Introduction - Cutting Taxes for British Columbia Families and Small Businesses

Tax cuts and rate freezes in the 1996 budget mean many British Columbia families will be paying up to $700 less in taxes. And small businesses that create jobs will receive tax cuts of $29 million annually.

Total savings will be $485 million in 1998/99 when the full impact of the changes is felt. The provincial government has made these tax cuts and rate freezes possible by cutting the size and cost of government. Now it is returning these savings to the public, as well as protecting health care and education.

TABLE 1
SAVINGS FOR BRITISH COLUMBIA FAMILIES

These tax cuts ensure that British Columbia families will continue to pay the second lowest taxes in the country (see Table G3 for details).

Cutting Taxes for British Columbia Families

Budget '96 responds to the priorities of British Columbia families by cutting some taxes and freezing other taxes and rates. The tax reductions are described in more detail below, but include a two point reduction in the personal income tax, which is capped for high income taxpayers earning more than $80,000 in order to direct the savings to working, middle-class families.

These tax cuts are in addition to the recently introduced Family Bonus - a monthly cheque of up to $103 per child to help working families raise their children and make work a better deal than welfare. The tax cuts are also in addition to rate freezes announced recently by the Premier:

• ICBC's car and truck insurance rates are frozen for 1996 and 1997.
• BC Hydro's electrical rates are frozen for three years, starting in 1996.
• Tuition fees for British Columbia universities and colleges are frozen for the 1996/97 academic year.

Cutting Taxes for Small Business

Small businesses play a key role in job creation and economic development. Recognizing this, Budget '96 has targeted tax cuts to small businesses, rather than corporate tax breaks for banks and big business:

• Effective July 1, 1996, the small business income tax rate will be reduced from 10 per cent to 9 per cent; the rate has not been lower since 1987.
• A two-year income tax holiday will be introduced for eligible new small businesses incorporated on or after May 1, 1996. Some restrictions will apply to ensure that the tax holiday is directed to those new businesses most likely to create new jobs.

These cuts will reduce taxes for small business by $29 million annually.

Revenue Measures
D l: Summary of Revenue Measures

Revenue Measures: Supplementary Information

BASIC INCOME TAX RATE REDUCTIONS

The British Columbia personal income tax rate, calculated as a percentage of basic federal tax, is decreased by one percentage point effective July 1, 1996 and a further percentage point effective next July. These changes will lower the rate to 50.5 per cent from 52.5 per cent of basic federal tax.

The reduction will be capped for taxpayers paying the second tier surtax which is reached at taxable income of approximately $80,000.

The following table shows the impact of the reductions on taxpayers. The changes are for a single individual with employment income claiming basic tax credits.

TABLE 2
IMPACT OF PERSONAL INCOME TAX CHANGES

SMALL BUSINESS INCOME TAX RATE REDUCED

Effective July 1, 1996 the small business income tax rate for Canadian-controlled private corporations is reduced one point to 9 per cent from 10 per cent. There is no change to the general corporate rate. The small business tax rate reduction will benefit about 40,000 small businesses in British Columbia.

TWO-YEAR CORPORATE INCOME TAX HOLIDAY INTRODUCED FOR ELIGIBLE NEW SMALL BUSINESSES

A two-year corporate income tax holiday is introduced for eligible new small businesses incorporated on or after May 1, 1996 and on or before March 31, 2001. The tax holiday is only applicable to income that qualifies for the small business income tax rate. Targeting the benefit at new small businesses will complement the small business rate reduction and stimulate job creation in the province. To ensure the benefits are directed toward new business with the greatest potential for creating jobs, the following corporations are excluded from the tax holiday:

• incorporated professionals such as accountants, lawyers, notaries, doctors, dentists, etc.;
• new corporations carrying on substantially the same business activity as was carried on previously by a sole proprietorship, partnership or existing corporation;
• new corporations that are essentially owned by the same or related owners as a previous active business or are associated with another business; and
• new corporations that are in a partnership or a joint venture with ineligible corporations, or beneficiaries of a trust where any beneficiary is ineligible.

PROPERTY TRANSFER TAX ACT

MAXIMUM FAIR MARKET VALUE OF RESIDENTIAL PROPERTIES ELIGIBLE FOR THE FIRST-TIME HOME BUYERS' EXEMPTION INCREASED

Effective May 1, 1996, the fair market value of eligible residential property under the First-Time Home Buyers' Exemption Program is increased from $250,000 to $275,000 in the Greater Vancouver Regional District, the Central Fraser Valley Regional District, the Dewdney-Alouette Regional District, the Fraser-Cheam Regional District and the Capital Regional District; and from $200,000 to $225,000 in the rest of the province.

First-time home buyers are individuals who:

• have not previously held a registered interest in a residence in which they lived;
• have resided in British Columbia for at least one year prior to applying for the exemption;
• are Canadian citizens or lawfully admitted to Canada for permanent residence; and
• have registered financing for an amount equal to 70 per cent or more of the fair market value of the property.

Eligible residential properties must be acquired for and used as the purchaser's principal residence for at least one year following the application for exemption.

SOCIAL SERVICE TAX ACT

EXEMPTION INTRODUCED FOR ELIGIBLE PURCHASES OF TANGIBLE PERSONAL PROPERTY INCORPORATED INTO PROTOTYPES

Effective May 1, 1996, an exemption is provided for eligible purchases of tangible personal property incorporated into prototypes. Prior to this amendment, materials and parts incorporated into prototypes as part of a research and development program were taxable unless the prototype was subsequently sold.

HOME OWNER GRANT ACT

Effective for the 1996 taxation year, the home owner grant phase-out threshold is increased to $525,000 from $475,000. The grant will be phased out at the rate of $10 of grant for each $1,000 of assessed value in excess of $525,000. As a result, the grant will be eliminated for most homeowners having a home assessed at more than $572,000. For homeowners who are seniors, handicapped or recipients of war veterans allowances, the grant will be eliminated for homes assessed in excess of $599,500. Setting the threshold at $525,000 means that roughly 96 per cent of homeowners will not be affected by the phase-out.

SCHOOL ACT

Effective for the 1996 taxation year, average gross school taxes are maintained at 1995 levels by adjusting school property tax rates in response to changes in assessed values.

Even with the freeze on average tax levels, there will be some changes to individual tax bills. Because changes in individual property values deviate from the average, some property owners will experience an increase in their school tax, while others will experience a reduction. Similar shifts will occur within the non-residential property classes.

TAXATION (RURAL AREA) ACT

Effective for the 1996 taxation year, average gross taxes are maintained at 1995 levels by adjusting the residential rural area tax rate in response to changes in assessed values. Because changes in individual property values deviate from the average, some property owners will experience an increase in their rural area levy, while others will experience a reduction.

MOTOR FUEL TAX ACT

REVENUE DEDICATED TO BC TRANSPORTATION FINANCING AUTHORITY

Effective March 31, 1996, an additional 1 cent per litre of the clear gasoline and diesel fuel tax is transferred to the BC Transportation Financing Authority (BCTFA). The additional 1 cent per litre is expected to generate approximately $55 million in revenue for the BCTFA to help finance priority transportation projects. There is no change to the total fuel tax rate paid by consumers.

D2: Summary of Administrative Measures

Administrative Measures: Supplementary Information

SOCIAL SERVICE TAX ACT

ADDITIONAL EXEMPTIONS FOR BONA FIDE FARMERS

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.

Effective May 1, 1996:

• teat dip;
• livestock ID tags, including microchips for attachment to livestock for livestock monitoring, whether or not the tags are impregnated with insecticides or pesticides;
• queen bee cups, cages and mailing cartons;
• thermometers, hydrometers, barometers and other weather monitoring equipment (excluding personal computers and software);
• pesticide applicators;
• prefabricated loading chutes and livestock handling systems;
• prefabricated gates and accessories for farm use;
• calf tipping tables;
• tree stakes;
• culverts and other water control devices for cranberry beds;
• artificial insemination equipment;
• flower sorting and bunching equipment; and
• chemicals for making fertilizer, regardless of weight.

ENERGY CONSERVATION EXEMPTION EXPANDED TO INCLUDE QUALIFYING POLYSTYRENE INSULATION FORMING BLOCKS

Certain materials used primarily to prevent heat loss from buildings, including rigid and semirigid polystyrene insulation attached to the outside of buildings, are exempt from provincial sales tax. Materials that primarily serve a structural or decorative function are taxable, even if they also prevent heat loss from buildings.

Effective May 1, 1996, the exemption is expanded to include qualifying polystyrene forming blocks. Qualifying polystyrene forming blocks are composed of rigid polystyrene, sometimes reinforced with plastic or steel, which initially serve as forms for concrete, but remain permanently attached to the concrete to serve as the primary insulation to prevent heat loss from the completed building.

LIST OF EXEMPT SAFETY EQUIPMENT EXPANDED

Effective May 1, 1996, the following are added to the list of items which can be purchased exempt from tax as safety equipment:

• personal intercom systems designed to be worn by workers to enable safe, hands-free, communications while working in confined and hazardous work environments; and
• personal alert safety systems designed to be worn by persons working in hazardous or potentially hazardous conditions which alert the wearer to potentially unsafe working conditions, or alert rescuers to the location of the wearer.

LIST OF EXEMPT ITEMS USED IN THE PRINTING PROCESS EXPANDED

An exemption is currently provided for prescribed materials when purchased or leased by printers and publishers for their own use in the printing process. In this process, an image of the product to he printed is etched on a plate. This plate is then attached to a cylinder to accept ink from ink rollers. Another cylinder, with a blanket attached, takes the ink from the plates and transfers it to the product being printed. The blanket is currently subject to tax.

Effective May 1, 1996, the exemption for items purchased or leased by printers and publishers for their own use is expanded to include blankets used in the printing process to transfer ink to the product being printed.

EXEMPTION FOR ARTICULATING BEDS EXPANDED

An exemption is currently provided for certain equipment designed solely for the use of persons with a permanent disability or handicap. Articulating beds that move the head or foot area up and down and reposition an individual sideways to relieve bed sores currently qualify for exemption. Effective May 1, 1996, articulating beds that simply move the head/torso and leg/ foot areas up and down, like a standard hospital bed, are eligible for exemption on the prescription of a physician.

EXEMPTION FOR TRANSFERS OF COMPUTER SOFTWARE BETWEEN RELATED CORPORATIONS CLARIFIED

Effective May 1, 1996, the exemption for transfers of tangible personal property between related corporations is clarified to include transfers of software that was not taxable at the time of acquisition because it was custom built or custom modified.

MOTOR FUEL TAX ACT

PARTIAL REFUND FOR FUEL TO OPERATE HYDRAULIC ARMS

A refund of tax equal to the difference between the tax rate on clear and coloured fuel is currently provided for that portion of clear fuel used in the engine of a stationary motor vehicle to operate a mobile crane. The refund does not currently apply to hydraulic lifts mounted on logging trucks which in recent years have replaced cranes in the logging industry. Effective May 1, 1996, the partial refund is extended to hydraulic lifts mounted on logging trucks.

PROPERTY TRANSFER TAX ACT

VALUE-SPLITTING BY ASSOCIATED CORPORATIONS RESTRICTED

Property transfer tax is imposed on application to register a transfer of an interest in land in the land title system at a rate of 1 per cent of the first $200,000 of fair market value, and 2 per cent on the balance.

An exemption is currently provided under the Property Transfer Tax Act for statutory amalgamations. This exemption has been used recently by associated corporations to avoid the higher 2 per cent rate of tax on values in excess of $200,000. The avoidance has been achieved by creating numerous associated corporations, each of which purchases a $200,000 interest in the same property, and then amalgamating the associated corporations exempt from tax. Effective May 1, 1996, the act is amended to impose tax on the aggregated value of all partial interests in the same land purchased by associated corporations within a six-month period.

This provision parallels an existing provision which restricts value-splitting by related individuals.

MUNICIPAL ACT

CERTAIN AIRPORT IMPROVEMENTS EXEMPTED FROM PROPERTY TAX TO REMOVE AN IMPEDIMENT TO TRANSFERS OF AIRPORTS TO LOCAL CONTROL

Under its National Airport Policy the federal government is attempting to transfer the operation of airports to local control - in the case of major airports, to local airport authorities, and in the case of local/regional airports, to local governments. In British Columbia the federal policy affects about 30 airports.

When the federal government operates airports it pays grants in lieu of property tax, but does not pay grants on the value of certain airport improvements such as paved runways, taxiways and airport navigation aids (e.g., runway lights and unenclosed communication towers).

Under current provincial legislation the transfer of an airport to an airport authority or any other taxable operator results in the imposition of property tax on the value of all improvements, including those not subject to federal grants. The result is that taxable airport operators face a significant increase in their property tax liability, which is a major impediment to the transfer of airports to local control.

In order to remove this impediment, effective for the 1994 taxation year, legislative authority is provided to exempt prescribed airport improvements at prescribed community airports. The improvements to be prescribed closely parallel the improvements on which the federal government does not pay grants in lieu. As a result, airport operators will be relieved of a significant increase in their tax liability and taxing authorities' revenues should be unaffected. Legislative authority is provided retroactive to the 1994 taxation year to allow the removal of the additional tax liability on improvements at airports which were transferred to taxable operators over the last two years

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