Part 2: REVENUE MEASURES

Revenue Measures — Supplementary Information

For more details on tax changes see the Ministry of Provincial Revenue website at: www.rev.gov.bc.ca/budget/budget.htm

Income Tax Act

BC Tax Reduction

Effective for the 2005 taxation year a non-refundable personal income tax credit is introduced. The BC Tax Reduction is targeted to low and modest income taxpayers and will be calculated as $360 less 3.6 per cent of net income in excess of $16,000. The credit is used to reduce BC personal income taxes payable and will benefit taxpayers with net incomes of $26,000 or less in 2005. The total personal income taxes paid by BC residents at different income levels are shown in Table 2.2.

The BC Tax Reduction will reduce or eliminate taxes for about 730,000 BC taxpayers at a cost of $120 million in 2005. The maximum credit of $360 and the $16,000 net income threshold will be indexed to provincial inflation starting in 2006.

Mining Exploration Tax Credit

The Mining Exploration Tax Credit is extended for an additional ten years to 2016. The credit is available to both individuals and corporations that undertake mining exploration in the province. The credit is calculated as 20 per cent of eligible BC mining exploration expenditures. The credit was scheduled to expire in August 2006 but will be extended to December 31, 2016.

Film Incentive BC and Production Services Tax Credits

As announced on January 20, 2005, the province's tax credit rates for film and television productions are increased effective January 1, 2005 to March 31, 2006. The basic Film Incentive BC tax credit rate is increased to 30 per cent from 20 per cent and the basic Production Services Tax Credit is increased to 18 per cent from 11 per cent.

The higher rates will apply to productions that start principal photography in the period from January 1, 2005 to March 31, 2006. Pre-production costs incurred prior to January 1, 2005 are not eligible for the higher rates.

For productions that consist of episodes of a Canadian television series that are eligible for the basic Film Incentive BC tax credit, the 30 per cent rate will apply to each episode of the production where principal photography of that episode begins after January 1, 2005. In addition, for productions that start principal photography before April 2006 and conclude filming after March 31, 2006, transition rules will apply.

Small Business Threshold

The maximum amount of taxable income to which the small business corporate income tax rate may be applied, or the "business limit", is increased to $400,000 from $300,000 effective January 1, 2005.

Corporations will pro-rate their business limits based on the number of days in the taxation year before and after January 1, 2005. When allocating the business limit among associated corporations, the provincial business limit will continue to be allocated in the same proportion as the federal business limit.

Social Service Tax Act

Provincial Sales Tax Rate

The provincial sales tax rate was reduced to 7 per cent from 7.5 per cent effective October 21, 2004.

Alternative Fuel Vehicles

Effective February 16, 2005, provincial sales tax relief for qualifying alternative fuel vehicles will be provided as a point of sale tax reduction rather than a refund. In addition, changes have been made to:

• the definition of "hybrid electric vehicle"; and
• the amount of sales tax relief.

New Definition of Hybrid Electric Vehicle

The definition of "hybrid electric vehicle" is expanded to reflect technological developments. To qualify under the new definition the motor vehicle must be manufactured with both an internal combustion engine and an electric motor and must be:

• capable of being propelled simultaneously by both the electric motor and the internal combustion engine, or solely by the electric motor operating on electricity generated by the internal combustion engine;
• designed to automatically shut off the internal combustion engine when idling, braking or coasting (commonly referred to as "idle stop"); and
• designed to capture and store electricity generated during braking (referred to as "regenerative braking").

Amount and Calculation of Tax Reductions

Existing provincial sales tax relief for alternative fuel vehicles is enhanced and the maximum benefit for hybrid passenger vehicles is increased on a temporary basis.

Under the previous refund program, refunds were calculated as 30 per cent of sales tax paid up to a maximum of $1,000, $5,000, or $10,000 depending on whether the vehicle was a passenger vehicle, a shuttle bus, or a passenger bus. Under the new program:

• Hybrid electric passenger vehicles are eligible for a 100 per cent reduction of sales tax up to a maximum of $2,000 from February 16, 2005 to March 31, 2008; the maximum tax relief is reduced to $1,000 from April 1, 2008 to March 31, 2009 and is eliminated after March 31, 2009;
• Alternative fuel vehicles that are not hybrid electric passenger vehicles, passenger buses or shuttle buses, are eligible for a tax reduction of 50 per cent of the sales tax payable to a maximum of $1,000;
• Shuttle buses are eligible for a tax reduction of 50 per cent of sales tax payable to a maximum of $5,000; and
• Passenger buses are eligible for a tax reduction of 50 per cent of sales tax payable to a maximum of $10,000.

The tax reductions for alternative fuel vehicles other than hybrid electric passenger vehicles are not phased out.

Energy Efficient Residential Heating Equipment Exemption

Effective from February 16, 2005 until March 31, 2007, the following heating equipment is exempt from provincial sales tax when purchased or leased for residential purposes:

• Gas fired forced-air furnaces, boilers, air-source heat pumps and ground source heat pumps that are listed as being "ENERGY STAR Qualified" by the Office of Energy Efficiency, Natural Resources Canada; and
• Oil-fired forced-air furnaces that have a Seasonal Energy Utilization Efficiency rating (SEUE) of at least 85 per cent as established under the federal Energy Efficiency Act.

To be designated as "ENERGY STAR Qualified", products must meet or exceed technical specifications designed to ensure that they are among the most energy efficient in the marketplace.

Vehicle Surtax Thresholds for Passenger Vehicles Increased

Effective February 16, 2005, the threshold for the surtax on passenger vehicles is increased from $47,000 to $49,000. Tax rates will apply as follows:

• 7 per cent on passenger vehicles valued at less than $49,000;
• 8 per cent on passenger vehicles valued at $49,000 or more, but less than $50,000;
• 9 per cent on passenger vehicles valued at $50,000 or more, but less than $51,000; and
• 10 per cent on passenger vehicles valued at $51,000 or more.

The new thresholds apply to all passenger vehicles purchased after February 15, 2005. For leased passenger vehicles, the new vehicle surtax thresholds apply to the first lease payment due after February 15, 2005.

Property Transfer Tax Act

Fair Market Value Threshold for Eligibility under the First-Time Home Buyers' Exemption Program

Effective for registrations after February 15, 2005, the fair market value threshold for eligible residential property under the First-Time Home Buyers' exemption program is increased by about 18 per cent to $325,000 from $275,000 in the Greater Vancouver Regional District, the Capital Regional District and the Fraser Valley Regional District and to $265,000 from $225,000 in the rest of the province. A proportional exemption is provided for residences that have a fair market value up to $25,000 above the new thresholds.

Effective for registrations after February 15, 2005 the mortgage pay down limits are increased. The pay down limit is the maximum that a mortgage can be paid down in the first year without losing eligibility for the First-Time Home Buyers' Exemption. The limit is calculated as the greater of the amount required to pay the mortgage down to 70 per cent of fair market value or a specified amount. For qualifying properties in the Capital Regional District, the Greater Vancouver Regional District and the Fraser Valley Regional District the specified amount is increased to $13,000 from $11,000. For other parts of British Columbia the amount is increased to $10,600 from $9,000.

Medicare Protection Act

Medical Services Plan Premium Assistance

Effective August 1, 2005, the Medical Services Plan premium assistance program is enhanced to reduce or eliminate monthly premiums for about 215,000 people. The changes will reduce premium revenue by $40 million annually.

Premium assistance is enhanced by increasing the adjusted net family income thresholds by $4,000 each (see Table 2.4).

Table 2.5 shows the impact of these changes for a single person, a senior couple and a family of four at various income levels. For example, the adjusted net income of a senior couple with $34,000 annual income is $25,000. This couple will be eligible for the 60 per cent level of assistance and pay monthly premiums of $57.60 per month, or $691.20 annually; a reduction of $460.80 per year.

Home Owner Grant Act

Increase in Threshold for Home Owner Grant Phase-out

Effective for the 2005 tax year, the threshold for the phase-out of the home owner grant is increased to $685,000 from $585,000. For properties with assessed values exceeding the threshold amount, the home owner grant will be phased out. Effective for the 2005 tax year, the rate at which the grant is phased out is reduced to $5 from $10 for each $1,000 of assessed value above the threshold. Recipients of the basic home owner grant will continue to receive some grant for properties with values up to $779,000. For seniors and other home owners receiving the additional grant a partial grant will be available for properties with values up to $834,000.

The increase to the threshold will, on average, offset the increase of sharply rising assessed values on higher-priced properties over the past year. As was the case last year, approximately 95.5 per cent of eligible homeowners will receive the full home owner grant.

School Act

School Tax Exemption for Alternative Energy Power Projects

Effective for the 2005 tax year, government is introducing an exemption from school tax for specified improvements of eligible hydroelectric projects that first began production after December 31, 2001.

Run-of-river projects that have long-term energy purchase agreements with BC Hydro signed before January 1, 2005 are eligible for the exemption. Run-of-river projects that do not have long-term energy purchase agreements with BC Hydro and hydroelectric storage projects are eligible for the exemption if they are certified to use the Ecologo trademark under the federal Environmental Choice Program.

For projects requiring Ecologo certification to qualify for the exemption, a refund of school tax paid on the qualifying improvements is available for the three years prior to the first year they become exempt.

The exemption is for intake facilities, including trash racks, penstocks and their foundations and support structures, tunnels and tunnel linings. Weirs are exempt when part of a run-of-river project. Dams do not qualify for the exemption.

Administrative Measures — Supplementary Information

For more details on tax changes see the Ministry of Provincial Revenue website at: www.rev.gov.bc.ca/budget/budget.htm

Income Tax Act

Medical Expense Tax Credit

Effective for the 2004 taxation year, changes are made to the medical expense tax credit to allow more expenses that are incurred on behalf of dependants to be claimed. These changes parallel similar ones made to the federal medical expense tax credit in 2004.

Medical expenses paid for dependent relatives (e.g., child, grandparent, niece, nephew, etc.) have been subject to "notch" provisions. That is, the expenses were reduced if they exceeded the basic personal credit amount.

Under the new provisions:

• Medical expenses made on behalf of minor children will be pooled with the medical expenses of the taxpayer and his or her spouse or common-law partner, subject to the taxpayer's minimum expense threshold (the lesser of three per cent of the taxpayer's net income and $1,722 for 2004), without regard to the income of the minor child.
• For medical expenses paid on behalf of other dependent relatives, taxpayers will be able to claim qualifying medical expenses paid on behalf of such a dependant that exceed the lesser of 3 per cent of the dependant's net income and $1,722 (that is, the threshold for the credit that would apply if the dependant claimed the expenses on their own). The maximum eligible amount that can be claimed on behalf of each dependent relative other than minor children will be $5,000.

Assessments

The Act is amended to clarify that the determination of refundable tax credits constitutes an assessment of income tax. This amendment is required because the date of assessment is used to determine various timeframes under the Act, such as statue-barring dates, interest and penalties, and the filing of notices of objections or appeals.

Measures to Harmonize with Federal Act

Effective July 1, 2003, the Act is amended to confirm the existing practice to not charge taxpayers interest if their account is paid in full by the date specified in their notice. In addition, the Act is amended to parallel the federal Income Tax Act regarding a series of transactions for purposes of the province's anti-avoidance provision.

Refundable Taxes

The Act is amended to ensure that penalties may apply to various provincial refundable tax credits. In particular, the amendments will ensure that penalties can apply to persons who knowingly make false statements or omissions when claiming tax credits, or who claim a refund to which they are not entitled.

Limit the Foreign Tax Credit

Both the federal and provincial governments provide a corporate foreign tax credit on income taxes paid to foreign jurisdictions on non-business income earned in the year. The provincial foreign tax credit is computed on a country-by-country basis and is limited to the foreign income taxes paid in excess of the federal foreign tax credit deducted for that year.

The Act is amended to ensure that a corporation is deemed to have claimed the maximum federal foreign tax credit per country before a provincial foreign tax credit is allowed. The amendments remove the unintended result that would allow a corporation to reduce its provincial taxes before claiming a full federal credit. This change is consistent with the treatment of foreign taxes paid by individuals. The change is made applicable for corporate taxation years beginning on or after January 1, 2006.

Mining Exploration Tax Credit

British Columbia has two tax credit programs to support mining exploration in the province, the Mining Exploration Tax Credit and the BC Mining Flow-Through Share Tax Credit. Both programs allow a tax credit based on specific exploration expenses incurred. The BC Mining Flow-Through Share Tax Credit is harmonized with an equivalent federal program.

In 2004, the province and the federal government announced extensions to their mining flow-through share tax credit programs to December 31, 2005. As a result of the extension to the federal and provincial programs, the definition of excluded expenses in the Mining Exploration Tax Credit program is updated to exclude expenses incurred and claimed for purposes of the mining flow-through share tax credit programs.

Corporation Capital Tax Act

Retention of Records

The Corporation Capital Tax Act is amended to clarify how long a financial corporation must retain its records. A financial corporation will be required to keep records related to, or relevant to, a taxation year for the later of:

• 7 years after the delivery of the return;
• during the period a waiver is in effect;
• 9 months after revoking a waiver; and
• until all appeals have been exhausted.

These requirements are consistent with those of other provincial taxation statutes.

Definition of Salaries and Wages

For purposes of determining the net paid up capital of a bank or credit union allocated to jurisdictions outside BC, a formula comprising salaries and wages and loans and deposits is used. A definition of salaries and wages is added to ensure consistency with the definitions used in other jurisdictions.

Investment Allowance

The Corporation Capital Tax Act provides an investment allowance deduction for financial corporations that own shares in another financial corporation that has a permanent establishment in BC. The Act is amended to limit the investment allowance deduction to shares in a financial corporation only if that corporation has the same taxation year-end as the financial corporation claiming the deduction.

Social Service Tax Act

Bona Fide Aquaculturists

Effective February 16, 2005:

• pearl nets, mussel socking and other netting used for shellfish seed and grow outs are added to the list of items that can be purchased or leased exempt from provincial sales tax by bona fide aquaculturists for an aquaculture purpose; and
• the maximum length of boats that may be purchased exempt by bona fide aquaculturists for an aquaculture purpose is increased from 11 metres to 20 metres.

Bona Fide Farmers

Effective February 16, 2005, the following are added to the list of items that can be purchased or leased exempt from provincial sales tax by bona fide farmers for a farm purpose:

• disinfectant mats; and
• tapeners (hand-held devices used to attach plants to plant supports).

Safety Equipment Exemption Expanded

Safety Helmets

Effective February 16, 2005, the exemption for safety helmets is expanded to include all safety helmets for use in sport, recreation and transportation. Previously, the exemption applied only to bicycle helmets, motorcycle helmets and work related safety helmets and caps, which included helmets for professional sport. With the expansion of the exemption, all safety helmets, including skateboarding, snowboarding, baseball, hockey and boxing helmets, are exempt.

Smoke and Fire Alarms

Effective February 16, 2005, the exemption for self-contained smoke and fire alarms for residential use is amended to increase the qualifying per unit price from $50 to $250.

Exemption for Penstock Systems Expanded

Effective February 16, 2005, the provincial sales tax exemption for penstock piping and related equipment is expanded to include penstock and related equipment for any hydroelectric power generating facility that is validly licensed under the Water Act.

Previously, penstock was exempt in either of two ways – as machinery or equipment if located on a hydroelectric manufacturing site, or because it was part of a run-of-river hydroelectric facility that held a valid water license for power production purposes under the Water Act. The expansion of the exemption means it will now apply to hydroelectric storage projects where the penstock is located, in part, outside of the manufacturing site, provided the facility has a valid power production license under the Water Act.

The expanded exemption is effective for purchases of penstock and related equipment made after February 15, 2005.

Environmental Levies

Effective February 16, 2005, the Act is amended to require all amounts collected as environmental levies on tires and batteries to be remitted to Government. This harmonizes the collection and remittance of environmental levies with that of the provincial sales tax. Tire and battery levies are deposited in the Sustainable Environment Fund and are used to fund provincial environmental protection and renewal initiatives.

Programming Acquired for Public Broadcast or for Making Copies for Sale or Lease

Effective August 1, 1996, an exemption is provided for recordings of visual and audio productions such as TV and radio programs and movies acquired for the purpose of:

• public broadcast by a licensed radio or television broadcaster; or
• making copies of such productions for public broadcast by licensed broadcasters, for public exhibition (subject to payment of tax by the exhibitor) or for sale or lease.

Visual and Audio Productions Acquired for Copying into Other Productions

Effective February 16, 2005, an exemption is provided for recordings of visual and audio productions, such as film clips and soundtracks, acquired by film or television producers for the purpose of being copied into a second production such as a motion picture, or TV show where the second production is for:

• public broadcast by a licensed radio or television broadcaster;
• exhibition in a movie theatre or similar venue; or
• sale or lease.

Motor Fuel Tax Act

Penalty for Unauthorized Uses of Coloured Fuel

Effective February 16, 2005, persons who purchase or use coloured fuel for an unauthorized purpose are subject to a penalty equal to three times the clear fuel tax that would have been paid had the fuel not been coloured. This penalty is in addition to an assessment for the difference between the coloured fuel tax paid and the tax that would have been paid had the fuel not been coloured.

The penalty does not apply to the use of coloured fuel to operate unlicensed motor vehicles used in logging or mineral mining operations while operating off highway. Coloured fuel used in such vehicles is allowed under the Act provided the difference between the coloured fuel tax paid and the tax that would have been paid for clear fuel is remitted to the province.

Clarify Uses of Coloured Fuel for Farmers

Effective February 16, 2005 the Act is amended to clarify that farmers may use coloured fuel in any unlicensed vehicle provided the vehicle is operated:

• on land classified as a farm under the Assessment Act; and
• operated by or on behalf of a farmer for farm purposes.

Coloured fuel may also be used when a farm vehicle is proceeding to or returning from a farm location where the use of coloured fuel is otherwise authorized under the Act.

The authorization applies to any unlicensed farm vehicles, such as threshers, combines, loaders, ATVs and snowmobiles as long as they are operated under the conditions outlined above.

Tobacco Tax Act

Provide the Authority to Seize Stolen Tobacco Products

The Act is amended to provide appropriate officials with the authority to seize tobacco products that were not purchased from an authorized wholesaler. The quantity of seized products can be up to a maximum of 1,000 grams (50 cartons).

This authority parallels the existing authority to seize tobacco that does not bear the province's mark, that bears the mark of another jurisdiction or was marked by a person authorized to do so by the director.

The amendment comes into force on Royal Assent.

Revise the Definition of Package

The Tobacco Tax Act Regulations are amended to revise the definition of "package" in relation to fine cut (loose) cigarette tobacco to increase the container size to 500 grams from 300 grams.

Increasing the package size ensures that packages up to 500 grams are required to be appropriately marked. The marking program provides a means of identifying tobacco acquired through the legitimate wholesale/retail chain and assists in curtailing tax losses from illicit tobacco trade.

School Act

Provincial Residential School Property Tax Rates

In general, a separate residential tax rate is set for each school district. For the 2005 calendar year, average residential school property taxes before application of the home owner grant will be increased by the provincial inflation rate from the previous year. For 2005 the increase will be 2.0 per cent. This follows the policy announced in Budget 2003 and continued in Budget 2004.

Residential tax rates will be set in April when revised assessment roll data are available to calculate the rates according to the provincial residential school tax rate formula. Tax rates will fall in almost every school district in response to rising average assessed values. Even though the average residential school tax is increased by the rate of inflation, the change in individual tax bills will vary. Some homeowners will experience an increase in their school taxes, while others will have 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.

Provincial Non-Residential School Property Tax Rates

A single, province-wide rate is set for each of the seven non-residential property classes. These tax rates have remained unchanged since 1999.

In response to increases in assessed values, the rates for 2005 will be adjusted so that the change in total non-residential school tax revenues will be limited to inflation plus new construction. This adjustment to rates may differ by property class to reflect differences in relative changes in assessed values by class. The rates will be set when revised assessment roll data are available.

Taxation (Rural Area) Act

Provincial Rural Property Tax Rates

A single provincial rural residential tax rate applies province-wide. For the 2005 calendar year, the provincial rural residential tax rate will fall in response to rising average assessed values consistent with policy introduced in Budget 2003; average residential provincial rural area taxes will increase by the provincial inflation rate of 2.0 per cent.

Non-residential provincial rural tax rates will be adjusted so that the change in total non-residential rural area tax revenues will be limited to inflation plus new construction.

Insurance Premium Tax Act

Exemption for Out-of-Province Non-Profit Health Insurers

The Insurance Premium Tax Act and Regulations are amended to provide a tax exemption for health care premiums received by non-profit extra-provincial health insurance corporations for medical service and health care plans contracted with BC residents. For the premiums to be exempt, non-profit extra–provincial health insurers must be licensed to carry on insurance business in BC under the Financial Institutions Act. The exemption is retroactive to January 1, 1997.

Power to Inspect Records

The Act is amended to provide the Commissioner of Income Tax, or other authorized officer of the Ministry of Provincial Revenue, with the authority to access books or records of taxpayers and insurance agents. In addition, authority is provided to make inquiries of any person regarding a specific taxpayer for the purpose of administering or enforcing the tax. The Commissioner may also request information from a person relating to an unnamed taxpayer if the person is an insurance agent or insurance sales person or if a court order has been granted.

In addition, the Act is amended to provide the Commissioner or authorized officer of the Ministry of Provincial Revenue with the authority to:

• require taxpayers and insurance agents to keep adequate records;
• specify what records taxpayers and insurance agents must keep; and
• attend a place of business to inspect the books and records to verify a return required under the Act.

Definition of Taxpayer

Effective February 15, 2005, the Act is amended to clarify that, for the purposes of the definition of a "taxpayer", a corporation or partnership is resident in British Columbia if the corporation or partnership has a permanent establishment in the province at the time the premium for a contract of insurance with an unlicensed insurer becomes payable. Permanent establishment under the Act has the same meaning as the Income Tax Act (Canada). This ensures that insurance premiums relating to risks in respect of persons resident or property located in the province are subject to tax.

Exemption for Real Estate Insurance Organizations

The Act is amended to clarify that persons who are licensees under the Real Estate Services Act pay no tax on:

• insurance premiums paid under an insurance contract with the Real Estate Errors and Omissions Insurance Corporation; or
• assessments levied for the Real Estate Special Compensation Fund by the Real Estate Compensation Fund Corporation.

International Financial Activity Act

Expansion of Appeal Provisions to Include Registration Date and Registration Refusal

The International Financial Activity Act (IFA) is amended to clarify that a corporation or specialist has the right to appeal the commissioner's decision to refuse registration of the corporation or specialist under the international financial activity tax refund program (IFP). Under the IFP, a corporation or specialist must obtain registration to qualify for an income tax refund.

The Act is also amended to clarify that a corporation or specialist can appeal the effective date of registration. The registration date is important because a claimant can only earn an income tax refund under the program from the date of registration. As such, if a claimant does not agree with the registration date that the Ministry of Provincial Revenue determines, they may appeal.

Change of Name for IFC Society

Effective February 16, 2005, the definition of "society" is amended to change the name "IFC International Financial Centre Society of Vancouver" to "International Financial Centre British Columbia Society" to reflect the recent change in the society's name.

Hotel Room Tax Act

Exemption for Industrial Camps

Effective February 16, 2005, lodging in industrial camps is exempt from tax.

Industrial camps are facilities that provide accommodation in bunkhouses, trailers or other structures that:

• are operated by or on behalf of an employer or by a person under contract with an employer, and
• are operated for the purpose of providing lodging exclusively (more than 90 per cent) to employees or other persons engaged by the employer when those persons are performing work or services for the employer.

Industrial camps are generally located in remote areas and may occasionally provide lodging to backpackers or other transient tourists. Tax does not apply to the charge on such accommodation provided that over 90 per cent of the time the camp is used to provide lodging to persons performing work for the employer.

The exemption does not apply where an employer rents rooms for employees in hotels, motels, resorts or other accommodation facilities.

Health Authorities Act

Property Tax Exemptions For Public Hospitals Managed Directly or as a Public-Private Partnership

The Act is amended to clarify that property tax exemptions apply to public hospitals managed directly or as a public-private partnership in the following situations:

• property held or occupied for future hospital use;
• space occupied by organizations on behalf of the Health Authority that is used for Health Authority purposes;
• space occupied by not-for-profit organizations that would be exempt under another act if they were the owner; and
• space occupied and used for teaching purposes by physicians who have academic appointments with the medical faculty of the University of British Columbia and are credentialed members of the teaching hospital.