The government is budgeting for a $600-million surplus for 2006/07 versus the updated $1.5-billion forecasted surplus for the 2005/06 year. New spending in key areas such as education, training, and various initiatives for children and economic development have substantially reduced the forecasted budget surpluses for the coming three years.
There are no changes to corporate or personal income tax rates.
In September 2005, BC’s general corporate rate was reduced to 12%, which compares well with rates of 11.5% in Alberta and 14% in Ontario.
The BC small business corporate rate remains unchanged at 4.5% on the first $400,000 of taxable income and 12% thereafter.
Personal tax rates are unchanged. The top marginal tax rate in BC remains at 14.7% for 2006 and the top combined (federal and provincial) tax rate remains at 43.7%. The combined rate in Ontario is 46.41% and in Alberta is 39.0%.
The BC Mining Flow-through Share Tax Credit, a credit available to both individual and corporate taxpayers, is extended for a further three years to December 31, 2008.
As announced in January 2006, the government will continue to support film and video productions in BC until June 2008. The tax credit for film and television productions remains at 30% and the tax credit for production services remains at 18%. In addition, film and television productions or production services in Pitt Meadows now qualify for determining the regional credits.
The budget for tax credits for the Small Business Venture Capital program was increased to $25 million from $20 million for the 2006/07 program year.
International Financial Activity (IFA)
The IFA program is available to corporations and their specialist employees who participate in international financial activities in BC. A refund of the provincial income tax paid on qualifying activities is available under the IFA program. The company and its specialist employees must register under the International Financial Activity Act to qualify for the refund.
Retroactive to the commencement of the revised program, the interest adjustment formula is repealed. Prior to this amendment, the calculation of income used to determine the tax refund under the Act was reduced by an adjusted interest amount.
As previously announced, the IFA program was expanded to provide refunds to include international income derived from certain patent inventions related to life sciences.
The elimination of the interest adjustment, combined with the previously announced expansion, will make the IFA program attractive to a broader range of corporations that are interested in establishing an international financial business in BC.
Provincial sales tax
Computer software
Effective February 2006, services such as installing and re-installing software, configuring software, eradicating software viruses, maintenance, and repairing, restoring, or providing corrective action to software are now tax exempt. Services related to computer hardware remain subject to tax.
In addition, sales of custom software or custom modified software sold as part of the sale of a business as a going concern is exempt from tax when the seller does not retain any rights or interests in the software being transferred.
Production machinery and equipment (“M&E”) exemption
Effective February 22, 2006, the M&E exemption is expanded to include:
- contract manufacturers that primarily provide services to other manufacturers that are eligible for the M&E exemption, and
- purchased or leased parts that are assembled to create production M&E (materials remain subject to tax).
The administrative policy was clarified to exclude office equipment, such as photocopying machines, when not used in the manufacturing process.
Luxury vehicle surtax
Effective February 22, 2006, the threshold for the surtax on luxury vehicles is increased to $55,000 from $49,000. The tax now applies as follows:
- 7% for passenger vehicles valued at less than $55,000;
- 8% for passenger vehicles valued at $55,000 or more, but less than $56,000;
- 9% for passenger vehicles valued at $56,000 or more, but less than $57,000; and
- 10% for passenger vehicles valued at $57,000 or more.
Hybrid and electric conversions
A partial refund is available for tax paid on parts and labour to convert shuttle and passenger buses to operate as hybrid electric vehicles or on HCNG (blend of hydrogen and compressed natural gas). Shuttle and passenger buses are eligible for a refund up to $5,000 and $10,000 respectively.
Motor fuel tax
Effective February 22, 2006, coloured gasoline and diesel fuel may now be used in any vehicle that is not licensed to operate on a highway, regardless of the vehicle type or use. As a result, unlicenced recreational vehicles such as snowmobiles and all-terrain vehicles are now eligible to use coloured fuel.
In addition, the partial refund for tax paid on fuel used in stationary engines to operate equipment for prescribed purposes is expanded.
Finally, the Act is amended to include biodiesel in the definitions of motive fuel. As a result, a tax will be imposed at the appropriate clear or coloured fuel tax rate when biodiesel is not blended with diesel fuel.
Measures concerning individuals
Dividend tax credit
BC will introduce an enhanced dividend tax credit to harmonize with the proposed federal reduction on certain dividends that was announced in November 2005. Dividends qualifying under the proposed federal rate reduction include dividends from public and private companies that have been subject to the general (high-rate) corporate tax.
Under the federal proposal, qualified dividends will be grossed up by 45% instead of the current 25% and an enhanced federal dividend tax credit will then be applied.
BC will introduce its new enhanced dividend tax credit once the details of the proposed federal measures are released. As a result of these proposed changes, the combined top marginal tax rate on qualified dividends will be approximately 21%. The current combined top marginal tax rate applicable to such dividends is approximately 32%.
Home owner grant
The home owner grant is increased by $100 to $570, effective for 2006. The seniors grant is also increased by $100 to $845.
The threshold for the phase-out of the home owner grant is increased from $685,000 to $780,000 of assessed value. As a result, a portion of the homeowner grant will be available for properties with values up to $893,000 ($948,000 for seniors eligible for the additional grant).