Report D: REVENUE MEASURES

Introduction -- Tax Freeze for British Columbia Families
and Small Business Continues

Tax cuts and rate freezes introduced in the 1996 budget will continue to reduce the tax burden for British Columbia individuals and families in 1997 and future years. Small businesses received tax cuts of $29 million annually.

Total savings in 1997/98 will be $590 million and slightly more in 1998/99 when the full impact of the personal income tax reduction occurs. [Table 1]

The tax cuts ensure that British Columbia families will continue to pay among the lowest taxes in the country (see Table H3 for details).

 
Cutting Taxes for British Columbians

Budget '97 continues to respond to the priorities of British Columbia families by maintaining the tax cuts introduced in 1996 and continuing the freeze of other taxes and rates. The 1996 tax reductions included a 4 per cent reduction in the personal income tax phased in over two years. The reduction is capped for high income taxpayers earning more than $80,000.

In addition to these tax cuts, the government also introduced the BC 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.

As additional help for working families, the government has also frozen other key rates:

• ICBC's car and truck insurance rates remain frozen for 1997.

• BC Hydro's electrical rates remain frozen for two more years ending in 1998.

• Tuition fees for British Columbia universities and colleges remain frozen through the 1997/98 academic year (the government recently announced its intention to keep tuition fee increases at or below the rate of inflation for two years after the freeze ends).

 
Cutting Taxes for Small Business

In recognition of the key role played by small businesses in job creation and economic development, Budget '96 targeted tax cuts to the small business sector:

• The small business income tax rate was reduced from 10 per cent to 9 per cent; the rate has not been lower since 1987.

• A two-year income tax holiday was introduced for eligible new small businesses.

These cuts reduced taxes for small business by $29 million.

 
Revenue Measures

D1: SUMMARY OF REVENUE MEASURES

 
Revenue Measures: Supplementary Information

CORPORATION CAPITAL TAX ACT

INVESTMENT ALLOWANCE TIGHTENED

Effective April 1, 1997, the investment allowance is amended to disallow deductions for the following:

• deposits in foreign bank accounts;

• loans and advances to insurance companies; and

• loans or advances made to federal, provincial, and municipal Crown corporations which are exempt from tax under the Act.

The investment allowance deduction is intended to provide relief from double taxation. Since none of the investments listed above are subject to corporation capital tax, disallowing a deduction for them is consistent with the original policy intent of this provision.

 
SCHOOL ACT

SCHOOL TAX RATES SET

A separate residential tax rate is set for each school district. For the 1997 taxation year, the average of residential school taxes, before application of the home owner grant, will be maintained at 1996 levels. This will be done by adjusting residential school property tax rates to reflect changes in average assessed values. This rate setting policy complies with the requirements of the Tax and Consumer Rate Freeze Act.

Individual 1997 school district residential tax rates will be set in April, when authenticated assessment roll data are available and can be used to calculate the rates according to the provincial residential school tax rate formula.

Even with the freeze on average residential tax levels, individual tax bills may change. Some homeowners will experience an increase in their school taxes, while others will have offsetting reductions. The changes in individual tax bills will occur because tax rate changes for 1997 will reflect changes to provincial and school district average assessed values. Individual tax bills, on the other hand, will reflect changes to individual assessed values, which in most cases will differ from changes to school district and provincial averages.

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 1996 levels. Average non-residential school property taxes will rise by about 2.5 per cent because of increases to assessed values. This is the first increase to average non-residential school property taxes since 1993. In that period, the consumer price index in British Columbia has risen by over 5 per cent.

Changes to individual property tax bills for non-residential property owners may differ from the roughly 2.5 per cent average increase because changes to individual assessed values will differ from the non-residential average.

 
TAXATION (RURAL AREA) ACT

PROVINCIAL RURAL AREA TAX RATES SET

For the 1997 taxation year, the average of residential rural area property taxes will be maintained at its 1996 level. This will be done by reducing the residential rural area tax rate to reflect the roughly 2.5 per cent increase in average residential assessed values in the rural areas and is consistent with the Tax and Consumer Rate Freeze Act. The tax rates for the eight non-residential property classes will remain unchanged for 1997. The effect is that average non-residential rural area tax levels will be unchanged in 1997.

Some rural area residential property owners will still 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 2.5 per cent, will see increases in their rural area property tax levies, while those whose property values have fallen or risen less than 2.5 per cent, will have tax reductions. Similarly, owners of non-residential properties that have increased in value will see their rural area taxes rise, while those owning properties that have fallen in value will have tax reductions.

 
MUNICIPAL ACT, VANCOUVER CHARTER, TAXATION (RURAL AREA) ACT

DISCONTINUE EXEMPTION FOR NEW POLLUTION ABATEMENT PROPERTIES

The property tax exemption for properties designed for the purpose of abating pollution will no longer be available for new properties or properties not exempted in 1996. This measure ensures equal treatment for producers who build non-polluting facilities and is consistent with the 'polluter pay' principle.

Properties that were tax exempt in 1996 will continue to be exempt. This includes properties whose status as an exempt property in 1996 results from a successful appeal.

 
TOBACCO TAX ACT

INCREASE TAX RATES ON LOOSE TOBACCO

Effective March 26, 1997, the tobacco tax rate for loose tobacco (e.g., cigarette, pipe and chewing tobacco) is increased from 8.4 cents per gram to 11 cents per gram, a rate roughly equivalent to that imposed on manufactured cigarettes on a per gram basis. The tax rate increase is based on the recognition that health risks and costs associated with tobacco use depend primarily on the amount, rather than the form, of the tobacco consumed.

OTHER REVENUE

A number of changes to fees and licences have been recently implemented or will be introduced during the 1997/98 fiscal year. These changes help cover the government's cost of providing existing or new services. Changes to fees and licences include:

• increasing a number of consumer services fees including motor dealer and travel agent registration fees (effective April 1997);

• increasing probate fees (effective April 1997);

• introducing a 15 per cent surcharge on all provincial fines to help fund spinal cord injury programs and services for victims of crime (effective July 1997);

• increasing fees to supply copies of survey plans (effective May 1997);

• increasing angling licence fees (effective April 1997);

• increasing ambulance service fees (effective April 1997);

• increasing safety inspection fees for elevators, electrical and gas installations (effective April 1997), and boiler and pressure vessels (effective November 1997);

• increasing fees for motor vehicle temporary operating permits and interim vehicle licences (effective January 1997);

• introducing fees for use of highway rights-of-way by wireless communications companies (effective April 1997); and

• introducing fees for promotional road signs on highway rights-of-way (effective May 1997).

More information on fees and licences is provided in the User Fees topic box.

 
MOTOR FUEL TAX ACT

REVENUE DEDICATED TO THE BC TRANSPORTATION FINANCING AUTHORITY

Effective April 1, 1997, the portion of the clear fuel tax dedicated to the BC Transportation Financing Authority (TFA) is increased to 2 cents per litre from 1 cent. The additional one cent per litre is expected to generate approximately $55 million in revenue for the TFA to help finance priority transportation projects. There is no change to the clear fuel tax rate paid by consumers.

This change was previously announced in the 1996 budget. However, the transfer did not take place in 1996/97 because the revenue requirements of the TFA were less than expected.

 
HOTEL ROOM TAX ACT

REVENUE DEDICATED TO TOURISM BRITISH COLUMBIA

Subject to concluding discussions with industry, effective April 1, 1997, 1.65 percentage points of the 8 per cent provincial hotel room tax is transferred to a new provincial tourism agency. The revenue from the Tourism British Columbia portion of the tax is expected to generate approximately $17 million in 1997/98 to promote development and growth in the tourism industry throughout British Columbia. There is no change to the overall hotel room tax rate paid by consumers.

 
D2: SUMMARY OF ADMINISTRATIVE MEASURES

 
Administrative Measures: Supplementary Information

CORPORATION CAPITAL TAX ACT

TREATMENT OF JOINT VENTURES HARMONIZED WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

A corporation's tax base for corporation capital tax is determined using its financial statements prepared in accordance with generally accepted accounting principles. In 1995, generally accepted accounting principles were revised to require the proportionate consolidation of a corporation's interest in a joint venture. Effective April 1, 1997, the corporation capital tax provisions will be harmonized with the revised generally accepted accounting principles on joint ventures. This change will simplify the calculation of the tax base.

BCEE DEFINITIONS HARMONIZED WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The Corporation Capital Tax Act provides a two-year holiday for British Columbia eligible expenditures (BCEE) such as exploration, development and research expenditures. These activities are currently defined in the corporation capital tax legislation by reference to the Income Tax Act (Canada). Effective April 1, 1997, the following BCEE definitions will be harmonized with terminology used in generally accepted accounting principles:

• deferred exploration costs and deferred development costs, with respect to resource expenditures; and

• deferred development costs, with respect to research and development expenditures.

Since the calculation of corporation capital tax is based on a corporation's financial statements prepared in accordance with generally accepted accounting principles, these amendments will simplify the calculation of the tax base.

NON-RESIDENT CORPORATIONS OWNING LAND IN BRITISH COLUMBIA
DEEMED TO HAVE A PERMANENT ESTABLISHMENT

Effective April 1, 1997, the corporation capital tax legislation is clarified to apply to non-resident corporations that derive revenue from real property owned in British Columbia but do not otherwise carry on business through a permanent establishment in Canada. This amendment will enhance the fairness and integrity of the corporation capital tax regime by ensuring that non-resident corporations owning land in British Columbia are treated in the same manner as resident corporations.

INVESTMENT ALLOWANCE DEDUCTION PERMITTED FOR
LOANS AND ADVANCES TO PARTNERSHIPS

Effective April 1, 1997, an investment allowance deduction will be permitted for a corporation's qualifying loans and advances to a partnership in which the corporation is not a member, provided that all the members of the partnership are corporations.

ALLOCATION RULES HARMONIZED WITH FEDERAL ALLOCATION RULES

Effective April 1, 1997, the corporation capital tax allocation rules are harmonized with federal allocation rules under the Income Tax Act (Canada) to deny an allocation of the tax base to foreign jurisdictions in which a corporation is not taxable. This amendment will maintain the symmetry of the corporation capital tax regulations with the federal regulations.

 
SOCIAL SERVICE TAX ACT

MINIMUM REFUND AMOUNT INCREASED TO $10 FROM $1

A minimum refund amount of $1 is currently provided under the Social Service Tax Act. The cost of processing refunds for amounts between $1 and $10 is about six times the amount of tax actually refunded.

Effective March 26, 1997, the minimum refund amount is increased to $10 from $1. This is consistent with the minimum refund amounts in all other consumption tax statutes.

ENERGY CONSERVATION EXEMPTION EXPANDED TO INCLUDE CHEMICALS
TO MAKE SPRAY POLYURETHANE FOAM INSULATION

Certain materials used primarily to prevent heat loss from buildings are exempt from the provincial sales tax (e.g., fibreglass insulation).

Effective March 26, 1997, the exemption is expanded to include chemicals which, when combined, produce spray polyurethane foam insulation for the purpose of insulating a building.

LIST OF EXEMPT SAFETY EQUIPMENT EXPANDED

Effective March 26, 1997, highway distress flares are added to the list of items which can be purchased exempt from tax as safety equipment.

ADDITIONAL EXEMPTIONS FOR BONA FIDE FARMERS

Effective March 26, 1997, the list of items that can be purchased tax exempt by bona fide farmers for farm purposes is expanded to include egg immunization systems and pest control paper.

 
MOTOR FUEL TAX ACT

APPLICATION OF TAX TO NATURAL GAS USED TO COMPRESS GAS OR
PUMP OIL THROUGH TRANSMISSION LINES CLARIFIED

Effective March 26, 1997, the rate of tax applicable to natural gas used by the oil and natural gas industries in internal combustion engines to compress natural gas and pump oil for transmission through distribution lines is clarified. Natural gas is consumed in internal combustion engines that compress natural gas or pump oil through networks of ancillary and main pipelines located throughout the province.

REFUND PROVIDED FOR THE DIFFERENCE BETWEEN THE
CLEAR AND COLOURED FUEL TAX RATES FOR CLEAR FUEL
USED IN FAMILY FARM TRUCKS FOR FARM PURPOSES

Bona fide farmers are authorized to use lower-taxed, coloured fuel to operate family farm trucks for farm purposes in British Columbia. However, the use of coloured fuel is now prohibited in the United States on public highways. As a result, British Columbia farmers who deliver their own produce to the United States now have to use higher-taxed clear fuel in their vehicles.

Effective March 26, 1997, legislative authority is provided to refund the difference between the clear and coloured fuel tax rates for clear fuel used in family farm trucks for farm purposes. This will allow bona fide farmers to continue to receive the benefit of the lower coloured fuel tax rate for fuel used to transport their farm produce to the United States.

 
PROPERTY TRANSFER TAX ACT

EXEMPTIONS FOR TRANSFERS TO AND FROM
FAMILY FARM CORPORATIONS EXPANDED

An exemption is currently provided for transfers of family farms to and from family farm corporations where the transferor or transferee is a related individual, as defined under the Act, to all of the shareholders of the family farm corporation, and all of the shareholders are related individuals to each other.

Effective March 26, 1997, the exemption is expanded by removing the requirement that all of the family farm corporation shareholders must be individuals related to each other. The requirement that the transferee or transferor must be related to each of the shareholders is maintained. As a result, a transfer of a family farm from a parent to a family farm corporation in which two or more children are shareholders, will be exempt.

 
SCHOOL ACT

PHASE IN TAX IMPACTS FOR PARTS OF AMALGAMATED SCHOOL DISTRICTS

The residential school property tax impact of school district amalgamation will be phased in over two years. In 1997, the school tax increase due to amalgamation on a median-valued home in each of the former school districts will be limited to about $40. The increases result from the calculation of tax rates using the province's residential school tax rate calculation formula and basing the calculation on assessment data for the new districts.

The cost of the phase in will be recovered by a slight adjustment to tax rates throughout the province for 1997. However, the tax rates will be set to meet the requirement set out in the Tax and Consumer Rate Freeze Act that the province-wide average of residential school property taxes not increase.

 
FIRE SERVICES ACT

CLARIFY APPLICATION OF FIRE SERVICES TAX

The Fire Services Act imposes a 1 per cent tax on insurance premiums for policies insuring property against a fire hazard. Effective for the 1997 calendar year, the application of tax to the full amount of a premium under these policies is clarified.

 
VARIOUS STATUTES

APPEAL PERIOD EXTENDED TO 90 DAYS

Effective March 26, 1997, appeal periods are extended to 90 days from 60 under four provincial tax statutes: the Corporation Capital Tax Act; Logging Tax Act; Mining Tax Act; and Insurance Premium Tax Act. All provincial tax statutes now have appeal periods of 90 days, thereby providing uniformity between statutes and enhancing fairness.

AUTHORITY PROVIDED TO RECOVER OVERPAID REFUNDS

Refunds of provincial consumption taxes are provided under all provincial consumption tax statutes for a wide variety of reasons, including tax paid in error. Refund claims must be accompanied by documentation verifying the applicant's eligibility for the refund, and all refund claims are reviewed to substantiate eligibility. However, subsequent audits or inspections may reveal that a taxpayer received an overpayment of a refund, or that circumstances existed that disqualified the claimant from the refund.

Effective March 26, 1997, legislative authority is provided to recover overpayment of refunds under the Hotel Room Tax Act; Motor Fuel Tax Act; Social Service Tax Act; and Tobacco Tax Act.

Budget 97 Reports

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BC Budget 97

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BC Ministry of Finance and Corporate Relations

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