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

Enhanced Dividend Tax Credit

The province will introduce an enhanced dividend tax credit in conjunction with the proposed federal reduction in personal income taxes on certain dividends announced November 23, 2005. Currently, dividends are grossed up by 25 per cent when included in income for personal income taxes and are eligible for federal and provincial dividend tax credits. This gross up and dividend tax treatment is intended to recognize that taxes on this income are paid at both the corporate and personal level. However, the current mechanism is based on corporate taxes paid at the small business rates and not the higher general corporate rates.

Under the federal proposal, certain dividends will be grossed up by 45 per cent, rather than 25 per cent, and an enhanced federal dividend tax credit will apply to this income. This new mechanism is based on corporate taxes paid at the general rates of tax.

The province will introduce a new dividend tax credit for income subject to the 45 per cent gross up. Once all the details of the federal measure are known, the province will finalize the design of its dividend tax credit.

BC Mining Flow-through Share Tax Credit

The BC Mining Flow-through Share Tax Credit is extended for three years to December 31, 2008. The credit provides an incentive for raising capital for mineral exploration in the province.

As a result of the extension to the BC Mining Flow-through Share Tax Credit, the definition of excluded expenses for the purposes of the Mining Exploration Tax Credit is also amended.

Film Incentive BC and Production Services Tax Credits

As announced on January 20, 2006, the enhanced tax credit rates for film and video productions are extended to 2008. The basic Film Incentive BC tax credit rate will remain at 30 per cent for productions that begin prior to April 2008 and the basic Production Services Tax Credit will remain at 18 per cent for productions that begin prior to June 2008.

During 2007, the province will undertake a review of its tax credit programs and make a decision on whether to continue the tax credits beyond 2008 and, if so, at what rates.

Social Service Tax Act

Service Charges Related to Computer Software

Effective February 22, 2006, labour charges payable on services related to computer software are no longer subject to tax.

Provincial sales tax (PST) is currently payable on labour charges to install, modify, repair or maintain taxable computer software.

Production Machinery and Equipment (M&E) Exemption

Effective February 22, 2006, the following changes are made to the provincial sales tax exemption for M&E:

• The exemption is expanded to apply to businesses that primarily provide manufacturing "services" to manufacturers that are eligible for the M&E exemption (service providers were previously excluded from the exemption);
• The exemption for parts to repair and maintain exempt M&E is expanded to include parts used to assemble exempt M&E. Materials remain subject to tax;
• Requirements to qualify for the exemption are clarified, consistent with administrative practice.

Effective July 31, 2001, the exemption is clarified to explicitly exclude office equipment such as photocopy machines when purchased for office use. This is consistent with the original intent, administration of the exemption since its introduction in 2001 and similar exemptions in other jurisdictions.

Vehicle Surtax Thresholds for Passenger Vehicles Increased

Effective February 22, 2006, the threshold for the surtax on passenger vehicles is increased to $55,000 from $49,000. Tax rates will apply as follows:

• 7 per cent on passenger vehicles valued at less than $55,000;
• 8 per cent on passenger vehicles valued at $55,000 or more, but less than $56,000;
• 9 per cent on passenger vehicles valued at $56,000 or more, but less than $57,000; and
• 10 per cent on passenger vehicles valued at $57,000 or more.

The new thresholds apply to all passenger vehicles purchased after February 22, 2006. For leased passenger vehicles, the new vehicle surtax thresholds apply to the first lease payment due after February 22, 2006. The increase in the threshold will allow British Columbians who require diesel pickup trucks and similar vehicles for work to purchase them without payment of the surtax.

Environmental Levy on New Tires To Be Repealed When Industry Stewardship Program Introduced

Legislative authority is provided to repeal, by regulation, the existing $3 levy on each new pneumatic tire purchased or used in the province. The levy will be repealed when an industry stewardship program for tires is introduced.

For more information on stewardship programs see the Ministry of Environment website at: http://www.env.gov.bc.ca/epd/epdpa/ips/index.html

Motor Fuel Tax Act

Expand Eligible Uses of Coloured Fuel

Effective February 22, 2006, the Act is amended to expand the authorized uses of coloured gasoline and diesel fuel to include any vehicle that is not licensed to operate on a highway regardless of the vehicle type or use. All vehicles currently eligible to use coloured fuel remain eligible to use it. As a result of the amendment, unlicensed recreational vehicles such as snowmobiles and all terrain vehicles are also eligible to use coloured fuel.

Also effective February 22, 2006, the Motor Fuel Tax Regulation is amended to expand the partial tax refund for tax paid on fuel used in stationary motor vehicles to operate equipment for prescribed purposes. The refund payable is the difference between the clear fuel tax paid and the tax that would have been paid if the fuel had been coloured fuel. The expanded list of eligible purposes is as follows:

• Rotating the drum and pumping ready mixed concrete;
• Pumping or dispensing liquids or other material to or from a commercial motor vehicle which does not include a hydraulic cylinder or a hydraulic arm other than on a logging truck;
• Operating a mobile crane;
• Operating a hydraulic arm mounted on a logging truck;
• Operating temperature control equipment to preserve goods in an insulated cargo box on a commercial vehicle; or
• Operating a drilling unit that is operated by a power take-off unit.

Home Owner Grant Act

Increase Home Owner Grant

Effective for the 2006 tax year, the basic homeowner grant is increased to $570 from $470. For those recipients who are 65 or older, disabled or a veteran, the grant is increased to $845 from $745.

Increase in Threshold for Home Owner Grant Phase-out

As announced January 10, 2006, effective for the 2006 tax year, the threshold for the phase-out of the homeowner grant is increased to $780,000 from $685,000. This change ensures that in excess of 95 per cent of homeowners are eligible for the full grant. For properties valued above the threshold of $780,000, the grant is reduced by $5 for every $1,000 of assessed value in excess of the threshold. The basic grant is completely eliminated for properties valued at $894,000 and above and completely eliminated for those recipients of the higher grant, available to seniors, veterans and the disabled, whose properties are valued at $949,000 and above.

Small Business Venture Capital Act

Increased Budget for Venture Capital Program

Effective for the 2006/07 program year, the tax credit budget for the Small Business Venture Capital program is increased to $25 million from $20 million. Under the program, taxpayers can receive a credit of 30 per cent of their investment in eligible small businesses, or in venture capital corporations which in turn invest in eligible small businesses, up to an annual limit. The increase to the budget will mean that about $17 million in additional equity capital can be raised each year for eligible businesses.

Training and Skills Development Tax Credits

The government will set aside $90 million over the next three years for a new program of tax credits to help meet the demand for skilled workers. The program will encourage employers to step forward and create new opportunities for people to acquire the skills they need to fully participate in the economy. The credit program will be designed in consultation with industry representatives from around the province.

Administrative Measures — Supplementary Information

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

Income Tax Act

Medical Expense Tax Credit

Effective for 2005 and subsequent tax years, the maximum annual amount of medical expenses that can be claimed on behalf of dependent relatives is increased to $10,000 per dependant from $5,000 per dependant.

Regional Film Tax Credit

Effective February 22, 2006, the definition of the designated Vancouver area is changed for purposes of determining the regional credits for both the Film Incentive BC and Production Services Tax Credit. The change will include Pitt Meadows for the regional credits by moving the eastern boundary for the designated Vancouver area to follow the western shore of the Pitt River and the southern shore of the Fraser River.

Royalty and Deemed Income Rebate

The province intends to eliminate its royalty and deemed income rebate and harmonize with the federal taxation of the resource sector effective for tax years starting after 2006.

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. This provision was put in place in the 1970's because the province did not want to parallel the federal resource allowance.

By 2007, the federal government will have phased out its resource allowance and phased in deductibility of provincial royalties and mining taxes. The province will maintain the royalty and deemed income rebate provisions until the end of 2006 after which the provincial and federal taxation of the resource sector will be harmonized.

Tax Credit Filing Requirements

The filing requirements including deadlines for claiming various income tax credits are clarified. These clarifications are consistent with existing requirements under the Act and with recent federal amendments.

International Financial Activity Act

Adjusted Interest Formula

Effective September 1, 2004, the Act is amended to remove the interest adjustment. The adjustment was introduced to limit interest expenses in the calculation of revenue from international loans. The adjustment has been too restrictive in some cases, particularly in light of lower interest rates, and is removed retroactive to the commencement of the Act.

Social Service Tax Act

Exemption for Sale of Custom Software When Sold as Part of a Business

Custom and eligible modified software are not subject to PST. Sales of copies or the right to use such software to someone other than the person for whom it was originally developed are taxable.

Effective February 22, 2006, an exemption is provided for sales of custom and eligible modified software as part of the sale of a business, as a going concern, provided the seller does not retain any rights or interests in the software. Sales of copies or the right to use such software to others while retaining an interest in the software remain taxable.

Partial Refund Provided For Hybrid Electric and HCNG Bus Conversions and Definition of Hybrid Electric Vehicle Clarified

Effective February 22, 2006, a partial refund is provided for tax paid on parts and labour to convert shuttle buses and passenger buses to operate as hybrid electric vehicles or on HCNG (a blend of hydrogen and compressed natural gas). Shuttle and passenger buses are eligible for a refund up to $5,000 and $10,000 respectively.

Effective February 22, 2006, the definition of hybrid electric vehicle is amended to clarify that a vehicle must be capable of "sustained" propulsion by the electric motor alone, or simultaneously with the internal combustion engine, to qualify as a hybrid electric vehicle.

Application of Tax to Heat Clarified and Exemption Provided for Residential Use

Electricity, natural gas, manufactured gas, fuel oil and steam are tangible personal property under the Social Service Tax Act and taxable unless specifically exempted. Exemptions are provided when purchased for residential use.

Effective February 21, 2000, the Act and Regulations are amended to clarify that heat is tangible personal property. An exemption is provided effective February 21, 2000, for heat purchased for residential use. The retroactive exemption will allow residential purchasers who have paid tax on purchases of heat to apply for a refund of tax.

Refund of BC Multijurisdictional Vehicle (MJV) Tax Paid on Short Term Rental Vehicles

Effective February 22, 2006, a refund is provided for the British Columbia portion of the annual MJV tax paid if the vehicle is primarily leased as a short-term rental vehicle to the public for the transportation of goods and tax is paid on the vehicle rental by lessees.

This change brings the application of tax on short-term MJV rentals into line with that of other tangible personal property under the Act.

Bona Fide Farmers

Effective February 22, 2006, sand used for livestock bedding and heat 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.

Home Owner Grant Act

Additional Grant for Disabled Home Owners Expanded

Effective for the 2006 tax year, disabled home owners qualify for the additional grant if they purchase a residence that has been modified by a previous owner for use by a disabled person. The structural modifications must meet the homeowners' disability needs and have a value that exceeds $2,000.

Motor Fuel Tax Act

Taxation of Biodiesel Fuel

Effective February 22, 2006, the Act is amended to include Biodiesel in the definitions of motive fuel and marine diesel fuel. The purpose of the amendment is to impose tax at the appropriate clear or coloured fuel tax rate when Biodiesel is not blended with diesel fuel. The amendment does not change the eligibility of Biodiesel for alternative motor fuel status when blended with conventional diesel fuel in portions from 5 per cent to 50 per cent Biodiesel.

Mineral Tax Act

Gross Revenues

Effective January 1, 2006, the Act is amended to clarify the definition of gross revenues from mining operations. The clarification is required to ensure that tax applies to the full selling price of the minerals in cases where two or more related persons operate a mine.

Hotel Room Tax Act

Price Threshold and Length of Stay Requirement for Exemption

Effective February 22, 2006, the Act is amended to:

• raise the $20 per night exemption threshold to $30 per night, or $210 per week; and
• amend the definition of exempt long-term occupation by reducing the continuous period of time a lodging must be let to the same person to one month from two months.

Property Transfer Tax Act

Exemption Clarified for Transfers to the Public Guardian on Behalf of a Minor

Effective February 22, 2006, the exemption for transfers of land to the Public Guardian on behalf of a minor is amended to clarify that it applies to the transfer of a "family farm" and a "recreational residence", as defined under the Act, from the estate of a deceased.

Exemption for Amalgamations Expanded

Effective February 22, 2006, an exemption is provided for amalgamations under the Society Act. This parallels existing exemptions for amalgamations under the Business Corporations Act and similar federal and provincial statutes.

Refund of Property Transfer Tax for Property Assessed Social Service Tax Clarified

A refund of property transfer tax is currently provided for tax paid on that portion of the value of property that is assessed social service tax (provincial sales tax) and social service tax is paid.

Effective February 22, 2006, a refund of property transfer tax will be available where both social service tax and property transfer tax are paid on the same portion of the value of property.

Definition of "Family Farm Corporation" Clarified

Effective February 22, 2006, the definition of "family farm corporation" is amended to clarify that all shareholders must be individuals to qualify for exemption.

School Act

Provincial Residential School Property Tax Rates

For the 2006 calendar 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 2006 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 2006 will be adjusted 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.

Taxation (Rural Area) Act

Provincial Rural Area Property Tax Rates

A single provincial rural residential tax rate applies province-wide. For the 2006 calendar year, the provincial rural residential tax rate will fall in response to rising average assessed values consistent with policy introduced in Budget 2003. Average residential provincial rural area taxes will increase by the provincial inflation rate of 2.0 per cent.

Health Authorities Act

Academic Ambulatory Care Centre

The Academic Ambulatory Care Centre remains under construction in Vancouver. An exemption was provided for the 2005 taxation year and that exemption is continued for the 2006 taxation year. Once operational, those portions of the centre used for hospital purposes will be exempt under general provisions of the Act.