Ministry of Finance and Corporate Relations
Honourable Paul Ramsey, Minister
This electronic version is for informational purposes only.
The printed version remains the official version.
Revenue Measures: Supplementary Information
INCOME TAX ACT
TWO-YEAR TAX CUT PLAN ANNOUNCED AND TAX ON INCOME SYSTEM INTRODUCED
Two-Year Tax Cut Plan and Introduction of Tax on Income
A key element of the budget is a two-year plan to cut provincial personal income taxes. This plan is based on two principles:
To ensure the province can design the cuts to meet the priorities of British Columbians, starting in the 2000 tax year British Columbia will move to a new method for calculating provincial income tax. Instead of the current method of calculating provincial tax as a percentage of federal income tax, British Columbia will apply its own tax rates directly to taxable income.
This will improve transparency by clearly showing how much of a taxpayer's income is subject to provincial tax. In addition, it will increase policy flexibility and allow the provincial income tax system to better reflect the economic and social priorities of British Columbians.
Legislation to support these changes will be introduced this session.
Constitutional Basis for Income Tax
Under the Constitution, income taxation is a shared taxation field between the federal and provincial governments. Both levels of government levy personal and corporate income taxes.
Current Income Tax System
The existing federal-provincial tax collection agreements require the provinces to forego most policy flexibility in return for federal administration of income tax. All provinces and territories except Quebec participate in the tax collection agreements for personal income taxes. The federal government has control over how income is defined for tax purposes, including allowable deductions from income. Provinces are limited to setting provincial tax as a per cent of federal tax, although they can add surtaxes, flat taxes and low income credits.
The benefits to the current system include:
While recognizing the benefits of a national tax system, British Columbia and other provinces have argued for more than ten years that the current system is more restrictive than required to maintain a strong national tax system.
In 1997, the federal government accepted the advantages of allowing provinces to structure their provincial tax regimes to improve transparency and better reflect their own social and fiscal priorities and agreed to allow provinces to levy income tax directly on taxable income. Agreement was also reached to allow greater provincial flexibility under the tax collection agreements.
As a result, beginning with the 2000 tax year, provinces will be able to impose personal income tax directly on federally defined taxable income (commonly referred to as tax on income). Provinces will also be able to provide their own set of non-refundable tax credits (e.g. basic personal amount and spousal credits) subject to certain limitations.
In addition to maintaining the benefits of a national tax system, tax on income has the following advantages:
Tax filers will continue to file a single federal-provincial income tax return, but with a different calculation of provincial tax than under the current system. This should require relatively little additional effort for most taxpayers.
Because of the clear advantages of the new system, British Columbia is introducing tax on income for the 2000 tax year.
Tax Design Under Tax on Income
Under tax on income a province legislates its own schedule of tax brackets and tax rates and determines its own set of non-refundable credits, subject to certain limitations agreed to between the federal and provincial governments. Thus, the calculation of provincial personal income tax is virtually identical in concept to the federal calculation, but with different tax brackets, tax rates and non-refundable credits.
The following schematic shows the calculation of provincial and federal tax under the current tax system and under the tax on income system.
Two-Year Tax Reduction Plan
The government's objectives for the transition to tax on income are as follows:
In summary, these objectives will be achieved by:
These changes will return $181 million to provincial taxpayers in 2000/01 and $310 million in 2001/02. Combined with the reduction in provincial revenue of $44 million due to federal changes to the tax base, the cuts will total $225 million in 2000/01 and $354 million in 2001/02. In addition, roughly 100,000 taxpayers will no longer pay provincial income tax due to the increase in the basic and spousal credits.
Details of 2000 Tax Year Changes
Effective for the 2000 tax year provincial personal income tax will be calculated on the basis of tax on income using a three-bracket rate structure plus the current surtaxes. In moving to this new tax system, the province will make the following changes:
These changes parallel the recently announced federal tax reductions.
In addition the province will target $50 million to lower and middle income earners by adding $300 over and above the federal increases to the basic personal and spousal credit amounts.
The following table shows British Columbia's tax rate structure for 2000.
The increase in the tax bracket thresholds and the middle tax rate reduction will be made effective July 1, 2000 for purposes of withholding tax at source.
For technical reasons, during the transition to tax on income, provinces must set their non-refundable credit amounts equal to the federal amounts and must retain surtaxes for the 2000 tax year.
The enhancement to the basic and spousal credits will be $300 for the 2000 tax year. For transitional reasons this will be accomplished by a separate non-refundable credit as a supplement to those credits for the 2000 tax year only. These supplements will be incorporated into the provincial basic personal, spouse and equivalent-to-spouse tax credits for 2001 and subsequent years.
Details of 2001 Tax Year Changes
Effective for the 2001 tax year the following changes will be implemented:
Table C2 shows the British Columbia tax structure that will be in effect for 2001.
Table C3 shows the values of the basic and spousal credits for 1999, 2000 and 2001.
Table C4 shows that the lowest income taxpayers will receive the largest percentage reduction in tax.
The table does not show the tax cut for individuals with incomes above $65,000 in total income because the dollar amount of the reduction will vary depending on individual circumstances. For taxpayers with incomes above $65,000 the reduction, measured as a per cent of tax, will generally decline as income rises.
Table C5 shows the tax reductions for families, which will generally be larger than for single taxpayers because of the enhancements to the spouse and equivalent-to-spouse credits. The larger credits will be of particular benefit to single parent families with low and middle incomes.
SMALL BUSINESS CORPORATE INCOME TAX RATE REDUCED
Effective July 1, 2000, the small business income tax rate for Canadian-controlled private corporations will be reduced to 4.75 per cent from 5.5 per cent. Since 1998, the corporate income tax rate has been reduced by 47 per cent for 40,000 small businesses in British Columbia. With this latest reduction, British Columbia's small business tax rate will be the lowest in Canada.
BRITISH COLUMBIA MANUFACTURING AND PROCESSING INVESTMENT TAX CREDIT
Effective April 1, 2000, to encourage investment in new plant and equipment, a 3 per cent, non-refundable investment tax credit will be available to eligible corporations for purchases of certain machinery, equipment and buildings for use in manufacturing and processing.
Corporations may use the tax credit to reduce their current year British Columbia corporate tax liability. Unused tax credits may be carried back 3 taxation years or forward 10 taxation years, and may be carried back prior to the April 1, 2000 start date of the program.
The tax credit is equal to 3 per cent of the total capital cost, including any British Columbia provincial sales tax paid, of eligible purchases made after March 31, 2000.
The investment tax credit is earned by purchasing qualifying property to be used in British Columbia in manufacturing or processing goods for sale or lease. The property must be new and unused (i.e. must not have been used or acquired for use or lease, for any purpose prior to acquisition by the taxpayer).
To be eligible, purchases must be machinery, equipment or buildings that are "qualified property" as described in federal Income Tax Regulation 4600 for purposes of the definition of "qualified property" in section 127(9) of the Income Tax Act (Canada). Qualified property must be used primarily for the purpose of manufacturing or processing goods for sale or lease, and does not include property used for storing, shipping, selling or leasing of finished goods, purchasing raw materials, administration, purchase and resale operations, data processing and providing employee facilities.
Manufacturing and processing
"Manufacturing" and "processing" will be defined with reference to section 127(11) of the Income Tax Act (Canada). Federal Interpretation Bulletin IT-145R may be referred to for additional information on the interpretation of "manufacturing" and "processing" under the federal legislation.
"Manufacturing" is generally defined as the creation of something or the shaping, stamping or forming of an object out of something, while "processing" is generally defined as the preparation, handling or other activity designed to effect physical or chemical change in an article or substance other than by natural growth.
Certain activities are specifically excluded from the definition of "manufacturing and processing" for purposes of the investment tax credit. These include farming, fishing, logging, construction, oil and gas extraction, processing to the crude oil stage, field processing, mineral extraction and processing mineral ore to the prime metal stage.
SCHOOL TAX RATES SET
A separate residential tax rate is set for each school district. For the 2000 taxation year, average residential school taxes, before application of the home owner grant, will be maintained at 1999 levels. This will be accomplished by adjusting residential school property tax rates to reflect changes in average assessed values. This rate-setting policy has been in effect since 1994. There will be a small revenue increase due to the addition of new residential properties to the tax base.
Individual school district residential tax rates for the 2000 tax year will be set in April, once authenticated assessment roll data are available to calculate the precise rates according to the provincial residential school tax rate formula.
Even though the average residential tax is maintained at the 1994 level, individual tax bills may change. Some homeowners will experience an increase in their school taxes, while others will have offsetting 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 1999 levels. In total, non-residential school tax revenues will increase by 2.1 per cent due to new construction.
TAXATION (RURAL AREA) ACT
PROVINCIAL RURAL AREA TAX RATES
For the 2000 taxation year, the average residential rural area property taxes will be maintained at the 1999 level, continuing the policy in place since 1994. A small increase in the residential tax rate will be offset by a reduction in average assessed values. The precise residential tax rate will be set in April, when authenticated assessment roll data are available. There will be a small revenue increase due to the addition of new residential properties to the tax base.
Some rural area residential property owners will experience an increase in their rural area property taxes, while others will have offsetting tax reductions. Homeowners whose property values have increased by more than the provincial average will see an increase, while other homeowners will see no change or a reduction.
The tax rates for the eight non-residential property classes will remain unchanged for 2000. Tax revenues will decrease by about 1.0 per cent, with revenues from new construction not fully offsetting the effect of a decline in average non-residential property values.
SOCIAL SERVICE TAX ACT
DEFINITION OF FIXTURE CLARIFIED
Under the Social Service Tax Act and administrative policy, the application of tax to machinery and equipment used in a manufacturing or production process, or in delivering a service, has depended upon whether the item qualifies as tangible personal property, a fixture, or an improvement to real property.
Tax applies to sales and leases of tangible personal property and to charges for taxable services (installation, repair and maintenance services) provided to such property. Fixtures are also subject to tax when purchased or leased. However, taxable services provided to fixtures are specifically exempt from tax. Items that qualify as improvements to real property upon installation are subject to tax when purchased before installation, but are not subject to tax when sold with the real property. Taxable services provided to improvements to real property are not subject to tax.
The determination of what types of equipment qualify as a fixture has always been problematic.
The Act defined a fixture as machinery, equipment, or apparatus installed in or attached to real property and used directly in a manufacturing or production process, or used in the provision of a service.
However, certain types of machinery and equipment that become attached to realty (but which qualify as fixtures at common law) have been excluded from the definition of fixture. This has created uncertainty between what constitutes a fixture at common law and what constitutes a fixture under the Act.
To clarify and simplify the application of tax to machinery and equipment, the following amendments are made effective April 1, 2000:
|||is attached to real property in a substantial way, and that enhances the use of a building as a building (previously excluded under the statutory definition of a fixture), or|
|||is substantially attached to realty, or rests on its own weight, but is of such a size that it must be constructed on site, and cannot be moved without complete dismantling of the equipment or without substantial damage to, or dismantling of, the building.|
By excluding such equipment from the definition of tangible personal property, it retains its tax status as improvements to real property.
The exemption for taxable services provided to fixtures is also amended to exclude from the exemption travelling cranes and hoists that are attached to, or rest upon, tracks or rails that are themselves attached to a building.
MOTOR FUEL TAX ACT
Commencing April 1, 2000, the tax on natural gas used in compressors to remove raw gas from wells, transport it to processing plants and within plants through to the marketable gas stage will be phased out over two years. The reduction in compressor operating costs is intended to encourage gas producers to increase compression to extract more gas from wells prior to closure, resulting in more efficient use of this provincial resource. Over time, royalties paid on the additional gas extracted will offset the revenue lost as a result of the exemption.
The tax will be phased out for compressors located at well heads to extract the gas, compressors used to transport the gas from well head to processing plants and compressors within processing plants to compress gas through to the marketable gas stage.
The phase-out of tax is as follows:
Natural gas used in compressors within plants to compress marketable gas will continue to be taxed at 1.1 cents per 810.32 litres. Natural gas used in compressors to transport marketable gas to market or storage will continue to be taxed at 1.9 cents per 810.32 litres.
FEES AND LICENCES
A number of changes to fees and licences will be introduced during the 2000/01 fiscal year. These changes help to cover the government's cost of providing new or existing services. During 2000/01, the government will:
Other fee and licence changes will be introduced during the year as ministries continue to examine their fees and services to ensure that users pay a fair share of the direct costs of providing services.
REVENUE DEDICATED TO THE BC TRANSPORTATION FINANCING AUTHORITY
Effective April 1, 2000, the portion of clear fuel tax dedicated to the BC Transportation Financing Authority is increased to 3.25 cents per litre from 3 cents per litre. The additional 0.25 cents per litre is expected to generate approximately $14 million annually to help finance major transportation projects throughout the province. There is no change to the clear fuel tax rates paid by consumers.
Administrative Measures: Supplementary Information
SOCIAL SERVICE TAX ACT
LIST OF ITEMS THAT CAN BE PURCHASED EXEMPT FROM TAX BY BONA FIDE FARMERS EXPANDED
Effective April 1, 2000, the following are added to the list of items that can be purchased exempt from the provincial sales tax by bona fide farmers for farm purposes:
LIST OF ITEMS THAT CAN BE PURCHASED EXEMPT FROM TAX BY BONA FIDE AQUACULTURISTS EXPANDED
Effective April 1, 2000, the following items are added to the list of supplies that can be purchased exempt from provincial sales tax by bona fide aquaculturists:
EXEMPTION PROVIDED FOR SOFTWARE USED TO DEVELOP NEW SOFTWARE FOR RESALE
Under the Social Service Tax Act, tax does not apply to custom software developed for a specific customer or to purchases of software "source code". The existing exemptions for custom software and source code were provided to encourage the development of the software industry in British Columbia, and to enhance business competitiveness through computerization. In recent years, however, development of custom software through the writing of new source code has become increasingly rare. Instead, the industry has moved toward developing new software by incorporating existing pre-written licensed software into new software products. For example, a developer of a new program today would likely purchase a licence for the right to incorporate an existing "spell checker" into a new program rather than write the source code to develop a new "spell checker".
Effective April 1, 2000, an exemption is provided for purchases of software to be incorporated into other software for retail sale where, under the licence agreement governing the use of the software, it can only be incorporated into other software. The amendment will modernize the exemption and remove a potential disincentive to the expansion of the software industry in British Columbia.
EXEMPTION PROVIDED FOR CONFIGURING SOFTWARE
The Social Service Tax Act imposes tax on purchases of packaged or pre-written software and on charges to install, modify and configure such software. An exemption is provided for purchases of custom software and for software modified through source code changes where the cost of the modifications is greater than the cost of the software. Services to exempt software are also exempt from the tax.
In recent years, the industry has moved away from development of custom software and source code modifications to the development of enterprise resource planning software (i.e., generic software packages that can be used by many different businesses but that can be adapted to meet the specific needs of each business). Because such software is not custom software, and the installation and configuration do not involve changes to the source code, the cost of the software and of its implementation are subject to tax.
Implementing, configuring and modifying such software to meet a particular business's needs generally costs considerably more than the software itself. In many cases, it requires the expertise of consultants specializing in the installation of that particular type of software. Once installed, the software is similar to custom software because it is adapted to the unique needs of a specific customer.
In recognition of this trend, to encourage further expansion of the software industry, and to facilitate business competitiveness through cost reductions of new software systems, effective April 1, 2000, an exemption is provided for services provided to configure, modify or implement software where the cost of those services exceeds the cost of the software. The software itself, which is generic packaged software, remains subject to tax.
DRILL PIPES AND DRILL COLLARS USED IN THE OIL AND GAS INDUSTRY ELIGIBLE FOR THE 1/36TH FORMULA
Since 1985, specified oil and gas drilling equipment, including drilling rigs, fracturing trucks and seismic equipment, has been subject to tax on 1/36th of its value for each month the equipment is in the province. The 1/36th formula is designed to encourage exploration in the province and recognizes the fact that such equipment is regularly moved in and out of the province depending on the drilling season.
Effective April 1, 2000, the 1/36th formula is extended to apply to drill pipes and drill collars to reduce industry's compliance burden associated with tracking this equipment, for tax purposes, separately from other equipment eligible for the 1/36th formula.
EXEMPTION PROVIDED FOR FASTENING COMPONENTS USED WITH EXEMPT POLYSTYRENE FORMING BLOCKS
Polystyrene forming blocks used in the construction of buildings are exempt from the provincial sales tax as energy conservation material. Polystyrene forming blocks initially serve as forms for concrete, but remain permanently attached to the concrete and serve as the completed building's primary insulation material. Fastening devices, such as corner brackets and ties, are used to hold the polystyrene forming blocks in place during the pouring and setting of the concrete walls. These fastening devices are currently only exempt if purchased as a package together with the forming blocks.
Effective April 1, 2000, fastening devices designed specifically for use with exempt forming blocks are exempt from tax even if purchased separately from the blocks.
EXEMPTION FOR DIES CLARIFIED TO EXCLUDE SAWS AND KNIVES
An exemption is provided under the Social Service Tax Act for dies that are purchased by a business for use or consumption in the manufacture or production of tangible personal property. Dies are defined as a solid or hollow form used for shaping or marking goods in a process by cutting, stamping, pressing, or extruding, but do not include die or tap sets used to cut threads. Contrary to the ordinary meaning of the term, a recent court decision ruled that "knives and saws" qualified as dies.
Effective April 1, 2000, the exemption is clarified to specifically exclude saws and knives.
EXEMPTION FOR CATALYSTS AND DIRECT AGENTS CLARIFIED TO EXCLUDE SUBSTANCES ADDED TO TAILINGS PONDS
Catalysts and direct agents used in chemical reactions to transform or manufacture a product for sale or lease are exempt from tax. To qualify as a catalyst or direct agent, the substance must come into contact with, or be temporarily incorporated into, the material transformed or manufactured into a product. A catalyst remains unchanged at the end of a reaction while a direct agent is consumed in the reaction to the point of destruction, dissipation or uselessness.
A recent court ruling broadened the exemption beyond its original intent and created potential inequities between mining operations based solely on the type of process used.
Effective April 1, 2000, the Social Service Tax Act is amended to restore its original intent and remove the potential inequity by clarifying that the exemption does not apply to:
TAXATION OF INTERJURISDICTIONAL CARRIERS USING AGENTS CLARIFIED
The Social Service Tax Act imposes tax on conveyances used interjurisdictionally (i.e., railcars, vessels, aircraft, trucks and buses) based on the ratio of use of the conveyance in the province to total use in all jurisdictions. Persons who reside, normally reside, or carry on business in the province are subject to tax on goods they bring into the province for their own use, for the use of another at their own expense, or for use by an agent of that person. However, the provision imposing tax on persons who do not reside or carry on business in the province does not refer to goods brought into the province at their expense by an agent. It is therefore possible for businesses outside of the province to use agents to avoid the tax and obtain a competitive advantage over British Columbia based businesses.
Effective April 1, 2000, the Social Service Tax Act is amended to clarify that tax applies whether the conveyance is used in the province by an owner, a lessee, or an agent of the owner or lessee.
TAXATION OF GOODS BROUGHT INTO THE PROVINCE BY NON-RESIDENTS FOR PERMANENT USE CLARIFIED
The Social Service Tax Act imposes tax on goods purchased in the province or brought into the province for use. Currently, persons who do not reside, ordinarily reside or carry on business in the province are required to pay tax on goods they bring into the province for use if they:
This provision is intended to ensure that non-residents who maintain seasonal or recreational property or property rights in the province and who benefit from provincial amenities contribute to the cost of those amenities. It also provides a level playing field for British Columbia businesses. However, the legislation is currently subject to interpretations which reduce its effectiveness.
Effective April 1, 2000, the legislation is amended to clarify that tax is payable on goods brought into the province for use by non-residents where the non-residents own or lease, for at least 12 months within an 18-month period, realty, moorage or parking rights within the province. The amendment also establishes that the 12 months within the 18-month period do not have to be consecutive.
EXEMPTION FOR MAGAZINES, NEWSPAPERS AND PERIODICALS CLARIFIED
The Social Service Tax Act exempts newspapers, magazines and periodicals from the provincial sales tax. The intent is to exempt only those publications that have a technical, educational, literary, or cultural content, not to exempt material that is essentially advertising or promotional in nature.
To clearly exclude advertising and promotional materials, catalogues, brochures and programs from the exemption, effective April 1, 2000:
TAXATION OF MULTIJURISDICTIONAL VEHICLES CLARIFIED
In 1995, at the request of the trucking industry, the province introduced substantial amendments to the Social Service Tax Act to accommodate British Columbia's membership in the International Registration Plan (IRP). IRP is a multijurisdictional licencing agreement that establishes a single uniform system for administering and collecting tax from interjurisdictional carriers. The benefit of membership in IRP is that it reduces administration and compliance costs for government and interjurisdictional truckers.
Interjurisdictional carriers pay a reduced annual tax that was introduced to replace the sales tax previously paid on vehicles, repairs to vehicles and trailers used with those vehicles. The annual tax was designed to be revenue neutral for the province and industry.
Effective April 1, 2000, the Act is amended to reinforce the original intent of the program by clarifying that:
These amendments are consistent with the intent of the legislation and with the terms of the international agreement.
REGISTRATION AND TAX COLLECTION REQUIREMENTS FOR OUT OF PROVINCE SELLERS EXPANDED
Under the Social Service Tax Act, British Columbia businesses that regularly make taxable sales are required to register as vendors and collect and remit the tax on taxable sales. Businesses located outside of the province but with a legal presence in the province are also required to register and collect the tax on sales to British Columbians. However, out of province businesses that do not have a physical presence in the province, such as many catalogue sellers or telemarketing firms, may not be required to register and collect the tax. As a result, they have a competitive advantage over British Columbia businesses.
In light of the rapid growth in catalogue, telemarketing, and internet sales generally, and the likelihood that sales from outside the province will increase in the future, amendments are introduced to level playing field for British Columbia based businesses.
Effective April 1, 2000 the Act is amended to expressly impose registration and tax collection obligations on out of province sellers who, in the ordinary course of business:
TAXATION OF BUNDLED PURCHASES CLARIFIED AND SIMPLIFIED
Sellers frequently sell packages that include both taxable and non-taxable goods for a single price (bundled purchases). For example, taxable software programs may be sold in a package with related exempt instruction manuals or training sessions.
Under the historical interpretation of the Social Service Tax Act, if the taxable and non-taxable goods are not separately itemised on the sales invoice, tax must be collected on the full sale price of the package. An administrative concession was provided for packages sold for less than $100. Under this concession, if the value of the taxable goods was less than 50% of the total value of the package, tax did not apply to the package. If the value of the taxable goods was greater than 50% of the package, tax applied to the full purchase price.
The lack of explicit provisions addressing the tax applicable to bundled purchases has created tax uncertainty for both the government and the public. To address this uncertainty, effective April 1, 2000, the application of tax to bundled purchases is simplified and clarified as follows:
Where taxable and non-taxable goods or services are sold together as a single package, and the sales invoice indicates the price of the taxable and non-taxable goods or services separately, tax continues to apply only to the charge for the taxable goods or services.
TAXATION OF GOODS USED IN PROVIDING A SERVICE CLARIFIED
Businesses that acquire goods for their own use to deliver a service are the users of such items and are required to pay tax unless the item is specifically exempt or clearly sold or leased to customers.
Effective April 1, 2000, the Social Service Tax Act is amended to clarify this longstanding application of tax.
MOTOR FUEL TAX ACT
EXEMPTION FOR NATURAL GAS USED IN COMPRESSORS TO INJECT ACID GAS INTO DEPLETED WELLS PROVIDED
Effective April 1, 2000, an exemption is provided for natural gas used in compressors to inject acid gas into depleted wells. The injection of acid gas into depleted wells provides significant environmental benefits by eliminating the venting of sulphur dioxide and carbon dioxide into the atmosphere.
ADMINISTRATION AND ENFORCEMENT PROVISIONS ENHANCED
Effective April 1, 2000, a number of statutory amendments are made to strengthen administration and enforcement and ensure the equitable application of the tax. These amendments include:
TOBACCO TAX ACT
ADMINISTRATION AND ENFORCEMENT PROVISIONS ENHANCED
Tobacco smuggling and non-compliance with the Tobacco Tax Act continue to be a problem, in part because of low federal and provincial tobacco taxes in central and eastern Canada.
Effective April 1, 2000, the following amendments are made to enhance the effectiveness of tobacco tax administration:
PROPERTY TRANSFER TAX ACT
ANTI-AVOIDANCE RULE ADDED FOR INTERESTS IN PROPERTY
Property transfer tax is imposed on the fair market value of land on the date application is made to register a transfer in a Land Title Office. Certain interests registered against the title to a property, including interests that are not subject to the tax (such as lease agreements for less than 30 years), may reduce the fair market value of the property. This provides a tax planning opportunity to artificially reduce the fair market value of a property for tax purposes.
Effective March 28, 2000, an anti-avoidance rule is provided to require the fair market value of property to be determined without reference to any interest in the land already held by the transferee or by an individual or corporation related to the transferee. Exceptions are provided where tax has been paid on the fair market value of that interest or where the interest was registered before the Property Transfer Tax Act was introduced in 1987.
INTERNATIONAL FINANCIAL BUSINESS (TAX REFUND) ACT
TAX RATE USED TO CALCULATE REFUNDS CLARIFIED
The International Financial Business (Tax Refund) Act provides for refunds of provincial income taxes to eligible corporations on certain international financial transactions. British Columbia currently levies corporate income taxes at two rates: a basic rate of 16.5 per cent and a lower small business rate. Although some corporations that are eligible for refunds under the statute pay income tax at the small business rate, refunds are calculated at the higher basic rate.
Effective April 1, 2000, refunds paid under the International Financial Business (Tax Refund) Act will be calculated at the actual rate used in determining tax payable under the British Columbia Income Tax Act.
INCOME TAX ACT
EXPENDITURE BASE FOR THE FILM AND TELEVISION TAX CREDIT CLARIFIED
The Film and Television Tax Credit was introduced in 1998 as an incentive to film production in the province. Although the provincial credit is similar to the federal film tax credit under the Income Tax Act (Canada) there are certain differences. One important difference is the calculation of the expenditure base for the tax credit when there is more than one equity interest in the production.
Effective April 1, 2000, the legislation is amended to clarify that the "cost of production" for purposes of the provincial tax credit is the total of all expenditures paid by the production corporation.
RECAPTURE OF SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT TAX CREDIT AUTHORIZED WHEN QUALIFYING PROPERTY SOLD OR CONVERTED TO COMMERCIAL USE
The British Columbia Scientific Research and Experimental Development Tax Credit is modeled on the federal tax credit program. Consistent with recent amendments to the Income Tax Act (Canada), the provincial legislation is amended effective April 1, 2000 to ensure that the tax credit is recaptured if qualifying property is disposed of to an arm's length party or converted to a commercial use.
COLLECTION OF INFORMATION BY MINISTRY OF ENERGY AND MINES FOR ADMINISTRATION OF MINING EXPLORATION TAX CREDIT AUTHORIZED
The Mining Exploration Tax Credit was introduced in 1998 to provide an incentive for grassroots mineral exploration in the province. The Ministry of Energy and Mines is responsible for the provincial regulation of mining exploration activities in the province.
Effective April 1, 2000, the Income Tax Act is amended to streamline administration by allowing the Ministry of Energy and Mines to collect and share with the Ministry of Finance and Corporation Relations information pertinent to the administration of the Mining Exploration Tax Credit.
QUALIFYING EXPENDITURES FOR MINING EXPLORATION TAX CREDIT CLARIFIED
Certain provisions in the current Mining Exploration Tax Credit legislation have resulted in uncertainty for taxpayers. Effective April 1, 2000, the legislation is amended to clarify that expenditures eligible for the tax credit must:
CORPORATION CAPITAL TAX ACT
RULES GOVERNING TAXATION OF FOREIGN BANK BRANCHES IN BRITISH COLUMBIA INTRODUCED
On June 28, 1999, the federal Bank Act was amended to permit foreign banks to establish specialized, commercially focused branches in Canada. In view of the differing international standards for capital adequacy requirements and the potential difficulties associated with ascertaining the taxable capital of foreign financial institutions, the Corporation Capital Tax Act is amended effective April 1, 2000 to address the taxation of foreign bank branches. Amendments will ensure that foreign bank branches established in British Columbia are taxed on an equitable basis with domestic banks and Canadian subsidiaries of foreign banks currently operating in the province.
DEDUCTION OF INVESTMENTS IN PARTNERSHIPS IN THE COMPUTATION OF THE INVESTMENT ALLOWANCE CLARIFIED
In the calculation of the investment allowance under the Corporation Capital Tax Act, if a corporation has an interest in a partnership, the investment amount may be deducted and the corporation's share of partnership assets must be added. Partnership assets must be measured only at the taxation year-end of the partnership that falls within the corporation's taxation year. In certain circumstances a corporation will have a tax year that does not include a taxation year-end of the partnership. Currently, when this occurs, neither the corporation's share of partnership assets nor the investment amount in the partnership are included in the calculation.
In order to correct this unintended result, the legislation is amended effective April 1, 2000 to ensure that the partnership investment is only deducted if the corporation's share of partnership assets is included.
DUPLICATE DEDUCTION FOR CORPORATIONS THAT COMMENCE OR CEASE TO HAVE A PERMANENT ESTABLISHMENT IN BRITISH COLUMBIA DURING THE YEAR REMOVED
Effective April 1, 2000, the Corporation Capital Tax Act is amended to limit the tax reduction available to corporations that commence or cease to have a permanent establishment in the province during a taxation year. If a corporation has a permanent establishment outside of the province, a reduction is already available in respect of paid up capital attributable to that permanent establishment. Therefore, the tax reduction for corporations that commence or cease to have a permanent establishment in British Columbia will be limited to corporations that do not have permanent establishments outside of the province.
CANADIAN LAND OWNED BY NON-RESIDENT CORPORATIONS DEEMED TO CONSTITUTE A PERMANENT ESTABLISHMENT
Effective April 1, 2000, the Corporation Capital Tax Act is amended to clarify that land owned by a non-resident corporation constitutes a permanent establishment for purposes of British Columbia capital tax.
CONSUMPTION TAXATION STATUTES
EFFECTIVENESS OF BONDING PROVISIONS ENHANCED
Effective April 1, 2000, two amendments are made to enhance the effectiveness of bonding provisions under the Tobacco Tax Act and Motor Fuel Tax Act. Both of the Acts are amended to allow forfeiture of a bond for failure to pay a security, and to clarify that the bond may be applied to the tax or security amount due under the Act, as well as to the interest payable on that amount. The Tobacco Tax Act is also amended to allow the director to request a bond from a tobacco wholesaler or retailer in response to changing circumstances, such as increases in sales volumes, or non-compliance with the legislation.
REMITTANCE REQUIREMENTS FOR TAX COLLECTED IN ERROR TIGHTENED
On occasion, sellers inadvertently collect tax from customers on items that are not taxable. When this occurs, the purchaser may apply to the province for a refund of the tax paid in error. However, under the existing wording of the Social Service Tax Act, Hotel Room Tax Act, Tobacco Tax Act, and Motor Fuel Tax Act, there are no explicit provisions to require tax collected in error to be remitted to the province. This leaves the province in a position of refunding tax that it has not received.
Effective April 1, 2000, the Acts are amended to clarify that all amounts collected as tax must be remitted to the province, even if they have been collected in error. The person who paid the tax in error is eligible to apply for a refund of the tax paid.
MINOR INFRACTIONS REMOVED FROM COURT PROSECUTION PROVISIONS
Effective April 1, 2000, only serious infractions involving wilful action on the part of a taxpayer will be subject to court prosecution. This will enhance the effectiveness of court prosecutions and provide clearer guidance to the courts with respect to the severity of infractions.
The Acts to be amended include the Social Service Tax Act, Hotel Room Tax Act, Motor Fuel Tax Act and Tobacco Tax Act.
STANDARD SECTIONS ESTABLISHED FOR SERVING ENFORCEMENT NOTICES
Existing provisions under the Social Service Tax Act, Hotel Room Tax Act, Motor Fuel Tax Act and Tobacco Tax Act require the province, before taking proceedings for the recovery of taxes, to give notice to a taxpayer or collector of the intention to enforce payment. The wording of this provision under each Act varies, resulting in confusion for taxpayers.
Effective April 1, 2000, standard provisions are established for serving a notice of the province's intention to enforce payment of taxes owing.
AUTHORITY PROVIDED TO THE COMMISSIONER OR DIRECTOR TO ISSUE FORMAL DEMANDS FOR INFORMATION
Effective on Royal Assent, the Social Service Tax Act, Hotel Room Tax Act, Motor Fuel Tax Act and Tobacco Tax Act are amended to authorize demands for information relating to tax liabilities under the legislation and the disposition of assets that are subject to the statutory collection proceedings.
REFERENCES TO "REVENUE CANADA" REPLACED WITH "CANADA CUSTOMS AND REVENUE AGENCY"
On November 1, 1999, the new Canada Customs and Revenue Agency assumed the role, formerly performed by Revenue Canada, of collecting provincial revenue on behalf of the province under the Income Tax Act. In order to recognize this change, all references to "Revenue Canada" in provincial legislation and regulations are changed to "Canada Customs and Revenue Agency" effective November 1, 1999.
AUTHORITY PROVIDED TO PRESCRIBE INTEREST CALCULATIONS
Effective April 1, 2000, authority is provided to prescribe by regulation the manner in which interest on refunds and outstanding tax liabilities is to be calculated under the Social Service Tax Act, Hotel Room Tax Act, Tobacco Tax Act, Motor Fuel Tax Act, Insurance Premium Tax Act, Logging Tax Act, Corporation Capital Tax Act, and Taxation (Rural Area) Act.
The amendments provide clear legislative authority for the current practice of compounding interest on outstanding tax liabilities and refunds.
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