On February 20, 2018, Carole James, Minister of Finance and Deputy Premier, announced British Columbia’s 2018 budget. This year’s budget includes numerous measures designed to improve the affordability of housing in the province, including the introduction of a new speculator tax that will apply to both foreign and domestic buyers of residential property in British Columbia, as well as an increase to the province’s foreign buyers tax, and property transfer tax and school tax hikes for residential properties valued at more than $3 million. The province has also pledged to strengthen audit and enforcement procedures, in an effort to reduce tax fraud and prevent the exploitation of loopholes in the system governing transfers of residential property.
In addition, the budget seeks to make childcare and healthcare more accessible for families in British Columbia, through significant investments in these areas and by eliminating medical services plan (MSP) premiums as of January 1, 2020. The latter measure will be partially funded by the introduction of an employer health tax, similar to the one in place in Ontario, during 2019.
The budget touts sizeable capital investments in infrastructure, as well as spending for education and skills development, reconciliation with indigenous peoples, housing initiatives, and export development. Notwithstanding all of the announced spending, the budget projects a surplus of $219 million for 2018-19.
From a commodity tax perspective, several interesting changes were announced, as summarized below.
Provincial Sales Tax (PST) Measures
Avalanche Airbag Backpack Exemption
Avalanche airbag backpacks that are triggered by compressed air are currently exempt from provincial sales tax (PST). Commencing April 1, 2018, this exemption will be extended to all avalanche airbag backpacks.
Registration of Online Accommodation Platforms
Online accommodation platforms, such as Airbnb, are online marketplaces that facilitate short-term accommodation rentals between buyers and suppliers. Amendments will be introduced to allow online accommodation platforms to register as collectors, and to collect and remit PST and the municipal and regional district tax (MRDT) on accommodation. Where the online accommodation platform registers as a collector, the owners and lessors of the accommodation units will not be required to do so. These amendments will be effective on a date to be specified by regulation.
Municipal and Regional District Tax Revenue Use for Affordable Housing
Currently, revenue from MRDT collected by regional districts, municipalities and eligible entities can only be used for tourism marketing, and related programs and projects. However, commencing on a date to be specified by regulation, these revenues may be used to fund affordable housing initiatives.
Software Provided in Certain Maintenance Agreements
The Provincial Sales Tax Act will be amended, retroactive to April 1, 2013, to clarify that PST applies to software provided in optional, as-needed maintenance agreements.
Luxury Surtax for Passenger Vehicles
Luxury surtax rates on passenger vehicles will be increased, effective April 1, 2018. The surtax rate on passenger vehicles with a purchase price between $125,000 and $149,999 will increase from 10 to 15 percent, while the rate for passenger vehicles with a purchase price of $150,000 or more will rise from 10 to 20 percent. Similarly, the tax rate on private sales will be increased from 12 to 15 percent for passenger vehicles with a purchase price from $125,000 to $149,999, and from 12 to 20 percent for passenger vehicles with a purchase price of $150,000 or more. Note that these rates apply to the sale of both new and used vehicles.
Tax Payment Agreements for Interjurisdictional Railways
To allow for the simplified remittance of tax on services, these supplies may now be included in “Tax Payment Agreements” between the province and interjurisdictional railways. Prior to this change, which will take effect upon royal assent, only goods and software could be included in such agreements.
Retailers Operating on Cruise Ships in British Columbia Waters
Retailers that operate on cruise ships in British Columbia waters are no longer required to collect PST on sales made onboard during scheduled sailings. This change will be retroactive to April 1, 2013.
Carbon and Motor Fuel Tax Measures
As announced in its 2017 budget update, the province will increase the carbon tax rate by $5 to $35 per tonne of carbon dioxide equivalent emissions, effective April 1, 2018. Furthermore, the carbon tax rate will increase by $5 per year until it reaches $50 per tonne in 2021. Interestingly, the province’s current government appears to have eschewed the need for the carbon tax to be revenue-neutral, as it has announced plans to use revenue from the carbon tax increases to fund enhancements to the low-income climate action tax credit, a proposed clean growth incentive program, and a broad range of other green initiatives.
Motor Fuel Tax
Beginning on April 1, 2018, marine diesel fuel used by interjurisdictional cruise ships and ships prohibited from coasting trade under the Coasting Trade Act will be exempt. This is consistent with the carbon tax exemption available for these ships and the current treatment of ships with gas turbine engines.
Motor fuel tax rates on clear gasoline and clear diesel will be increased to 5.5 cents (from 3.5 cents) per litre in the Capital Regional District (the Victoria regional transit service area), effective April 1, 2018.
In addition, the refund rates for International Fuel Tax Agreement licensees will be increased annually to reflect corresponding increases to the carbon tax rate.
For both carbon and motor fuel tax purposes, when fuel is acquired for retail sale by one refiner collector from another, the purchaser will be exempt from the requirement to pay security, with a refund to be made available for security paid by a refiner collector on fuel purchases in the province for sale to other refiner collectors. This change will be retroactive to February 18, 2014.
Tobacco Tax Measures
This year’s budget increases the tax rate on cigarettes from 24.7 cents to 27.5 cents per cigarette (from $49.40 to $55 per carton of 200 cigarettes), effective April 1, 2018. The tax rate for loose tobacco will also increase from 24.7 cents to 37.5 cents per gram.
Tax Audit Measures
In its budget documents, the province also noted that, effective as of a future date to be specified, the Provincial Sales Tax Act, Motor Fuel Tax Act and Carbon Tax Act will all be amended to provide for the levy of a fee to recover the costs associated with taxpayer audits outside of the province.
Further information on British Columbia's 2018 budget may be found on the province's web site at: http://www.bcbudget.gov.bc.ca/2018/default.htm.
If you have any questions about how these proposed changes might impact your organization, please do not hesitate to call the Ryan TaxDirectTM line at 1.800.667.1600.