Part 2: REVENUE MEASURES

		Table 2.1  Summary of Revenue Measures

Revenue Measures — Supplementary Information

For more details on tax changes see the Ministry of Provincial Revenue website at: www.rev.gov.bc.ca/budget/budget.htm

Income Tax Act

BC Family Bonus

In response to federal increases to the National Child Benefit Supplement, the BC Family Bonus, including the basic benefit and BC Earned Income Benefit, is reduced effective July 2004. The policy of offsetting all or a portion of the federal increases through changes to the basic BC Family Bonus has been in place since July 1998 and will now apply to the BC Earned Income Benefit. Depending on family circumstances, families will receive the same or increased combined federal and provincial benefits.

Scientific Research and Experimental Development Tax Credit

The BC Scientific Research and Experimental Development (SR&ED) Tax Credit is extended for a further five years to August 2009. The credit provides a corporate income tax incentive of 10 per cent of qualifying expenditures to encourage research and development activities in British Columbia. The credit is modeled after the federal SR&ED credit and is refundable on the first $2 million in annual expenditures for qualifying Canadian-controlled private corporations and is non-refundable above the limit and non-refundable for other corporations.

Over the past five years, annual tax credits under the program have risen from about $28 million to about $100 million reflecting the increase in research and development activities in the province.

International Financial Business (Tax Refund) Act

Changes to the International Financial Business Program

In the interest of attracting new international financial business (IFB) to British Columbia several changes will be made to the British Columbia IFB program.

Effective September 1, 2004, most types of corporations will be able to register providing they carry on international financial activities. Previously registration was restricted to financial institutions. The requirement that international financial businesses be located in the Greater Vancouver Regional District is eliminated and the program is extended to all areas of the province.

The list of eligible international financial activities that qualify for a tax refund is expanded to include the following activities, effective September 1, 2004:

• Treasury functions, back-office operations and back up office operations where at least one party to the transaction is a non-resident. These activities will be allowed for both related party and non-related party activities.
• Film and television distribution. This allows distribution of film and television rights (including ancillary rights) to non-residents. These activities will be allowed for both related party and non-related party activities.
• One-sided foreign exchange transactions. This allows one party of a foreign exchange transaction to be a Canadian resident as long as other parties are non-residents.
• Import letters of credit. These instruments are used to finance the purchase of foreign goods where a Canadian purchaser incurs the liability to pay once the goods are received. Previously, only export letters of credit were eligible.

Effective January 1, 2005, the tax benefit that is currently available to employees engaged in IFB activities is eliminated. The tax refund for specialists remains in place. The tax refund is reduced to 75 per cent of British Columbia tax payable, but the time limit for qualifying as a specialist is extended to 5 years from the current 2 years.

Tobacco Tax Act

Tobacco Tax Rate

As previously announced, effective December 20, 2003, the cigarette tax rate is increased by 1.9 cents per cigarette ($3.80 per carton of 200) and the loose tobacco rate is increased by 1.9 cents per gram.

Home Owner Grant Act

Increase in Threshold Value for Home Owner Grant Phase-out

Effective for the 2004 tax year, the threshold value for the phase-out of the home owner grant is increased to $585,000 from $525,000. For properties with assessed values exceeding the threshold amount, the home owner grant continues to be phased out at the rate of $10 of grant reduction for each $1,000 of assessed value above the threshold. Recipients of the basic home owner grant will continue to receive some grant for properties with values up to $632,000. For seniors and other home owners receiving the additional grant a partial grant will be available for properties with values up to $659,500.

The increase to the threshold value will, on average, offset the increase of sharply rising assessed values on higher-priced properties over the past year. As was the case last year, approximately 95.5 per cent of homeowners will receive the full home owner grant.

Ports Property Tax Act

Ports Competitiveness Initiative

On October 15, 2003, the government announced a ports competitiveness initiative to provide property tax relief for Lower Mainland port operators. At the time of the announcement the government committed to engage in discussions with non-Lower Mainland port operators and municipalities with the intent of determining whether they should be included in the initiative.

As a result of these discussions, the initiative will be extended to port operators in Squamish and Prince Rupert.

The initiative is effective January 1, 2004 and includes:

• A cap on municipal tax rates for existing ports facilities of $27.50 per $1,000 of assessed value. The cap will remain in place for five years starting in 2004.
• A 10-year cap on municipal tax rates for new investment in ports facilities of $22.50 per $1,000. The cap will apply to new investment undertaken before January 1, 2009.
• Annual compensation to affected municipalities, equal to the impact of the tax cap on existing ports facilities in 2003.
• A tax exemption for berth corridors.
• A remission of provincial school property tax for the tax on berth corridors back to 2002. The remission means that the province will not collect any revenue from the berth corridors, and will refund the school property taxes collected on berth corridors for 2002 and 2003.
• The Ports Competitiveness Initiative will be reviewed after three years. The purpose of the review will be to measure the success of the initiative and determine how to proceed after the initial five-year rate cap and compensation program ends.

		Table 2.2  Summary of Administrative Measures

Administrative Measures — Supplementary Information

For more details on tax changes see the Ministry of Provincial Revenue website at: www.rev.gov.bc.ca/budget/budget.htm

Income Tax Act

Multi-jurisdictional Taxpayers

Effective for the 2004 and subsequent tax years, the pension, overseas employment and dividend tax credits are restricted to taxpayers that are resident of the province and these credits will not be prorated. This change only affects multi-jurisdictional taxpayers.

As a result of this change, multi-jurisdictional taxpayers that are residents of British Columbia will receive the full amount of the credit for the pension, overseas employment and dividend tax credits while non-resident multi-jurisdictional taxpayers will receive no credits. Providing these credits only to residents of the province is consistent with the treatment of most multi-jurisdictional taxpayers in other provinces.

Scientific Research and Experimental Development Expenditure Limit

The province's Scientific Research and Experimental Development Tax Credit is refundable for Canadian-controlled private corporations based on 10 per cent of qualifying expenditures up to a $2 million limit. This limit is phased out across a range of taxable income. The budget confirms that effective for 2003 and subsequent tax years the phase out range for the expenditure limit is $300,000 to $500,000 up from $200,000 to $400,000.

Royalty and Deemed Income Rebate

The province will introduce amendments to the Income Tax Act if federal changes to the tax treatment of the resource sector affect the province's royalty and deemed income rebate provisions. Once the federal government has finalized its legislative amendments, the province will determine what amendments are necessary to maintain the royalty and deemed income rebate as originally intended.

The British Columbia royalty and deemed income rebate is an income tax provision that contains special rules that require a taxpayer to calculate tax by adding back into income the federal resource allowance, and deducting provincial royalties and taxes paid under the Mineral Tax Act. By 2007, the federal government will have phased out its resource allowance and phased in deductibility of provincial royalties and mining taxes. As such, consideration will be given to eliminating the British Columbia royalty and deemed income rebate in 2007. The province has initiated some discussions with industry representatives and the federal government and will make a decision on an appropriate course of action after conclusion of these discussions.

Corporation Capital Tax Act

BC Eligible Expenditure Deduction

The Act is amended to clarify that capital assets must be used directly in a qualifying activity to qualify as a BC Eligible Expenditure deduction. This clarification is consistent with how the Act has been administered.

The BC Eligible Expenditure deduction was intended to provide a concession for general corporations for capital assets used directly in a qualifying activity. It was not intended to apply to assets used in relation to or in connection with the activity. The clarification will apply to the period April 1, 1993 to August 31, 2002.

Social Service Tax Act

Software

Effective February 18, 2004, the exemption for software incorporated into other software for retail sale is expanded to include software acquired for the purpose of:

• making copies of the software to incorporate into other tangible personal property for retail sale; and
• making copies of the software and re-licensing it for retail sale.

These exemptions only apply where:

• under the terms of the license governing the use of the acquired software, the software must be used exclusively for one or both of the purposes referred to above; or
• a person who has acquired all rights to the software (i.e. ownership) uses it exclusively for one or both of the purposes referred to above.

Gifts

Effective February 18, 2004, the sales tax is imposed on the fair market value of all taxable goods brought into the province as gifts by residents where:

• the donor of the gift is a British Columbia resident; and
• no tax was paid to British Columbia or to another jurisdiction, other than Canada, by the donor at the time the gift was purchased.

Sales tax is not payable on gifts where satisfactory evidence is provided that:

• the person who provided the gift paid tax to British Columbia or to another jurisdiction, other than Canada, and is not eligible for a refund or rebate of the tax paid; or
• circumstances prescribed by regulation are met.

Under the Social Service Tax Act, tax has long been imposed on taxable goods purchased by residents outside of British Columbia for use in the province. This is to ensure that all British Columbians contribute to the cost of funding essential public services such as health care and education. The amendments to impose the tax on gifts in specific circumstances are required to address a technical tax avoidance scheme under which inappropriate use of the existing gift exemption has allowed some people to avoid the obligation to pay tax on goods, particularly automobiles, purchased outside British Columbia for use in the province.

Mobile/Modular Homes and Portable Buildings

Retroactive to 1977, the Act is amended to make the application of tax to new mobile and modular homes constitutionally valid by placing the liability to pay the tax on the final purchaser of the mobile or modular home. This is consistent with the treatment of mobile and modular homes in other provinces with retail sales taxes. Similar changes will be made to the application of tax to portable buildings after consultation with industry. There is no change to the longstanding arrangement to treat mobile and modular homes and portable buildings like conventional buildings. Tax will be imposed on 50 per cent of the purchase price of a mobile home and 55 per cent of the purchase price of a modular home. The retroactive amendments will not affect past sales or purchases where tax was paid because the amendments confirm that tax was valid.

Bona Fide Commercial Fishers

Effective February 18, 2004, the following are added to the list of items that can be purchased or leased exempt from provincial sales tax by bona fide commercial fishers:

• electronic monitoring equipment used to monitor fishing activities; and
• fish tags and tagging equipment.

Bona Fide Aquaculturists

Effective February 18, 2004, the following 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:

• artificial seaweed;
• scallop ear hanging equipment, including ear hanging pins;
• automated shellfish nursery systems and parts;
• ladder racks;
• artificial lighting systems used in hatchery and nursery operations to promote plant growth, including replacement bulbs for such lighting systems;
• tumblers for oyster grow-out operations;
• aquaculture planting and harvesting machines and parts;
• predator traps;
• steam generators for cleaning hatcheries and nurseries; and
• styrofoam, whole logs, barrels and other items used for floatation.

Bona Fide Farmers

Effective February 18, 2004, the following 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:

• on-farm incineration units;
• treatment products to reduce gas and bacteria levels in litter, bedding and manure;
• treatment products to promote the decay of organic material water in on-farm ponds, dugouts and reservoirs; and
• rolling benches.

Dealer Use Formula

Effective February 18, 2004, vehicles removed temporarily from inventory by motor vehicle dealers to transport customers whose vehicles are being serviced are eligible to be taxed under the "dealer use formula". Under the dealer use formula tax is paid monthly at a rate of 1.75 per cent of the tax that would otherwise be payable if the vehicle were converted to permanent business or personal use.

Conditional Sale Contracts

Effective February 18, 2004, the definition of "purchase price" is amended to exclude interest charges under conditional sale contracts if:

• the charges are shown separately on the invoice or are billed separately to the purchaser; and
• the charges are payable over the term of the contract.

Returnable and Reusable Containers

Retroactive to February 18, 1998, the Act is amended to clarify that persons who bring containers into British Columbia to package or deliver their product for sale and which are capable of being returned and reused are subject to tax. Tax is not payable in prescribed circumstances where the containers are not returnable after sale.

Bundled Purchases

Effective February 18, 2004, where taxable and non-taxable goods and/or services are sold for a single price (bundled purchase), sales tax is payable on the fair market value of the taxable portion except:

• the taxable portion is exempt if it qualifies as an inexpensive package as outlined below;
• the otherwise taxable tangible personal property is not subject to tax if it is incidental to the purchase of a service that is not subject to tax under the Act (See Definition of "Sale"); and
• the total purchase price is subject to tax if the single price is $500 or less and the fair market value of the taxable portion is 90 per cent or more.

The exemption for the taxable portion of inexpensive packages is provided where:

• the value of the taxable portion is $50 or less and represents 10 per cent or less of the total value of the package; and
• the taxable component is:

–prepackaged with the non-taxable component;

–not ordinarily sold separately;

–not promotional distribution;

–not packaged with telecommunications or legal services; and

–not liquor.

Prior to these amendments, tax was generally payable on the total value of taxable and non-taxable goods and/or services sold for a single price if the taxable portion represented more than 10 per cent of the sale price. As a result, tax was potentially payable on the total value of a bundled purchase even if most of the value comprised exempt or non-taxable goods or services.

Definition of "Sale"

Effective February 18, 2004, the Act is amended to clarify the application of tax where the provision of tangible personal property (TPP) is incidental to the provision of a service that is not subject to tax. In these circumstances, where the service and the TPP are sold for a single price the TPP will not be taxable.

Examples of where incidental TPP is provided in conjunction with a non-taxable service include:

• drawings provided under architectural service contracts; and
• original research reports provided under a contract for research services.

These amendments confirm the longstanding application of the tax to non-taxable services. In addition, music recording services and graphic design services are now treated consistently with other non-taxable services.

Penstock

Effective February 18, 2004, the requirement that penstock pipe must be at least 30 centimeters in diameter to be exempt from the sales tax is replaced with a requirement that the facility hold a valid water license for power production purposes under the Water Act.

Production Machinery and Equipment

Effective February 18, 2004, eligibility for the production machinery and equipment exemption for pollution control and waste management equipment is clarified. The exemption only applies when such equipment is purchased by manufacturers or contractors who are eligible for the production machinery and equipment exemption and only when purchased for use at eligible sites.

Newspapers

Retroactive to April 1, 2000, the definition of qualifying content is expanded to include public service listings of events, activities or attractions. Effective December 18, 2003, the qualifying content percentage requirement is reduced to 20 per cent from 25 per cent. These changes are intended to ensure that publications generally considered to be newspapers qualify for the sales tax exemption for newspapers.

Avalanche Safety Equipment

Effective February 18, 2004, the following avalanche safety and rescue equipment is exempt from provincial sales tax:

• avalanche airbag backpack systems specifically designed to carry gas cartridges and airbags which inflate instantly when triggered to help keep the wearer above the snow surface during an avalanche;
• avalanche beacons and probes for locating avalanche victims; and
• avalanche equipment specifically designed to reduce the likelihood of asphyxiation from ice mask formation by providing an artificial air pocket through which air is taken by the victim from the surrounding snowpack (e.g. Avalung^TM).

Motor Fuel Tax Act

Alternative Motor Fuel Tax Regulations

Effective February 18, 2004, sections of the Motor Fuel Tax Regulations are modified to improve the existing exemption for alternative motor fuels (AMFs).

The number of emission groups used to evaluate potential AMFs has been reduced to four from six. The new categories are greenhouse gases, nitrogen oxides, particulate matter combined with air toxics and volatile organic compounds.

The number of categories of AMFs has been expanded to three including:

• Category 1 – provides at least a 15 per cent reduction in one emission group, at least a 5 per cent reduction in one other group and not more than a 5 per cent increase in any other group.
• Category 2 – provides at least a 20 per cent reduction in greenhouse gases on a life-cycle basis and no increase in any other emission group.
• Category 3 – provides at least a 35 per cent reduction in greenhouse gases on a life-cycle basis and no increase in any other emission group.

The structure for phasing in AMF tax rates based on motor fuel market shares remains unchanged.

Further work is underway to develop regulations and an administrative model that will provide an exemption for the AMF portion of low level blends of AMFs and either gasoline or diesel fuel, such as E10. It is expected that the regulations will be implemented by June 1, 2004.

Temporary Motive Fuel User Permits

Effective February 18, 2004, the fee for a temporary motive fuel user permit that is issued to a commercial carrier who is not registered under the International Fuel Tax Agreement is increased to 7 cents per kilometer from 4.5 cents per kilometer. The fee represents the tax payable on fuel brought into the province in the supply tank of the motor vehicle and consumed in the province. This brings the temporary permit fee more into line with the current gasoline and diesel fuel tax rates.

Refund Cap for Persons With Disabilities

Effective January 1, 2004, the maximum refund amount for fuel tax paid by persons with disabilities is increased to $500 per year from $400 per year. The higher cap reflects the impact of the 3.5 cent per litre tax increase implemented on March 1, 2003.

Definition of a Family Farm Corporation

Effective February 18, 2004, for the purpose of the motor fuel tax exemption for farmers, the definition of a family farm corporation is expanded to include any corporate structure provided that at least 75 per cent of the voting shareholders are direct family members actively engaged in farming and the corporation's sole activity is farming. This recognizes the changes that have occurred in family farm structures while maintaining the original intent of the fuel tax exemption to restrict it to family owned and operated farms.

Tobacco Tax Act

Dealer Permits and Bond Deposits

Effective February 18, 2004, the Act is amended to give the director the authority to refuse to grant a permit or retail authorization to sell tobacco products if:

• the application for the permit is in respect of a location where a previous permit held by another person was suspended or cancelled; and
• there is sufficient evidence that the applicant for the permit or retail authorization is not at arms length from the person who previously sold tobacco at the same location.

The Act is also amended to allow the director to require a minimum bond of $5,000 as a condition of granting a retail authorization to a person who proposes to sell tobacco from a location where the previous authorization held by another person was suspended or cancelled.

School Act

Provincial Residential School Property Tax Rates

In general, a separate residential tax rate is set for each school district. For the 2004 calendar year, average residential school property taxes before application of the home owner grant will be increased by the provincial inflation rate from the previous year. For 2004 the increase will be 2.1 per cent. This follows the policy announced in Budget 2003.

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. Tax rates will fall in almost every school district in response to rising average assessed values. Even though the average residential tax is increased by the rate of inflation, 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.

Provincial Non-Residential School Property Tax Rates

For each of the eight non-residential property classes, a single, province-wide rate is set. Non-residential school property tax rates will remain unchanged in 2004.

Taxation (Rural Area) Act

Provincial Rural Property Tax Rates

A single provincial rural residential tax rate applies province-wide. For the 2004 calendar year, the provincial rural residential tax rate will fall in response to rising average assessed values. Average residential provincial rural area taxes will increase by the provincial inflation rate.

Non-residential provincial rural tax rates remain unchanged.

Insurance Premium Tax Act

Unlicensed Insurance

Effective February 18, 2004, the taxing provision for unlicensed insurance is amended prospectively to harmonize with licensed insurers and thereby capture only that portion of premiums covering risks located in the province. The definition of "taxpayer" is also amended to ensure that British Columbia residents are subject to the tax on premiums relating to their risks located in the province regardless of who actually enters into a contract to purchase the insurance.

Property Transfer Tax Act

Transfers of a Family Farm

Effective February 18, 2004, the scope of family relationships which meet the ownership test in the definition of "family farm" is broadened to include siblings, aunts, uncles, cousins, nieces, nephews, and the spouses of the above. In addition, the tax-exempt intergenerational transfers of a family farm are broadened to include transfers to siblings and the spouses of siblings. Taken together, these changes will facilitate the tax-free transfer of family farms.

Transfers Involving the Public Guardian and Trustee

Effective February 18, 2004, an exemption is added for transfers of a principal residence, recreational residence or family farm from a related person or their estate to the Public Guardian and Trustee on behalf of a minor, and on the transfer of any property from the Public Guardian and Trustee to the minor when the minor comes of age.

Exemptions for transfers of principal residences, recreational residences and family farms between related individuals already exist, but were not available in cases when the Public Guardian and Trustee registered property on behalf of a minor, or when the minor came of age and the property was transferred into his or her name.

The new exemption of tax on the subsequent transfers from the Public Guardian and Trustee to the beneficiary will avoid a second imposition of tax in cases where the Public Guardian and Trustee has already paid tax on behalf of the minor.

Regulation to Exempt Trustees of Specified Registered Charities

Effective February 18, 2004, an exemption is provided for transfers to trustees of registered charities with religious purposes under specified statutes.

An exemption already exists for registered charities that take title to property for charitable purposes. However, certain religious organizations are required or encouraged by provincial or federal law to hold property through trustees rather than through the registered charity directly, and therefore do not qualify for exemption. Previously, the Financial Administration Act has routinely been used to grant remission from tax in these circumstances.

Transfers to a Family Farm Corporation Through a Trustee

Effective February 18, 2004, the exemptions for transfers of a family farm through trustees to related individuals are expanded to include transfers through a trustee to a family farm corporation owned by related individuals.

Community Charter

Grandparent Dust and Particulate Matter Eliminator Exemptions for Certain Improvements

The Community Charter is amended to grandparent the property tax exemption for those improvements that were determined to be exempt dust and particulate matter eliminators in the 2003 tax year. The grandparenting is effective for the 2004 tax year and subsequent tax years.

Various Statutes

Limitation Period

Effective February 18, 1998, the following statutes are amended to establish a seven-year period for collecting unremitted or unpaid taxes commencing on the date an assessment or re-assessment is raised.

Corporation Capital Tax Act, Hotel Room Tax Act, Logging Tax Act, Insurance Premium Tax Act, Mineral Tax Act, Mining Tax Act, Motor Fuel Tax Act, Social Service Tax Act and Tobacco Tax Act.

The retroactive application of the amendments will have no impact on tax collectors or taxpayers because they are consistent with longstanding administrative practice. Taxation statutes include various mechanisms for collecting unremitted or unpaid taxes. Each statute provides a period during which collection action may be taken, called the limitation period. Under some statutes the limitation period is seven years and under others it is six years. Depending on the statute, the limitation period may begin at the time a liability arises, when a remittance is due, a specified number of days after a corporation's year-end or at the end of a fiscal year. The changes standardize the limitation periods and clarify when the period begins.