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British Columbia Reforms PST, Corporate Tax Rates

by Mike Godfrey, Tax-news.com, Washington

22 February 2017


British Columbia is to phase out the provincial sales tax (PST) on electricity and reduce the small business tax rate.

In his 2017 Budget speech, Finance Minister Michael de Jong announced that, from October 1, the Government will begin phasing out the PST on electricity. The rate will be reduced from seven percent to 3.5 percent, and electricity will be fully exempted from PST from April 1, 2019.

The Government expects that, when fully implemented, the exemption will save businesses more than CAD150m (USD113.9m) a year.

Budget documentation also states that the Government will consider future steps to mitigate the negative effects of the PST and other business taxes "in the context of the province's fiscal situation and competing funding priorities."

De Jong also announced that the Government will reduce the small business tax rate from 2.5 percent to two percent from April 1, 2017. This will mean that British Columbia has the second-lowest small business tax rate in Canada. The measure will cost the Government AUD213m over three years.

British Columbia provides a dividend tax credit to prevent double taxation of dividend income that has already been taxed at the corporate level. As a result of the small business tax rate cut, the dividend tax credit rate on ineligible dividends will also be decreased, from 17 percent to 15 percent. This measure will be effective for the 2017 and subsequent tax years.

The Budget included the remaining tax-related measures:

  • The scientific research and experimental development tax credit will be extended for five years to August 31, 2022;
  • The mining flow-through share tax credit will be extended to the end of 2017;
  • Training tax credits will be extended for three years to the end of 2020;
  • The book publishing tax credit will be extended for two years to March 31, 2019;
  • Qualifying British Columbia labor employed in the development of augmented reality and virtual reality products will be eligible for the 17.5 percent interactive digital media tax credit;
  • For tax years ending on or after February 22, 2017, to claim the interactive digital media tax credit, corporations with annual qualifying British Columbia labor expenses of more than CAD2m will not have to meet the requirement that a corporation's principal business must be the development of interactive digital media products;
  • Effective for 2017 and subsequent years, the budget for the small business venture capital tax credit is increased from CAD35m to CAD38.5m;
  • Effective for registrations on or after February 22, 2017, the fair market value threshold for eligible residential property under the First Time Home Buyers' Program is increased from CAD475,000 to CAD500,000; and
  • From January 1, 2018, the Government will begin eliminating Medical Services Plan Premiums, by first reducing premiums by 50 percent for households with annual family net income of up to CAD120,000.

TAGS: tax | small business | business | sales tax | mining | budget | corporation tax | goods and services tax (GST) | tax thresholds | tax credits | ministry of finance | venture capital | tax rates | Canada | tax breaks | dividends | tax reform | services

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