B.C. Finance Minster Colin Hansen announcing the 2009 B.C. Budget Update

On 3 September 2009, B.C. Finance Minister Colin Hansen presented the September 2009 budget update. The following is a summary of the tax highlights.

The Harmonized Sales Tax (HST)

Despite massive public anger, the HST will still be implemented on 1 July 2010. The government asserts that this tax will remove the embedded provincial sales tax from business inputs and will reduce the cost of investment. British Columbians will benefit from lower prices when businesses pass on the savings to consumers.

To mitigate the impact of the HST on low income individuals and families, Hansen announced an additional rebate of the provincial portion of HST on energy purchased for residential use. This is similar to the existing provincial sales tax exemption for such energy. Furthermore, there will be point of sale rebates of the provincial portion of HST on motor fuels, books, children-sized clothing and footwear, children’s car seats and car booster seats, diapers and feminine hygiene products.

Taxes Eliminated

After the implementation of the HST, the following taxes will be eliminated:

• the innovative clean energy (ICE) levy;
• the battery levy;
• the passenger vehicle rental tax;
• the Vancouver parking sales tax;
• an exemption from the motor fuel tax will be provided on propane used in motor vehicles.

Once the 12% HST is in effect, the tax on liquor will decrease as a provincial sales tax of 10% and GST of 5% currently apply. However, the the liquor distribution branch (a provincial Crown corporation) will adjust its mark-up to keep shelf prices of liquor the same. Consumers are told that they will benefit from the lower tax on liquor bought from restaurants or other licensed premises as HST applies to the mark-up.

Transitional rules relating to new housing and general transitional rules relating to other transactions will be released in the future.

Other Measures Affecting Individuals

1. Changes to personal income taxes

   Personal income tax rates at the two lowest income tax brackets will be reduced. Effective January 1, 2010, the basic personal amount tax credit in B.C. will be increased to $11,000 from the 2009 amount of $9,373. Spouse and equivalent to spouse credits will also be increased by $1,627 over the 2009 amounts. Hansen indicated that this change will help offset the impact of the HST.

2. Medical Services Plan (MSP) Premiums Changes

   Effective January 1, 2010, MSP premiums will be increased by about 6% resulting in maximum monthly premiums increasing by $3 per month for single persons and $6 per month for families. However, the MSP premium assistance program is enhanced by increasing the thresholds of adjusted net family income by $2,000 each.

3. B.C. Mining Flow-Through Share Tax Credit Extended

   The Mining Flow-Through Share Tax Credit in British Columbia originally scheduled to expire on December 31, 2008, was extended to the end of 2009 in February and today was extended a further year to the end of 2010.

Other Measures Affecting Businesses

1. Small Business Threshold on Corporate Income

   As of January 1, 2010, the maximum amount of taxable business income to which the small business corporate income tax rate applies will be increased to $500,000 from $400,000. For corporations with fiscal years straddling January 1, 2010, the business limits will be prorated.

2. Basic Training Tax Credit

   Effective 2009, the basic training tax credit for employers is doubled. The enhanced credit will be calculated as 20% of wages paid to an eligible apprentice up to a maximum of $4,000 per year.

3. Measures Affecting The Environment

   There are a number of changes to the Carbon Tax Act. Effective January 1, 2010, ethanol and biodiesel will be subject to carbon tax and will be taxed as gasoline and light fuel oil, respectively. However, the rate will be reduced by 5% to reflect the reduction in carbon dioxide equivalent emissions. Transitional provisions will apply to purchasers who have entered into fixed price contracts before the budget date. Also effective on September 1, 2009, raw natural gas and marketable natural gas will be taxed at the same rate.

   The exemption for non-energy uses of fuel is expanded to include petroleum coke used in the production of lead or zinc, and fuel when used as anti-freeze in a natural gas pipeline.

   Effective January 1, 2010, ethanol and renewable diesel fuel will be taxed under the Motor Fuel Tax Act at the same rate as the fuel with which they are blended, or if sold as 100% pure ethanol or biodiesel, as gasoline and diesel fuel, respectively. The previous exemption for these fuels was provided to increase their use in the province. However, due to legislative changes concerning the requirement for fuels to contain an average of 5% renewable fuels, this incentive is no longer required.

Remarks

Several references had been made by Hansen that the Budget Update contains tax measures would mitigate the impact of HST on consumers. It appears that this Budget Update focuses on selling the controversial HST. Since enrollment in MSP is mandatory in B.C., increase in premium will affect all British Columbians who fall above the premium assistance threshold.

In economic recession, government suffers tax revenue decline as taxpayers, both corporate and individual, earn less taxable income and claim tax previously paid by carrying business losses backward. To maintain a balanced budget, government looks for more revenue and ways to cut expenses. While the introduction of HST and the hike in MSP premium will raise revenue, cutting some less known programs, such as subsidies to public libraries, artists and school renovations, have been quietly implemented.

The most disturbing issue in this Budget Update is the new funding over a 3-year period to "care for and protection" of vulnerable children. Real child protection is a noble cause. However, state-sponsored child removal does not equal child protection. As discussed in our 2006 B.C. Budget Commentary, it does not serve society well and has imposed a heavy financial and social burden to deal with the aftermath. The power of removing children from their families has seriously challenged our long cherished human rights, natural justice and civil liberty. It is disturbing to see that the government is providing new funding to this controversial activity even in difficult economic time. This suggests that special interest groups in the child removal industry are very influential and powerful in government.

It is noteworthy to remark that the B.C. government will run on a deficit budget in the next few years. Before the announcement of a deficit budget, the provincial legislature passed an amendment on the Balanced Budget and Ministerial Accountability Act that contains a provision prohibiting deficit budget. If the legislative intent is to prohibit deficit budget and to uphold accountability, then this statute should not be allowed to change as lawmakers see fit. Allowing MLA to change law of this nature would render the existence of this Act meaningless and irrelevant.