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| Part 3: REVENUE MEASURES | ||
Tax Reductions to Stimulate Economic Growth and Job CreationBritish Columbia’s economy has under-performed for most of the last decade. Investment has foundered and consumer confidence has been low. As a result, economic growth has not kept pace with the rest of Canada and real incomes per capita have fallen. The government is committed to reversing this trend and to restoring British Columbia’s economic vitality. A key to achieving this goal is to foster productivity growth. Only through renewed and long-term productivity gains can British Columbians be assured of higher incomes and a better standard of living. Boosting productivity will require action on many fronts, including improving our education system to ensure people have the skills they need to succeed and reducing the regulatory burden. But a fundamental element of raising British Columbia’s productivity is a tax system that is competitive and that encourages investment and innovation. Personal Income Tax Cuts On June 6, 2001, the government announced a 25 per cent reduction in the personal income tax. The cut will leave an additional $1.1 billion in taxpayers’ pockets this year and $1.5 billion next year. This is an important first step in increasing disposable incomes and improving consumer confidence. In addition, as part of the cut, British Columbia’s top marginal rate will be reduced to the second lowest in Canada. This will encourage more highly skilled knowledge workers and entrepreneurs to work and invest in the province. Vehicle Surtax Threshold Raised The last time the vehicle surtax threshold was raised was in 1994. Since then there has been a substantial rise in new vehicle prices. This has placed an unfair burden on those British Columbians, including people with disabilities, who rely on large vehicles to travel safely and do their jobs. Effective July 31, 2001, the threshold at which the surtax starts to apply will be raised to $47,000 from the current level of $32,000. The increase in the threshold will save taxpayers $27 million in 2001/02 and will ensure that British Columbians are better able to afford cars and trucks for their business or personal needs. Business Tax Cuts In order to make British Columbia truly competitive, the business tax structure also needs to be re-examined. The Update includes four tax cuts to encourage investment in the province, plus several other cuts designed to improve the province’s competitiveness as a transportation gateway to North America. Provincial Sales Tax on Production Machinery and Equipment For many years British Columbia was the only province to apply its sales tax to production machinery and equipment without providing some relief through an offsetting investment tax credit. In a world where there is competition for every investment dollar, this has been a significant deterrent to economic growth and productivity gains. A small investment tax credit was introduced in 2000 but discussions with the business community have confirmed that it was insufficient to generate significant new investment. Effective July 31, 2001, production machinery and equipment purchased by eligible manufacturers will be exempt from provincial sales tax. The exemption will also apply to logging and mining, as well as petroleum and natural gas exploration, development and extraction. The exemption will replace the three per cent investment tax credit. The exemption will reduce costs for business by a net amount of $87 million in 2001/02 and should spur investment throughout the economy. It will help the manufacturing, logging and mining industries with the investments they need to remain competitive, and will also assist the high-tech manufacturing and software development sectors which are rapidly becoming a core part of the provincial economy. General Corporation Capital Tax Phase-out Canada is one of the few countries in the developed world which relies on capital taxes. Several studies over the past few years have recommended that the federal and provincial governments should work to eliminate these taxes because they discourage investment. In British Columbia, the capital tax has been a serious deterrent to overseas investment, particularly from Pacific Rim countries. The general corporation capital tax will be phased out over two years. The rate will be reduced from 0.3 per cent to 0.15 per cent on September 1, 2001 and the tax will be eliminated on September 1, 2002. This will remove an investment impediment of $101 million in 2001/02. Competitive Corporate Income Tax British Columbia’s general corporate income tax rate is among the highest in Canada and is driving businesses to locate in other jurisdictions. As a further step in securing a competitive tax system, the general corporate income tax rate will be reduced to 13.5 per cent from 16.5 per cent effective January 1, 2002. This will bring British Columbia’s rate in line with those in Alberta and Ontario, and the province will strive to keep the rate competitive in the future. Encouraging Mineral Exploration Increased exploration is a key to renewing the mining industry in the province. To provide an additional incentive for exploration, British Columbia will introduce a new 20 per cent flow-through share tax credit modelled after a similar federal credit introduced in October 2000. The existing mining exploration tax credit will remain for companies and individuals that do not use flow-through shares to finance their exploration activities. Enhancing British Columbia as a Transportation Gateway To support British Columbia’s gateway strategy, the domestic jet fuel tax rate will be reduced to 2 cents per litre from 5 cents per litre effective August 1, 2001. This will bring our domestic rate in line with the rate charged on international flights and with the rates charged by our competitors. The reduction will help the Vancouver International Airport and will also assist regional airports by reducing the costs of flights within the province. In addition, the aviation fuel tax will be reduced to 2 cents per litre from its current level of 3 cents per litre. British Columbia is one of very few jurisdictions which impose a tax on bunker fuel which is used to run large ships. Effective August 1, 2001, the tax on bunker fuel will be eliminated. Eliminating the tax will open up opportunities to supply more bunker fuel to ships visiting British Columbia ports and will remove a competitive disadvantage we face in attracting cruise ship business. This will assist the tourism sector, as well as help Vancouver and Prince Rupert attract new shipping opportunities in a very competitive international market. Other Tax Reductions The government will also provide additional encouragement for people to purchase alternative fueled vehicles by doubling the maximum sales tax rebate available for these vehicles and by exempting PuriNOx™ from the fuel tax. PuriNOx™ is a diesel/water emulsion that significantly reduces emissions of particulates from diesel engines. To ensure that the provincial sales tax does not discourage tourism, the government will not proceed with amendments affecting boats and recreational vehicles owned by non-residents. These amendments were passed, but not proclaimed in the 2000 legislative session. Instead, the government will undertake consultations to develop an approach that is fair and that will enhance British Columbia’s reputation as a tourism destination. Summary In total, these cuts will provide a benefit of $1,378 million to British Columbia taxpayers in the current fiscal year, of which $1,157 million will go to individuals and $221 million to businesses. In combination with progress on other fronts, such as reducing red tape and unnecessary regulation, the tax cuts should contribute to an improved investment climate, renewed productivity growth, and ultimately more jobs and higher incomes for British Columbians. Summary of Revenue Measures
Revenue Measures: Supplementary InformationINCOME TAX ACT PERSONAL INCOME TAX RATES On June 6, 2001, the government announced provincial personal income tax rate reductions starting in the 2001 tax year. The tax cut will reduce provincial personal income tax by about 25 per cent for most taxpayers and by 28 per cent for those earning less than $30,000. The direct benefit to taxpayers will be approximately $1.15 billion in 2001/02 and $1.5 billion in 2002/03. Earlier estimates which suggested a benefit to taxpayers of $1.35 billion in 2001/02 were incorrect due to a technical calculation error. The 2002/03 impact of $1.5 billion remains correct, however. Table 3.1 shows British Columbia’s personal income tax brackets and rates before and after the changes for 2001 and for 2002 and subsequent tax years.
Table 3.2 shows some examples of the tax cut for a single taxpayer claiming basic credits and typical deductions.
In 2000, the personal income tax top marginal tax rate in British Columbia was 51.3 per cent. In 2002, when the tax cut is fully implemented, the top marginal tax rate in British Columbia will be the second lowest in Canada at 43.7 per cent (see Table 3.3). (See website www.rev.gov.bc.ca/itb/ for more information.)
DIVIDEND TAX CREDIT RATE As a consequence of the personal income tax rate reductions, the dividend tax credit rate will be changed for 2001 and 2002. For 2001, the British Columbia dividend tax credit rate is reduced from 6.6 per cent to 5.9 per cent and for 2002 the tax credit rate is reduced to 5.1 per cent. Without these changes, the effective tax rate reduction for dividend income would have been much greater than for other forms of income. These changes ensure that the reduction for dividends will be more in line with the rate cuts for wage income. In addition to the tax rate changes, several consequential amendments to the Income Tax Act are required. These consequential amendments are related to the carryforward of unused provincial tuition and education credits and the annual limit of tuition and education credits that can be transferred to a parent or grandparent. (See website www.rev.gov.bc.ca/itb/ for more information.) GENERAL CORPORATE INCOME TAX RATE The general corporate income tax rate will be reduced to 13.5 per cent from 16.5 per cent effective January 1, 2002 and the government will strive to keep the rate competitive in the future. The general corporate income tax rate applies to investment income, income of public and non-Canadian-controlled private corporations, income of Canadian-controlled private corporations with paid up capital in excess of $10 million, and active business income of Canadian-controlled private corporations in excess of $200,000. (See website www.rev.gov.bc.ca/itb/ for more information.) MINING FLOW-THROUGH SHARE TAX CREDIT Effective July 31, 2001, individual flow-through share investors are eligible for a 20 per cent tax credit on qualifying mining exploration expenditures passed through (renounced) to them by exploration companies. The credit can be used to reduce British Columbia personal income taxes. This new British Columbia tax credit is modelled on, and will supplement, the 15 per cent federal flow-through share tax credit announced in the October 2000 federal Economic Statement and Budget Update. The credit is available for eligible exploration expenditures financed by flow-through shares and incurred after July 30, 2001 and before 2004. The existing British Columbia Mining Exploration Tax Credit will continue to be available to companies and individuals conducting qualifying exploration activity in British Columbia that is not financed by flow-through shares. Flow-through shares are shares issued by resource companies to raise equity capital for exploration work in Canada. By issuing flow-through shares, companies agree to renounce exploration tax deductions to their investors. Once renounced, the expenses are deductible in computing the taxable incomes of the investors instead of the issuing corporations. (See website www.rev.gov.bc.ca/itb/ for more information.) MANUFACTURING AND PROCESSING INVESTMENT TAX CREDIT The three per cent Manufacturing and Processing Investment Tax Credit, introduced in April 2000, will be eliminated for assets acquired after July 30, 2001. The credit is replaced by a provincial sales tax exemption for production machinery and equipment. (See website www.rev.gov.bc.ca/itb/ for more information.) CORPORATION CAPITAL TAX ACT Corporation capital tax on non-financial corporations will be phased out in two stages. The tax rate for non-financial corporations will be reduced from 0.3 per cent to 0.15 per cent effective September 1, 2001, and the tax will be eliminated for non-financial corporations effective September 1, 2002. During the phase-out period, corporations will calculate their corporation capital tax liability by applying the appropriate rates in proportion to the number of days in their taxation year before and after the rate changes. (See website www.rev.gov.bc.ca/itb/ for more information.) SOCIAL SERVICE TAX ACT EXEMPTION FOR PRODUCTION MACHINERY AND EQUIPMENT Effective July 31, 2001, an exemption from the provincial sales tax is introduced for prescribed machinery and equipment purchased or leased by eligible manufacturers or by persons regularly engaged for commercial purposes in logging or the exploration, development and extraction of petroleum, natural gas, minerals and coal. See Consumer Taxation Branch Bulletin 100 at: www.rev.gov.bc.ca/ctb/, call toll free 1 877 388-4440 or call your local Consumer Taxation Branch office (see blue pages of phone book) for a copy of the Bulletin to obtain details on eligibility requirements, prescribed machinery and equipment, and how to obtain the exemption. The existing 3 per cent investment tax credit is repealed effective July 30, 2001. VEHICLE SURTAX THRESHOLD FOR PASSENGER VEHICLES Threshold for vehicle surtax raised to $47,000 The threshold for the vehicle surtax on the purchase, lease or rental of passenger vehicles is increased to $47,000 from $32,000, effective July 31, 2001. As of that date, the tax rates applicable to passenger vehicles are as follows:
"Passenger vehicles" are motor vehicles designed primarily for the transportation of individuals. The definition excludes trucks and vans larger than three-quarter ton, motorhomes, trailers, buses, ambulances and camperized vans designed primarily for accommodation during travel or recreation. For all leased or rented vehicles, the tax rate is based on the value of the vehicle on the date the lessor first leases the vehicle to a lessee. The new vehicle surtax threshold applies to all passenger vehicles purchased after July 30, 2001. For leased vehicles, the new vehicle surtax threshold applies to the first lease payment due after July 30, 2001. (See website www.rev.gov.bc.ca/ctb/ for more information.) MAXIMUM REBATE FOR ALTERNATIVE FUEL VEHICLES Purchasers of eligible new alternative fuel passenger vehicles and new alternative fuel passenger buses may claim a partial rebate of 30 per cent of the social service tax paid up to a maximum amount. Effective July 31, 2001, the maximum rebate for an alternative fuel passenger vehicle is raised to $1,000 from $500 and the maximum rebate for an alternative fuel passenger bus is raised to $10,000 from $5,000. (See website www.rev.gov.bc.ca/ctb/ for more information.) Qualifying alternative fuel vehicles include new factory-manufactured motor vehicles, that are designed and licensed to operate on highway:
TAXATION OF BOATS AND RECREATIONAL VEHICLES Legislative amendments related to how provincial sales tax applies to boats and recreational vehicles owned by non-residents were passed, but not proclaimed, in 2000. These amendments will not be proclaimed. Instead, the government will undertake consultations to develop an approach which is fair to all taxpayers and which does not discourage tourism in the province. These consultations will be completed in time for Budget 2002 which will be presented on February 19, 2002. MOTOR FUEL TAX ACT MARINE BUNKER FUEL TAX EXEMPTION Effective August 1, 2001, the 7 per cent tax on marine bunker fuel is eliminated. Marine bunker fuel is used in the main engines of large international cargo and cruise ships. (See website www.rev.gov.bc.ca/ctb/ for more information.) DOMESTIC JET FUEL AND AVIATION FUEL TAX Effective August 1, 2001, the tax rate paid on domestic jet fuel is reduced to 2 cents per litre from 5 cents per litre to match the current tax rate on international jet fuel. The tax rate paid on aviation gas is also reduced to 2 cents per litre from 3 cents per litre, effective August 1, 2001. (See website www.rev.gov.bc.ca/ctb/ for more information.) PuriNOx™ MOTOR FUEL TAX EXEMPTION Effective August 1, 2001, a tax exemption is provided for PuriNOx™ motor fuel for an initial period of three years. PuriNOx™ is a cleaner fuel technology which combines approximately 20 per cent water with diesel fuel by means of a special additive and blending process. It is a cleaner direct alternative to conventional diesel fuel that can be used in existing diesel engines without modifications. During the three year period, the criteria for alternative fuels laid out in the regulations of the Motor Fuel Tax Act will be reviewed to ensure they are appropriate for defining new alternative fuels. (See website www.rev.gov.bc.ca/ctb/ for more information.) |
