| The following electronic version is for informational purposes only. The printed version remains the official version. |
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| The following electronic version is for informational purposes only. The printed version remains the official version. |
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Introduction
During the 1990's all provincial governments in Canada have struggled to address the fiscal difficulties created in large part through reductions in federal transfers. While many governments chose to cut essential social programs, the British Columbia government focussed on reducing the deficit while protecting health and education programs. Thanks in part to the strength of the provincial economy, this approach was successful. The deficit fell from $2.5 billion in 1991/92 to $169 million in 1997/98. Although this achievement has required significant program cuts, health and education programs have not been compromised.
At the same time, since 1995, the government has been able to reduce taxes for average British Columbians and, through the BC Family Bonus program, significantly reduce the depth and breadth of child poverty.
The government will continue to lower taxes for low and middle income families. But in light of recent events in Asia, it must also ensure that British Columbia businesses are able to thrive in an increasingly competitive world economy.
Recent Tax and Rate Freeze Measures
Since 1995, provincial tax cuts and rate freezes, including provincial tax reductions initiated by the federal government, have significantly lowered the tax burden for British Columbia individuals and families. For example, the provincial personal income tax rate has decreased in each of the last three years. Total savings for British Columbians from these reductions and freezes in 1998/99 will be $846 million of which $809 million or 95 per cent will go to low and middle income families.
Looking Forward
Despite the growth of the service sector and high technology industries, British Columbia remains an export dependent economy. The diversification of provincial exports that occurred during the late 1980s and early 1990s helped to buffer the province from the North American recession that hurt the rest of Canada for several years. As a result, British Columbia led the rest of the country in economic growth for much of this period.
In recent months, the outlook for the British Columbia economy has shifted. The Asian crisis will substantially reduce economic growth in 1998. The situation in Asia and the increasing competition British Columbia firms face in other markets presents a challenge that must be met. The government has been consulting widely on how best to respond to this challenge.
After weighing all the advice gathered through these consultations, it became clear that the appropriate response is to adopt a measured, targeted approach that includes:
Table D1 summarizes the tax reductions associated with these initiatives. These reductions will inject $95 million into the provincial economy in 1998/99 and more than $400 million in 2001/02 when they are fully implemented. The tax reductions are an integral part of the government's strategy for revitalizing the province's traditional industries and ensuring that British Columbia is able to compete successfully in the knowledge-based economy of the future.
Cutting Taxes for British Columbians
Tax reductions increase consumers' take-home pay and spending, providing a direct stimulus to private sector growth and job creation. Budget 98 reduces the basic personal income tax rate to 49.5 per cent from 50.5 per cent of federal tax, effective January 1, 1999. This will be the fourth year in a row that British Columbia personal income tax has been lowered for a total reduction of 6 per cent since 1995.
In addition, the Medical Service Plan premium assistance program will be enhanced to reduce premiums for 80,000 low income individuals and families.
In 1999, the combined impact of the tax cuts and rate freezes introduced since 1995 will be to reduce taxes and other costs for a single parent family of two with income of $30,000 by $1,200 annually.
Revitalizing Traditional Industries
The forestry, agriculture, mining and oil and gas sectors will continue to play a key role in British Columbia's economic success, particularly in the areas outside the Lower Mainland. The government has entered into discussions with each of these sectors to develop initiatives aimed at improving competitiveness and spurring additional investment and job creation.
In exchange, the government will be seeking a commitment from the oil and gas sector to undertake the investment required to sustain strong levels of employment and economic growth in the energy sector.
Assistance for Small Business
Small business has been a continuing source of strength in British Columbia, creating many of the new jobs in the economy and providing first jobs for many young people. In 1996, the small business corporate income tax rate was reduced by 10 per cent, and a two-year tax holiday was introduced for qualifying new small businesses.
The government will encourage further development and growth in the small business sector by:
Knowledge-Based Economy
A key to British Columbia's future economic success is its people. The government is committed to ensuring that the province has a world class education system and that its taxation policies do not detract from British Columbia's natural advantages as a place to live and work.
Reducing Red Tape and Regulation
To be successful, businesses must strive to keep administrative costs to a minimum. The government recognizes that, in some cases, the regulatory framework can contribute to raising the cost of doing business. Government is initiating a review of provincial regulations which will focus on reducing unnecessary red tape and paperwork, while protecting environmental and workplace standards.
Revenue Measures by Category
INCOME TAX ACT
PERSONAL INCOME TAX RATE REDUCTIONS
The British Columbia personal income tax rate, calculated as a percentage of basic federal tax, is decreased to 49.5 per cent from 50.5 per cent of basic federal tax effective January 1, 1999. In addition, the high income surtax is reduced to 19 per cent, from 26 per cent, of provincial tax in excess of $8,660 effective January 1, 1999.
The basic rate reduction will reduce basic provincial personal income tax liabilities for all taxpayers by 2 per cent. For taxpayers who pay the high-income surtax, the basic rate reduction also reduces surtax liabilities due to the fact that surtax thresholds are set in terms of basic provincial tax. Taxpayers who pay the second tier high-income surtax because their income exceeds roughly $80,000, will also have lower surtax liabilities from the reduction in the surtax rate.
The following table shows the impact on taxpayers of the reduction in the basic provincial tax rate and the reduction in the surtax rate in 1999. The table shows the changes for a single individual with employment income claiming basic tax credits.
The marginal tax rate is the rate of tax paid on an additional dollar of income earned. The top marginal tax rate is the marginal tax rate applicable in the highest income bracket.
The following table shows top marginal tax rates, including federal and provincial tax rates, in effect for 1995, 1998 and the rates that will be in effect for 1999 and 2001.
The table clearly shows the competitive pressures facing British Columbia. Seven provinces have reduced their top marginal rates since 1995.
Over the next three years the government will reduce the top marginal income tax rate to 49.9 per cent. The reduction in the basic British Columbia tax rate and the reduction in the surtax rate will reduce the top marginal rate in the province by about 1.5 percentage points to 52.7 per cent in 1999. The rate will be reduced to 51.3 per cent in 2000 and 49.9 per cent in 2001. This will reduce British Columbia's top marginal rate by a total of 8 per cent and will bring the province's rate into line with most provinces. Even with these changes, the top four per cent of tax filers will contribute 28.5 per cent of total provincial income tax revenue. In contrast, the 50 per cent of tax filers with the lowest incomes pay only about 5 per cent of total provincial personal income tax.
The following chart illustrates the distribution by income group of tax filers, income and provincial income tax for the 1995 tax year.
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CHART D1 TAXFILERS, INCOME AND TAX PAID BY INCOME GROUP BRITISH COLUMBIA, 1995 [ Click to view larger image of Chart D1 ] |
SMALL BUSINESS CORPORATE INCOME TAX RATE REDUCED
Effective January 1, 1999, the small business income tax rate for Canadian-controlled private corporations will be reduced to 8.5 per cent from 9 per cent. The rate will be further reduced to 8 per cent on January 1, 2000. When fully implemented, this change will reduce corporate income tax liabilities by 11 per cent for about 40,000 small businesses in British Columbia.
FILM INCENTIVE BC -- REFUNDABLE CORPORATE INCOME TAX CREDIT
As announced in October 1997, a refundable corporate income tax credit is introduced for qualifying film and television productions with principal photography commencing on or after April 1, 1998. Film Incentive BC will be jointly administered by British Columbia Film and Revenue Canada.
Key features of Film Incentive BC include:
Qualifying British Columbia labour expenditures are capped at 48 per cent of total production costs. There are no project caps or corporate caps.
To access the basic tax credit, a production company must be British Columbia-controlled and have copyright ownership of the project. The regional and training incentives are available to production companies that are British Columbia-based and Canadian-controlled. All projects must incur a minimum of 75 per cent of total production and post-production costs in British Columbia, and must meet a minimum level of Canadian content.
In addition to the above tax credits, the government is currently exploring various other options with the film and television industry that will enhance British Columbia's position as a preferred shooting location for foreign producers.
CORPORATION CAPITAL TAX ACT
EXEMPTION THRESHOLD INCREASED
The threshold below which corporations are exempt from the tax will be increased from $1.5 million of net paid up capital. The increases will be effective for taxation years ending on or after the dates shown below:
When fully phased in, these changes will eliminate corporation capital tax liabilities for approximately 10,000 additional corporations, representing a reduction of 40 per cent in the number of corporations required to pay capital tax.
HIGH-RATE THRESHOLD APPLICABLE TO FINANCIAL INSTITUTIONS INCREASED
Effective for taxation years ending on or after April 1, 1998, the threshold above which large financial institutions start to pay the higher 3 per cent rate is raised to $1 billion from $750 million of net paid-up capital.
SCHOOL ACT
SCHOOL TAX RATES SET
A separate residential tax rate is set for each school district. For the 1998 taxation year, the average of residential school taxes, before application of the home owner grant, will be maintained at 1997 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. There will be a small revenue increase due to the addition of new residential properties to the tax base.
Individual 1998 school district residential tax rates will be set in April, when authenticated assessment roll data are available to calculate the rates according to the provincial residential school tax rate formula.
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 variation in individual tax bills will occur because changes in the assessed value of any individual property are likely to differ from changes in the 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 1997 levels. Average non-residential school property taxes will rise by about 3 per cent due to increases in assessed values. Changes to individual property tax bills for non-residential property owners are likely to differ from the provincial average because changes in the value of individual properties will differ from changes in average assessed values.
TAXATION (RURAL AREA) ACT
PROVINCIAL RURAL AREA TAX RATES
For the 1998 taxation year, the average of residential rural area property taxes will be maintained at its 1997 level consistent with the Tax and Consumer Rate Freeze Act. This will be done by reducing the residential rural area tax rate to reflect the roughly 3.5 per cent increase in average residential assessed values in the rural areas. The 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 still experience an increase in their rural area property taxes, while others will have offsetting tax reductions. Home owners whose property values have increased by more than 3.5 per cent will see increases in their rural area property tax levies, while those whose property values have fallen or risen less than 3.5 per cent will have tax reductions.
The tax rates for the eight non-residential property classes will remain unchanged for 1998. Tax revenues will increase by about 4 per cent due to the combination of increases in assessed values and new construction. 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.
HOME OWNER GRANT ACT
Effective for the 1998 taxation year, the home owner grant phase-out threshold is unchanged at $525,000. The grant is 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 is 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 is eliminated for homes assessed in excess of $599,500. The threshold of $525,000 means that, as in previous years, roughly 96 per cent of homeowners are not affected by the phase-out.
SOCIAL SERVICE TAX ACT
EXEMPTION PROVIDED FOR "1-800" AND EQUIVALENT TELEPHONE SERVICE
Effective for calls made on or after May 1, 1998, "1-800" and equivalent telephone and facsimile services are exempt from provincial sales tax. This will help to level the playing field in British Columbia with other provinces and encourage the retention and development of call centres in the province. Tourism, manufacturing, communications, entertainment and other sectors will benefit from this initiative.
EXEMPTION PROVIDED FOR SOFTWARE SOURCE CODE
Software source code is the underlying language in which a software program is written. The source code cannot be read by a computer and must be converted into executable code before it can operate in a computer. The provincial sales tax currently applies to packaged and prewritten software but does not distinguish between source code and executable code. As a result, source code is subject to tax.
Effective March 31, 1998, an exemption is provided for purchases of software source code in non-executable form. This exemption will contribute to the ongoing growth and development of the software industry in British Columbia by facilitating the purchase of software source code by British Columbia based software developers and businesses.
EXEMPTION PROVIDED FOR COPIES OF PROTOTYPES PRODUCED AND USED SOLELY FOR TESTING PURPOSES
An exemption is currently provided for purchases of tangible personal property incorporated into prototypes. As defined, the exemption only applies to one prototype, i.e., the "first full scale functional form of a new type or a new construction of tangible personal property". As a result, the exemption does not apply to tangible personal property incorporated into copies of prototypes produced to test the prototype under different conditions.
Effective March 31, 1998, the exemption is expanded to include tangible personal property incorporated into copies of prototypes produced solely for testing purposes.
ADDITIONAL EXEMPTIONS FOR BONA FIDE FARMERS
Effective March 31, 1998, 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:
MOTOR FUEL TAX ACT
EXEMPTION PROVIDED FOR COLOURED FUEL USED BY BONA FIDE FARMERS
Effective June 1, 1998, bona fide farmers will not be subject to tax on coloured fuel used for farming purposes. This will help to reduce the costs of operating farms and will be of particular benefit to field crop producers.
TAX RATE ON INTERNATIONAL JET FUEL TAX REDUCED
As announced in the 1997/98 budget, effective April 1, 1998, the tax rate on international jet fuel is reduced to 3 cents per litre from 4 cents per litre. The rate will be reduced to 2 cents per litre effective April 1, 1999. This will bring the tax rate closer to current rates in neighbouring jurisdictions and will support Vancouver International Airport's strategy of becoming a major gateway between North America and Asia.
TOBACCO TAX ACT
TAX RATE ON TOBACCO STICKS SET AT CIGARETTE EQUIVALENT
Effective March 31, 1998, the tax on tobacco sticks is changed to be equivalent to the tax rate for cigarettes on a per unit basis. The tobacco stick tax rate of 11 cents per gram is changed to 11 cents per stick. Pre-formed tobacco sticks are structurally much like manufactured cigarettes. This measure ensures that the developing trend for tobacco companies to produce tobacco sticks that resemble cigarettes will not erode the tobacco tax base.
MAXIMUM TAX RATE FOR CIGARS INCREASED
Effective March 31, 1998, cigars will be taxed at 77 per cent of the purchase price of any cigar to a maximum level of $5.00 per cigar. The single tax rate replaces a more complicated tax schedule that includes eight tax categories. The new tax scheme simplifies calculating tax rates for cigar retailers and government tax collectors. The higher maximum tax payable accounts for the fact that cigar prices have escalated over time and more smokers are buying higher-priced cigars. A maximum tax level of $5.00 per cigar is more appropriate based on today's prices.
INSURANCE PREMIUM TAX ACT AND FIRE SERVICES ACT
Effective April 1, 1998, the fire insurance tax is merged with the insurance premium tax for property, pleasure craft and liability insurance. This means the fire insurance premium tax paid by insurance companies is eliminated. As well, the tax rate paid by insurance companies on property, pleasure craft and liability insurance premiums is increased to 4 per cent from 3 per cent. In effect, the insurance premium tax structure is simplified by reducing the number of tax rates from four to two.
INTERNATIONAL FINANCIAL BUSINESS (TAX REFUND) ACT
PROVIDE IFC SOCIETY OF VANCOUVER SUPPORT FOR SELF-FUNDING
The International Financial Business (Tax Refund) Act is amended to require that international financial institutions be members of the IFC Society of Vancouver (IFC Vancouver) to be eligible to register and receive refunds on corporate income tax related to international financial business activities. This allows IFC Vancouver to expand its membership and negotiate membership fees which will increase the degree to which the organization is self-funding. Increased self-funding will increase IFC Vancouver's independence and strengthen its ability to effectively represent the membership.
ALLOW INTERNATIONAL CAPTIVE INSURANCE AND EXPORT FINANCING ACTIVITIES TO QUALIFY FOR TAX REFUNDS
To promote Vancouver as an international financial centre and attract new international business activity, the act will be amended to:
These changes will be effective for taxation years commencing on or after April 1, 1998.
MEDICARE PROTECTION ACT
MEDICAL SERVICES PLAN PREMIUM ASSISTANCE
Premium assistance will be enhanced by providing greater benefits to current recipients and by making more individuals and families eligible for the program.
Monthly Medical Services Plan premiums are currently $36 for singles, $64 for families of two and $72 for families of three or more. Premium assistance is available to lower income individuals and families at five levels, ranging from 20 per cent to 100 per cent of the premiums otherwise payable. Adjusted family income is used to determine the level of assistance and is defined as net income from an applicant's (and spouse's) income tax return, less $3,000 for each dependent and $3,000 for each person in the family over age 65 or disabled. The highest level of assistance is currently available to those individuals and families with adjusted net incomes of less than $11,000.
Effective July 1, 1998, the adjusted net family income thresholds, above which the five levels of assistance apply, will increase by $1,000 each. These enhancements will mean reduced premiums for 100,000 people currently benefitting from premium assistance including 35,000 people who will no longer have to pay premiums. In addition, 10,000 more people will be eligible for premium assistance.
The following table shows the impact of these changes for a single person, a senior couple and a family of four at various income levels. For example, a family of four with an income of $28,000 will be eligible for premium assistance at the 20 per cent level and will have their annual premiums reduced by $173.
OTHER REVENUE
FEES AND LICENCES
A number of changes to fees and licences will be introduced during the 1998/99 fiscal year. These changes help cover the government's cost to provide existing or new services. Changes to fees and licences include:
Administrative Measures by Category
SOCIAL SERVICE TAX ACT
EXEMPTION PROVIDED FOR CHEMICALS USED IN THE PULP AND PAPER INDUSTRY TO MAKE CHLORINE DIOXIDE OR SODIUM HYDROSULFITE
An exemption is currently provided for direct agents used in the transformation or manufacture of a product for sale or lease. Chlorine, long used in the pulp industry to bleach pulp, was a direct agent and qualified for exemption. However, more stringent environmental standards in recent years have required pulp mills to replace chlorine with chlorine dioxide and sodium hydrosulfite, which are more environmentally friendly.
Although these products would also qualify as direct agents if purchased in the form of chlorine dioxide or sodium hydrosulfite, difficulties transporting the product in this form require mills to purchase the chemicals to make the compounds separately. The purchase of the separate chemicals disqualifies them as direct agents and from the exemption.
Effective March 31, 1998, an exemption is provided for chemicals used in the pulp and paper industry to make the more environmentally-friendly chlorine dioxide or sodium hydrosulfite when they are used as direct agents.
ENERGY CONSERVATION EXEMPTION EXPANDED TO INCLUDE ELIGIBLE WINDOW INSULATION SYSTEMS
Certain materials used primarily to prevent heat loss from 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 March 31, 1998, the exemption for energy conservation equipment is expanded to include eligible window insulation systems. Such systems generally consist of a transparent film installed over a window to conserve energy by reducing heat loss from a building. As such, the systems serve a similar function to multi-glazed and storm windows which are currently exempt.
PROPORTIONAL TAX REFUND PERIOD FOR DEFECTIVE MOTOR VEHICLES EXTENDED WHEN VEHICLE BUY-BACKS ARE AWARDED THROUGH AN IMPARTIAL, INDEPENDENT, THIRD PARTY DISPUTE RESOLUTION PROCESS
Where a defective motor vehicle is returned to a motor vehicle dealer within one year after the date of purchase, the purchaser is eligible for a refund of provincial sales tax paid on the refunded amount. When a vehicle is returned after the one-year period, a tax refund is only provided if the purchaser receives a refund of the full purchase price.
Effective March 31, 1998, the period during which a proportional refund may be obtained is extended when a vehicle buy-back is awarded through an impartial, independent, third-party dispute resolution process.
TIMING FOR PAYMENT OF $1.50 PER DAY PASSENGER VEHICLE RENTAL TAX CLARIFIED
Effective March 31, 1998, the timing for the payment of the $1.50 per day passenger vehicle rental tax is clarified to be the earlier of the date the lease price is paid or becomes payable. This makes the timing of the payment of this tax consistent with the timing of the payment of tax on leases generally under the act.
APPLICATION OF TAX TO MOTOR VEHICLES LEASED FROM OUT-OF-PROVINCE CLARIFIED
Where a person leases a motor vehicle for use in British Columbia from an unregistered lessor located outside of the province, the lessee is required to pay provincial sales tax on the value (the tax rate value as defined in the act) of the vehicle at the time the vehicle is registered in British Columbia. When the lease expires or is terminated the lessee may obtain a refund of any excess tax paid.
Effective March 31, 1998, this application of tax is confirmed.
EXEMPTION FOR ENERGY CONSERVATION MATERIALS AND EQUIPMENT CLARIFIED
Certain items used to conserve energy, primarily but not exclusively insulating materials used to prevent heat loss from buildings, are exempt from the provincial sales tax.
Effective March 31, 1998, the exemption is clarified to exclude from exemption generic parts purchased to make or build such equipment. Parts purchased to make or build goods for sale or lease remain exempt.
EXEMPTION FOR TANGIBLE PERSONAL PROPERTY CLARIFIED
A wide variety of goods, and parts specifically designed to repair or recondition those goods, are exempt from provincial sales tax.
Effective March 31, 1998, the act is clarified to exclude from the exemption tangible personal property used to make exempt tangible personal property.
Purchases of tangible personal property to be incorporated into goods for sale or lease remain exempt from tax.
APPLICATION OF TAX TO CHANGE-OF-USE CLARIFIED
Certain goods are exempt from the provincial sales tax when acquired for specific uses. For example, bona fide farmers are able to purchase certain goods exempt from tax when the goods are purchased and used for farming. If a farmer subsequently uses an item purchased exempt for farm use for a taxable use, the farmer is required to pay tax on the item at that time.
Effective March 31, 1998, a general provision is introduced to clarify that tax is payable in all situations where goods acquired exempt by reason of their use are subsequently transferred to a taxable use.
DEFINITION OF PURCHASE PRICE CLARIFIED
Provincial sales tax is imposed on the purchase price of tangible personal property and is intended to include the total consideration paid for the property.
Effective March 31, 1998, the definition of purchase price is clarified to ensure that consideration in the form of royalty payments and licence fees is included.
EXEMPTION FOR FERTILIZER ELIMINATED WHEN PURCHASED BY OTHER THAN AN INDIVIDUAL FOR NON-AGRICULTURAL PURPOSES
An unconditional exemption from provincial sales tax is provided for purchases of fertilizer to facilitate agricultural production. However, the unconditional nature of the exemption allows fertilizer to be purchased tax exempt even when it is used for non-agricultural purposes.
Effective March 31, 1998, the exemption for purchases of fertilizer is eliminated when purchased by other than an individual for a non-agricultural purpose. Mines remain eligible for the exemption if purchased and used for an eligible purpose under the act.
TRANSITIONAL REFUND PROVISION CLARIFIED TO EXCLUDE CONTRACTS OF INDEFINITE DURATION OR QUANTITY
A transitional provision was provided in the 1993 provincial Budget when the provincial sales tax rate was increased from 6 per cent to 7 per cent to provide a 1 per cent refund of tax paid by purchasers on goods purchased before the rate change, but on which the higher rate of tax was paid, because the goods were delivered and paid for after that date.
Effective March 31, 1993, the refund provision is amended to clarify that relief is only available to purchasers who were obligated to acquire specific quantities of tangible personal property within a specific time frame. This amendment ensures that purchases under contracts of indefinite duration or quantity will not benefit from the 6 per cent rate in perpetuity.
PROPERTY TRANSFER TAX ACT
MAXIMUM PAY DOWN PROVISION FOR THE FIRST TIME HOME BUYER EXEMPTION PROGRAM RELAXED
The First Time Home Buyer Exemption Program requires applicants to have financing registered against the property for at least 70 per cent of the value of the property. This is to ensure that the exemption is targeted to those most in need. Purchasers are allowed to reduce the amount of registered financing during the first year after transfer by a maximum of $11,000 in the Greater Vancouver Regional District, the Central Fraser Valley Regional District or the Capital Regional District and $9,000 in all other areas of the province. Purchasers who reduce their registered financing by more than the maximum amount in the first year forfeit their right to the exemption and are required to pay the tax.
Because the maximum pay down amount is a fixed amount, purchasers with very high-ratio mortgages (e.g., 95 per cent financing) may pay down the maximum amount and still have financing far in excess of the 70 per cent required to qualify for exemption.
For transfers registered on or after March 31, 1997, the maximum pay down amount is relaxed to allow first time buyers to reduce their registered financing during the first year after purchase by the greater of:
EXEMPTION FOR TRANSFERS OF RECREATIONAL PROPERTIES BETWEEN RELATED INDIVIDUALS CLARIFIED AND MAXIMUM ALLOWABLE FAIR MARKET VALUE INCREASED
An exemption from property transfer tax is provided for transfers of eligible recreational properties between related individuals where the fair market value of the property is less than $200,000.
Effective March 31, 1998, the maximum allowable fair market value for eligible recreational properties is increased to $275,000 and the maximum allowable value is clarified to apply to the value of the entire property rather than to an interest in the property.
EXEMPTION FOR TRANSFERS TO AND FROM TRUSTEES CLARIFIED
An exemption is provided for transfers of property between a settlor of a trust and the Public Trustee, or a trust company authorized to carry on trust business under the Financial Institutions Act, if the settlor is a natural person, the administration of the trust is for the sole benefit of the settlor, and on termination of the trust the land reverts to the settlor or the executor of the settlor's estate. The intent of this exemption is to allow for the tax-free transfer of a person's land to a trustee and then back to the person or the person's estate. However, as drafted, the exemption could be used to purchase property from a third party without payment of tax.
Effective March 31, 1998, the exemption is clarified to require that the settlor must be the registered owner of the property immediately before the transfer to qualify for the exemption. This will ensure that the exemption cannot be used to purchase property tax-free from third parties.
DEFINITION OF SETTLOR INTRODUCED
The term settlor, as used in a number of different exemptions under the Property Transfer Tax Act in relation to property being transferred to or from a trust, is not defined in the act and is subject to various interpretations.
Effective March 31, 1998, settlor is defined to mean the person who contributed the property, or the assets used to acquire the property, to the trust.
EXEMPTION FOR TRANSFERS OF ELIGIBLE PROPERTY BETWEEN RELATED INDIVIDUALS CLARIFIED
Exemptions are provided for transfers of family farms, recreational residences and principal residences between related individuals, as defined under the act. The intent of the exemptions is to provide for the tax-free transfer of eligible properties between related individuals. Exemptions are also provided with respect to the transfer of these types of properties from a trustee. Although not intended, it is possible to use the exemptions involving trustees in combination with the exemptions not involving trustees to transfer property tax-free to related individuals of the trustee.
Effective March 31, 1998, the Property Transfer Tax Act is amended to prevent these exemptions from being used in combination to obtain an exemption not intended under the act.
INCOME TAX ACT
GENERAL ANTI-AVOIDANCE RULE INTRODUCED
Effective March 31, 1998, a general anti-avoidance rule is introduced to give Revenue Canada the authority to challenge abusive tax avoidance arrangements and deny any tax benefit that may result. This measure is consistent with the federal general anti-avoidance rule and similar to the rules in most other provinces.
INSURANCE PREMIUM TAX ACT
Effective April 1, 1998, the tax return due date is changed from March 15 to March 31.
CONSUMPTION TAX STATUTES
INTEREST PAYMENTS EXCLUDED FROM PURCHASE PRICE WHEN CALCULATING BAD-DEBT REFUNDS
Provincial consumption taxes are payable by purchasers at the time a purchase is made and sellers are responsible for remitting the tax collected to the province. When sellers make sales on credit they are required to remit the tax due with their next tax return even if the customer has not yet paid for the item. If an account is subsequently written off as a bad debt, sellers may submit a refund claim for tax remitted on the portion of the account which has been written off.
In some cases, sellers apply customer payments to outstanding interest charges before applying them to the sale or lease price. Because payments are first applied against the interest charge, all or a substantial portion of the sale or lease price may remain unpaid even though the purchaser has made payments towards the purchase or lease of the item. This results in the province retaining little, if any, of the tax due on the transaction.
Effective March 31, 1998, interest payments may not be used to reduce the amount paid towards the sale or lease price for purposes of calculating a bad-debt refund under the Social Service Tax Act, Motor Fuel Tax Act, Hotel Room Tax Act and Tobacco Tax Act.
AUDIT AND ENFORCEMENT
Audit and enforcement programs encourage voluntary compliance with provincial taxation statutes and reduce competitive inequities which can result when businesses or individuals fail to comply.
The government will hire an additional 68 auditors and support staff to help ensure that all businesses pay their fair share of taxes.
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CONTENTS FOR BUDGET ’98: REPORTS |  | ||
| CONTENTS FOR BUDGET ’98 |
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BC Ministry of Finance and Corporate Relations |
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