove the capital-raising limit for venture capital corporations registered under the Act.
• Allow venture capital corporations to invest in follow-on financings of companies that have grown beyond the original employee maximums.
• Increase the maximum allowable investment in any one business to a rolling $5 million limit over two years, from $3 million in total.
• Allow more types of business activities to qualify.
• Provide an additional year for venture capital corporations to complete their investment requirements.
• Allow venture capital corporations to issue multiple classes of common voting shares to facilitate shareholder redemptions.
• Grant the administrator limited discretion to waive the requirement that venture capital corporations divest shares in businesses that no longer meet eligibility requirements.
• Remove a provision that required venture capital corporations to first offer shares to small business shareholders before selling to a third party.
• Allow pro-rated tax credit recovery in situations where a venture capital corporation divests an eligible investment due to circumstances outside its control provided the investment has been held for at least 3 years.

(See Ministry of Competition, Science and Enterprise website at: www.bcinbusiness.gov.bc.ca for more details on equity capital programs and contact information.)

FILM INCENTIVE BC AND PRODUCTION SERVICES TAX CREDITS

As previously announced by Premier Gordon Campbell, the Production Services Tax Credit and the Film and Television Tax Credit (commonly referred to as Film Incentive BC) are extended for five years to June and April 2008 respectively.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

REGIONAL FILM TAX CREDITS

A number of enhancements are made to the existing Film Incentive BC regional tax credit. In addition, a regional credit will be made available as an addition to the Production Services Tax Credit. The credits are intended to encourage location-based productions outside the designated Vancouver area as defined in the Income Tax Act regulations.

Film Incentive BC Regional Credit

To be eligible for the enhanced Film Incentive BC regional credit the following requirements must be met:

• the production must be eligible for the Film Incentive BC tax credit;
• principal photography of the production must be done in B.C. outside the designated Vancouver area for at least 5 days and during more than 50 per cent of the total number of days during which principal photography is done in B.C.;
• for television series at least 3 episodes of the production must meet the 50 per cent rule on a cumulative basis; and
• principal photography must begin after March 31, 2003.

The Film Incentive BC regional credit is then calculated as 12.5 per cent of the production's qualifying BC labour expenditures (incurred after December 31, 2002) prorated by the proportion of days of principal photography outside the designated Vancouver area to the total number of days of principal photography in B.C.

The existing regional tax credit will remain in effect for any productions where principal photography begins before April 1, 2003.

Production Services Regional Credit

To be eligible for the new Production Services regional credit the following requirements must be met:

• the production must be eligible for the Production Services Tax Credit;
• principal photography of the production must be done in B.C. outside the designated Vancouver area for at least 5 days and during more than 50 per cent of the total number of days during which principal photography is done in B.C.;
• if the production is an episode of a television series at least 5 days, representing more than 50 per cent of the total days, of principal photography must be outside of the designated Vancouver area; and
• principal photography must begin after March 31, 2003.

The Production Services regional credit is then calculated as 6 per cent of the production's qualifying BC labour expenditures (incurred after December 31, 2002) prorated by the proportion of days of principal photography outside the designated Vancouver area to the total number of days of principal photography in BC.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

DIGITAL ANIMATION AND VISUAL EFFECTS TAX CREDIT

A refundable corporate income tax credit of 15 per cent is introduced for digital animation and visual effects. Digital animation and visual effects are created through digital technology and include digital designing, modeling, rendering, lighting, painting, animating and compositing.

The credit will be available as an addition to either the Film Incentive BC tax credit or the Production Services Tax Credit. The credit will be calculated as 15 per cent of BC labour expenditures incurred for animation or visual effects. The credit will be available for productions where principal photography begins after March 31, 2003.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

MINING FLOW-THROUGH SHARE TAX CREDIT

The province will match any extension to the federal mining flow-through share tax credit. Both the federal and provincial credits are scheduled to expire at the end of 2003.

Details of federal plans for its credit are not yet available. As a result, additional information regarding the province's mining flow-through share tax credit program will be released when the status of the federal program is announced.

BC MINING EXPLORATION TAX CREDIT

The BC Mining Exploration Tax Credit is extended for an additional three years to 2006. The credit is available to both individuals and corporations that undertake mining exploration in the province. The credit is calculated as 20 per cent of eligible BC mining exploration expenditures. Eligible expenses incurred prior to August 2006 will now be eligible for the credit.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

BC MINING EXPLORATION TAX CREDIT AND PARTNERSHIPS

The BC Mining Exploration Tax Credit is extended to partnerships effective for qualifying mining exploration expenses incurred after March 31, 2003. Active members of partnerships that undertake qualifying mining exploration expenses will be able to claim the credit.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

BOOK PUBLISHING TAX CREDIT

A corporate income tax credit is introduced for the book publishing industry. The credit will be calculated on the basis of federal assistance provided under the Aid to Publishers component of the Book Publishing Development Incentive Program. Qualifying BC book publishing companies will be eligible for a credit equal to 90 per cent of the federal Aid to Publishers assistance received. The credit will provide about $2.3 million annually in assistance to about 20 BC book publishing companies.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

CORPORATION CAPITAL TAX ACT

CAPITAL TAX EXEMPTION THRESHOLD FOR SMALL FINANCIAL INSTITUTIONS

The threshold below which small financial institutions do not pay the corporation capital tax is increased to $10 million from $5 million in net paid up capital effective for tax years ending after March 31, 2003. The threshold increase will eliminate the tax for about 20 small financial institutions.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

TAX BASE FOR AUTHORIZED FOREIGN BANKS

Under the Act, the tax base for authorized foreign banks is paid up capital employed in the province. As such, an adjustment to an authorized foreign bank's paid up capital is provided to recognize paid up capital employed in jurisdictions outside BC. The Act is amended to clarify that the adjustment is restricted to paid up capital employed in jurisdictions in Canada.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

SOCIAL SERVICE TAX ACT

MACHINERY AND EQUIPMENT PURCHASED BY CONTRACTORS

Effective February 19, 2003, contractors are eligible to claim the provincial sales tax exemption for machinery, equipment and parts in specific circumstances.

The exemption only applies if all the following conditions are met:

• The machinery, equipment or parts are acquired by the contractor to carry out a lump sum or fixed price contract to improve real property; and
• The contactor's customer has provided to the contractor a completed Certificate of Exemption certifying that the customer
  • would be eligible to receive the exemption if they were to purchase the machinery, equipment or parts directly; and
  • the machinery, equipment or parts will be used for an exempt purpose.

Contractors may purchase the machinery, equipment or parts for use in their contracts by either providing suppliers with a completed certification of exemption, or quoting their social service tax registration number. If a contractor claims an exemption based on information that was incorrectly certified by a customer, the customer (not the contractor) is responsible for paying an amount equal to the tax that should have been paid. If the contractor fails to obtain a completed certification from the customer, the contractor (not the customer) is liable for payment of the tax.

This exemption applies to qualifying machinery, equipment and parts purchased by the contractor on or after February 19, 2003. Where a contract was entered into prior to February 19, 2003 and purchases were made before that date, the tax continues to apply to those purchases. However, subsequent purchases of qualifying items under the same contract will qualify for the exemption provided all other conditions are met.

The application of tax for contractors who enter into 'time and materials' contracts (where the contract itemizes the charges for labour and materials separately) remains unchanged.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

BOOM BOATS USED AT BOOMING GROUNDS

Effective February 19, 2003, the provincial sales tax exemption for machinery and equipment used in the forest industry is expanded to include boom boats.

To be eligible for the exemption, boom boats must be used exclusively for sorting logs and forming booms at booming grounds, and must be purchased or leased by a person who regularly engages in logging for commercial purposes.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

EXPLOSIVE SUPPLIES USED BY AGGREGATE PRODUCERS

Effective February 19, 2003, the Social Service Tax Act is amended to treat aggregate producers the same as mineral producers for provincial sales tax purposes. This change allows aggregate producers to qualify for the provincial sales tax exemption for explosive supplies.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

ITEMS PURCHASED OR LEASED BY BONA FIDE FARMERS

Effective February 19, 2003, the following items are added to the list of items that can be purchased or leased exempt from provincial sales tax by bona fide farmers for a farm purpose:

• Hanging gutters.
• Shade curtains.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

ITEMS PURCHASED OR LEASED BY BONA FIDE AQUACULTURISTS

Effective February 19, 2003, the following items are added to the list of items that can be purchased or leased exempt from provincial sales tax by bona fide aquaculturists for an aquaculture purpose:

• Closed bag containment systems including pumps and waste management equipment integrated into the systems.
• Pumps used to pump water into or out of fish enclosures.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

PARTS DELIVERY VEHICLES

Vehicles removed from inventory by motor vehicle dealers after February 18, 2003 for use only in transporting motor vehicle parts in the course of the dealer's business are eligible to be taxed under the 'dealer use formula'. Under the dealer use formula tax is paid monthly on the purchase price of the vehicle at a rate of 1.5 per cent of the general sales tax rate of 7.5 per cent.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

AGRICULTURAL FEEDS AND SEEDS FOR WILD BIRDS AND PETS

Effective February 19, 2003, the Act is amended to clarify that agricultural feeds and seeds are taxable when purchased to feed wild birds, pet birds and other household pets. Bird seed and agricultural feeds for poultry and other animals that provide products for human consumption remain exempt.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

MOTOR FUEL TAX ACT

MARINE GAS OIL EXEMPTION

Effective February 19, 2003, a tax exemption is provided for marine gas oil (MGO) when used in marine gas turbine engines to propel commercial passenger or cargo vessels. The MGO exemption parallels the exemption provided for bunker fuel in July 2001.

MGO is a significantly cleaner burning fuel than bunker fuel and gas turbine powered ships sailing in British Columbia waters and using MGO therefore pollute less.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

REFUNDS PAID TO INTER-JURISDICTIONAL CARRIERS

The tax rates used for calculating fuel tax refunds paid to inter-jurisdictional carriers are set to confirm past and future refund rates. The refunds are for tax paid on fuel that is purchased but not used in B.C. The applicable tax rates for refunds are:

• After February 18, 1997 and before March 1, 2003, 11 cents per litre for gasoline and 11.5 cents per litre for diesel fuel.
• On or after March 1, 2003, 14.5 cents per litre for gasoline and 15 cents per litre for diesel fuel.

The refund tax rate increases on March 1, 2003 to reflect the increase in the tax payable to the BC Transportation Financing Authority on that date.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

BC TRANSPORTATION FINANCING AUTHORITY REVENUE

Effective March 1, 2003, the tax rates on clear gasoline and diesel fuel raised by the BC Transportation Financing Authority are increased by 3.5 cents per litre to 6.75 cents per litre throughout the province.

To maintain the policy that auto propane is taxed at 25 per cent of the tax rate for clear gasoline, on an energy equivalent basis, the tax rate for propane is increased by 0.6 cents to 2.7 cents per litre.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

HISTORICAL TAX RATES UNDER BUILD BC ACT REGULATION

Amendments are introduced to implement the historical fuel tax rates collected on behalf of BC Transportation Financing Authority under the Build BC Act regulations. The rates are:

• 3 cents per litre effective June 1, 1999 to March 31, 2000
• 3.25 cents per litre effective April 1, 2000 to February 28, 2003

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

TOBACCO TAX ACT

TOBACCO TAX RATE

Effective February 19, 2003, the tax rate on cigarettes is increased to $32 from $30 per carton of 200 cigarettes, and the tax rate on fine-cut tobacco to 16 cents from 15 cents per gram.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

SCHOOL ACT

SCHOOL TAX RATES

In general, a separate residential tax rate is set for each school district. For the 2003 calendar year and future years, average residential school taxes before application of the home owner grant will be increased by the provincial inflation rate in the previous year. For 2003, the increase on a medium-valued home will be less than $20 annually. Residential school property tax rates will be calculated 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 2002 levels.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

TAXATION (RURAL AREA) ACT

PROVINCIAL RURAL TAX RATES

For the 2003 calendar year and future years, average residential provincial rural area taxes will be increased by the provincial inflation rate in the previous year. Average rural residential values increased over the past year. Even with the increase in the average tax, the provincial rural residential tax rate will fall from $1.04 per thousand dollars of assessed value to $1.03 per thousand. Non-residential rural area tax rates remain unchanged.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

INSURANCE PREMIUM TAX ACT

PROPERTY INSURANCE TAX RATE

Effective January 1, 2004, the tax rate on property insurance premiums collected by insurance companies is increased to 4.4 per cent from 4.0 per cent. The increase will generate about $14 million annually which will help to offset the cost of the provincial forest fire suppression program provided by the BC Forest Service. Forest fire control is essential to minimize property loss or damage from forest fires.

The tax increase applies to all property and automobile insurance. Aircraft insurance and hail insurance are not affected.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

TAXABLE INSURERS

Effective February 19, 2003, the definition of "taxable insurer" under the Act is amended to include all insurers that have, or are required to have, a business authorization under the Financial Institutions Act. This measure levels the playing field for anyone who conducts insurance business in the province.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

HOME OWNER GRANT ACT

DISABILITY PORTION OF THE HOME OWNER GRANT

Administrative changes to the additional grant for persons with disabilities simplified the application process in 2002. After reviewing other options for providing these benefits, the government has decided to continue with the existing program. The regulations are amended to ensure that home owners who received the additional grant as persons with disabilities in 2001, prior to the administrative changes, will not have to re-qualify for the grant.

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 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 have physical assistance to allow them to live independently.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

PROPERTY TRANSFER TAX ACT

CHANGES TO FIRST TIME HOME BUYERS' PROGRAM

Effective for registrations after February 18, 2003, the following changes are made to enhance the fairness and effectiveness of the First Time Home Buyers' exemption.

• A proportional exemption is provided for properties that have a fair market value of up to $25,000 above the current eligible property value thresholds of $275,000 in the Capital Regional District, the Greater Vancouver Regional District, and the Fraser Valley Regional District and $225,000 throughout the rest of the province.
• A pro-rated reduction in tax liability is provided for otherwise eligible first-time buyers who do not fulfill the requirement to live in the home or maintain the required level of financing for one full year following the date of registration. Until now, first-time buyers were disqualified from the exemption if they failed to meet the one year requirements. This change is effective for first time buyers who fail to fulfill either of these one-year requirements on or after February 19, 2003.
• The requirement that a first-time buyer must reside in the province for at least one year prior to purchasing a home to qualify for the exemption is expanded to include first-time buyers who have filed income tax returns in British Columbia for any two of the previous six years. This change allows long-time B.C. residents who reside outside the province for short periods of time for educational, employment or other purposes to qualify for the exemption immediately upon their return to the province.
• The definition of "eligible financing" is amended to prevent the use of financing from family trusts and family corporations. An arms' length financing requirement is imposed to target the exemption to those most in need of the exemption.
• Other changes include clarification of the definition of permanent resident and clarification of the penalty provision for those who apply for the benefit more than once to ensure it can be effectively enforced.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

VARIOUS STATUTES

RURAL PROPERTY TAX ADMINISTRATION FEE

Effective for the property tax year beginning January 1, 2004, amendments to several acts will allow the provincial Surveyor of Taxes to levy its longstanding administration fee on three additional taxing authorities: hospital districts, Municipal Finance Authority and BC Transit. The province's Surveyor of Taxes is responsible for levying, collecting, and recovering taxes on behalf of all taxing authorities in rural areas, as well as guaranteeing revenue for rural local taxing authorities. The broader base will allow a lower administration fee for those rural taxing authorities already paying the fee. No increase in provincial revenue is expected, nor any adverse impacts on rural taxpayers.

UNIVERSITY ACT

PROPERTY TAX ON UNIVERSITY LAND

Effective January 1, 2003, the University Act is amended to confirm longstanding assessment and taxation policy for university land.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

LOCAL GOVERNMENT ACT, VANCOUVER CHARTER, AND TAXATION (RURAL AREA) ACT

EXEMPTION FOR DUST AND PARTICULATE MATTER ELIMINATORS

The exemption for dust and particulate matter eliminators is amended to apply only to equipment that is used to eliminate dust and particulate matter. A recent court ruling had broadened the initial intent of the exemption.

Making these amendments is intended to ensure that only equipment and machinery used for this purpose is exempt, and that any building, room or tank that simply collects or reduces the flow of such materials is taxable.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

AUTHORITY TO CALCULATE INTEREST ON A COMPOUND BASIS

Authority is provided under the following statutes to calculate interest on a compound basis and to validate interest that has been paid: Social Service Tax Act; Hotel Room Tax Act; Motor Fuel Tax Act; Tobacco Tax Act; Logging Tax Act; Insurance Premium Tax Act; Corporation Capital Tax Act; and Taxation (Rural Area) Act. This provides clear legislative authority for the historical application on interest under these statutes, and does not result in any additional interest liability.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

OTHER REVENUES

TRANSLINK REVENUE

Effective April 1, 2003, the portion of the clear motor fuel tax collected in the Greater Vancouver transportation service region for TransLink is increased to 11.5 cents per litre from 11 cents. There will be an equal decrease in the provincial clear fuel rates within the transportation service region so there will be no effect on motor fuel tax rates paid by consumers. The additional 0.5 cents per litre is expected to raise $11 million annually to help finance the development and maintenance of roads and bridges, as well as expansion and operation of the public transit system in the Greater Vancouver transportation service region.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)

BRITISH COLUMBIA FERRY CORPORATION REVENUE

Effective April 1, 2003, the 1.25 cent per litre clear motor fuel tax currently paid to British Columbia Ferry Corporation is redirected to the consolidated revenue fund. BC Ferries, which currently operates as a taxpayer-supported Crown corporation, will be restructured and renamed BC Ferry Services. The government will support coastal ferry services through an annual grant negotiated with the new company.

(See Ministry of Provincial Revenue website at: www.gov.bc.ca/rev/ for more details on tax changes.)