On 16 February 2015, B.C. Finance Minister Mike de Jong tabled his budget. The 2016-17 budget (hereinafter known as the Budget) will be balanced for four consecutive years with a modest projected surplus. Direct operating debt is projected to be at its lowest point in more than 30 years. The B.C. Government suggests the possibility to be operating debt free by 2020 for the first time since 1975. The following is a summary of the tax change highlights. The information contained herein is current as of the last revision date below.

Tax Related Changes

• Effective 17 February 2016, a new full exemption of Property Transfer Tax (PPT) for newly built homes up to $750,000 will be available for Canadian citizens or permanent residents of Canada who purchase and use their homes as a principal residence for a minimum of one year after the purchase date. The purchaser does not have to be a first-time owner of residential property. This exemption amounts to a saving of up to $13,000 of PPT on the purchase of a new home in B.C., with a partial exemption up to $800,000. Moreover, disclosure of the nationality of real estate buyers will be required in B.C. real property transactions.


• Effective for transfers of property registered after 16 February 2016, the PPT rate remains at:
  • 1% on the first $200,000 of a property’s fair market value;
  • 2% on the portion of a property’s fair market value between $200,000 and $2 million, and
  • increase to 3% (from 2%) on the portion of a property’s fair market value above $2 million.
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  Income Tax

  British Columbia’s corporate income tax rates and combined federal/BC corporate tax rates are shown in the table below (changes to these rates are due to federal corporate tax rate changes). Federal and BC corporate rates BC Combined federal + BC 2015-2016 2015 2016 General and M&P income 11% 26% 26% Canadian-controlled private corporations (CCPCs) active business income to $500,000 2.5% 13.5% 13.0% investment income 11% 45.67% 49.67%

  Changes in personal income tax rates are as follows. the drop in BC’s top personal income tax rate from 16.8% to 14.7% in 2016 (this fulfilled the government’s promise that the 2.1% increase would apply for 2014 and 2015 only); the increase in the top federal personal income tax rate from 29% to 33%, starting 2016; changes to both the federal and BC non-eligible dividend tax rates, after 2015 are: Top combined federal/BC rates 2015 2016 Ordinary income & interest 45.80% 47.70% Capital gains 22.90% 23.85% Canadian dividends eligible 28.68% 31.30% non-eligible 37.99% 40.61%



• The home owner grant will cover principal residences up to $1,200,000 for 2016 (an increase of $100,000). The grant is reduced by $5 for every $1,000 in assessed value above this threshold.


• Effective 1 January 2017, Medical Services Plan (MSP) premiums and enhanced premium assistance will be available to help lower-income families, individuals and seniors. All children will be exempt from MSP premiums. However, couples will pay twice the MSP premium rate as those paid by single adults. All adults, who do not qualify for premium assistance, will be subject to a MSP maximum monthly premium of $78 (an increase of 4% up from $75). According to the Budget, it will directly benefit about 70,000 single-parent families. By making children free and expanding premium assistance, an additional 335,000 people will see their premiums reduced and an additional 45,000 people will no longer pay MSP premiums.


• Home Renovation Tax Credit expands to include persons with disabilities and provides up to $1,000 annually to help with the cost of certain home renovations to improve accessibility, helping seniors and persons with disabilities be more functional or mobile at home.


• Budget 2016 provides an additional $673 million over the next three years to the Ministry of Children and Family Development (MCFD) and the Ministry of Social Development and Social Innovation. This includes:
  1. $217 million to support vulnerable children and families and implement recommendations in the Plecas report.
  
  
  2. $286 million to address caseload pressures in temporary income assistance, disability assistance and related supplementary benefits, including $36 million to Community Living BC.
  
  
  3. $170 million to increase income assistance rates for Persons with Disabilities.
• Effective 17 February 2016, telescopic handlers, skid steers and polycarbonate greenhouse panels purchased by qualifying farmers for use solely for a farm purpose are now exempt from PST. Polycarbonate greenhouse panels must be purchased in a minimum quantity of 500 square metres to qualify.

Hover your mouse to the name of the province to view the PPT as of 1 June 2012. Data source: "From the Provinces Land or Property Transfer Tax" by Peter Tomlinson, CCH Canadian Limited

Remarks

The Budget demonstrates an effort to address an increasing public concern on the declining affordability of housing in the Lower Mainland. The B.C. Government uses PPT as a tool to regulate housing market. PPT (aka Land Transfer Tax in some jurisdictions) is different among various Canadian provinces and territories. In certain jurisdictions, there may be additional land transfer taxes imposed by individual municipalities. The map on the left contains information on PPT in each jurisdiction.

Given our stable economy and political environment, it is not likely that the requirement to disclose buyer's nationality will deter foreign investors. Data of buyer's nationality are useful to ensure tax compliance. In the long run, real properties in a rising market are good hedges against inflation. However, there are entry/exit costs and carry costs. Unlike the unfriendly public sentiment on foreign real estate investors, governments welcome their influx of capital as hard currency in the state's coffers. Real estates generate huge tax revenue to all levels of governments. At the point of sale, PPT is levied in most provinces and creates business opportunities to builders, realtors, house inspectors and legal professionals. Once a real property is sold, it brings perpetual income by way of property tax. Rental income and capital gain tax on investment properties generate lucrative tax revenue on an ongoing basis. Renovations and maintenance of real properties create jobs and hence more taxes. A healthy real estate market is instrumental to a stable banking industry as many financial institutions hold real properties as collateral in their lending business. Furthermore, the Residential Tenancy Act is so lopsided against landlords that their properties are at times inadvertently used as social housing to provide free accommodations to bad tenants, hence reducing pressure for government to build more subsidized social housing.

In view of the higher PPT exemption, loss of revenue will be compensated by more tax revenue and employment created by encouraging new housing constructions and to assist Canadian citizens or permanent residents to buy their principal residence. Since few single detached houses in the Lower Mainland cost less than $750,000 nowadays, the new exemption of PPT could likely benefit only new condo and townhouse buyers in the Greater Vancouver region.

On another note, $355 million will be allocated to the BC Housing Management Commission over five years to support more than 2,000 new units of affordable housing for people with low-to-moderate incomes.

Waiving MSP premium on all children appears to be generous. However, the 4% increase in MSP rate on adults who do not qualify for premium assistance will generate a net gain in revenue of $77 millions. As political columnist Mr. Vaughn Palmer duly noted, this is a tax increase, not a tax relief.

According to the Budget, B.C. remains the only province in Canada with a triple-A credit rating from both Moody’s and Standard & Poor’s due to the province's low debt-to-GDP ratio. This will enable the B.C. Government to borrow at a lower interest rate. However, this could also encourage more government spending.

The Budget announced that a Commission on Tax Competitiveness will be set up to examine if current tax policy encourages business investment and growth, taking into account changes in the province’s economy. The examination will not consider the return of the harmonized sales tax (HST), obviously to avoid getting into political hot water.

The most disturbing spending is an additional allocation of $673 million over the next three years to the MCFD. Part of this increase ($217 million) is to implement recommendations in the first part of the Plecas report called "Decision Time". It is noteworthy to remark that the Plecas report only asked for an additional funding of $50 million in the fiscal year 2016/17 (page 56 under the heading of "Section 5.8 Financial implications"). We do not understand why the Budget gave more than 4 times over what the report seeks.

2015 is a year of annus horribilis for the controversial Ministry. Several high profile deaths of children in care (for instance Nick Lang and Alex Gervais) drew unwanted attention on the child protection industry. The most embarrassing and devastating incident is the unprecedented judgment from the Supreme Court of B.C. "J.P. v. British Columbia (Children and Family Development), 2015 BCSC 1216" in which child protection workers were found, first time in Canadian legal history, liable for misfeasance in public office, breach of fiduciary duty and breach of the standard of care. This decision provides a credible psychological deterrence to those who choose to abuse their power and casts doubt on their moral high ground. Needless to say, the child protection industry will vigorously appeal this court finding. Former bureaucrat and the creator of MCFD, Bob Plecas, was hired by the B.C. Government to conduct a review shortly after the judgment was handed down. As expected, his review recommended more funding to finance state-sponsored child removal. The MCFD turns out to be the biggest winner in this Budget. With assistance from various lobbying groups, the industry hits a jackpot after the Supreme Court of B.C. handed down a 341-page long scathing judgment. Child protection workers in question were promoted instead of being fired and criminally prosecuted. We leave it to the discretion of our readers to determine whether this absurd action defies principles of good governance.