On March 7, 2019, the Honourable Scott Fielding, Minister of Finance, presented the 2019 Manitoba budget. This year’s budget maintains a trend of keeping promises, fixing the province’s finances, repairing services, rebuilding the economy, and making life more affordable for Manitobans.
The budget reinforces the personal income tax measures introduced in the 2016 budget, including savings for Manitoba residents driven by the indexing of personal income tax brackets to inflation.
From a commodity tax perspective, several interesting changes were announced, including a 1% decrease in the province’s retail sales tax (PST) rate, as summarized below. However, fuel and tobacco tax rates will remain at current levels.
Retail Sales Tax (PST) Measures
PST Rate Decrease
The budget contains an anticipated PST rate decrease from 8% to 7%, effective July 1, 2019. As part of this decrease, the PST rate on mobile, modular, and ready-to-move homes will drop from 4.5% to 4%, and the reduced PST rate for electricity used by qualifying manufacturers, mining companies, and oil well operators will be lowered from 1.6% to 1.4%. The prorate vehicle tax rates will also be decreased for registration periods beginning on or after July 1, 2019. Manitoba Information Notice RST 19-02, “Reduction of Prorate Vehicle Tax Rates”, outlines the new rates.
One rate that will not change is the reduced PST rate for home heating, heating and cooling farm buildings, and operating farm grain dryers, which will remain at 1.4%.
As with any sales tax change, transitional rules to determine the proper tax treatment of transactions occurring around the effective date of the change were announced by the province. These rules are summarized below.
The general transitional rule for goods is based on when the taxable purchase is made. Goods purchased before July 1, 2019, including credit purchases and deferred payment arrangements, and goods fully paid for, but scheduled for delivery on or after July 1, 2019, will be subject to the 8% PST. The 7% PST rate will apply to goods acquired on or after July 1, 2019, including any goods for which a deposit may have been paid prior to that date. The sales of mobile, modular, and ready-to-move homes will be treated in a similar manner, substituting 4% for 7%, and 4.5% for 8%.
On the lease of goods, the PST rate will be based on the rate in effect on the date the lease period ends. If the lease period ends prior to July 1, 2019, it will be taxable at 8%. If the lease period ends after June 30, 2019, PST at 7% will apply.
Generally, the transitional rule for services (other than telecommunication services) is based on when the service is performed, rather than when payment is made or becomes due. Therefore, services completed before July 1, 2019 will be subject to the 8% PST, and the 7% rate will apply to services provided on or after that date. Tax on services that straddle July 1 will apply based on the portion of the service that is performed before and on or after that date. As a result, the current 8% rate will generally apply to the portion of the service performed before July 1, 2019, and the 7% rate will apply to any portion of the service performed on or after July 1, 2019. In such cases, it may be necessary for vendors to segregate the charges on the billing for services that straddle the transition date.
These transitional rules will apply to contracts for services to tangible property (i.e., installation, maintenance, or other services); contracts to supply and install tangible property; and services that are billed by the hour, day, or other periodic measure after the service has been performed, subject to the exceptions discussed below.
Holdbacks related to contracts to supply and install tangible property (not including real property contracts) performed both before and on or after July 1, 2019, will be subject to the PST rate in effect at the time of the applicable progress billing. As a result, the 8% rate will generally apply to services completed by June 30, 2019, and the 7% rate will apply to any services completed on or after July 1, 2019.
Under an exception to the general transitional rule, prepaid service contracts purchased and paid for prior to March 7, 2019 will be subject to PST at the current rate (i.e., 8%), regardless of when the service is actually performed. However, where a prepaid service contract, such as a periodic maintenance agreement, is entered into on or after that date, and the period of service includes a day that is prior to July 1, 2019, PST will apply at a rate of 8% to the entire service. Where the service is to be performed entirely after June 30, 2019, the reduced rate of 7% will apply to the supply. Similarly, other prepaid services that are purchased and paid for prior to July 1, 2019, and may be redeemed during a period that includes any day prior to the transition date will be taxable at 8%. Prepaid service packages that may only be redeemed on or after July 1, 2019 will be subject to PST at the new reduced rate of 7%.
Specific rules also apply to utilities (including telecommunications), insurance, and real property contracts. For more information, please refer to Manitoba Information Notice RST 19-01, “Rate Reduction Transition Rules”.
Federal Carbon Tax Exemption
As previously announced, beginning on April 1, 2019, the federal carbon tax which applies on natural gas and coal will not be subject to PST.
Gasoline and diesel fuels will not require a similar exemption, as they are exempt from PST.
Provincial Fuel Tax Measure
Forestry Industry Exemption Expansion
The forestry industry fuel tax exemption will be expanded to include mill site equipment used for handling and processing of logs, effective June 1, 2019.
Tax Administration Measures
Electronic Filing Requirements and Monthly Remitter Commission Elimination
Commencing in 2020, electronic filing, remittance, and payment of the following taxes and levies using the province’s online tax system, TAXcess, will be required for all businesses:
- fuel tax;
- tobacco tax; and
- health and post-secondary education tax levy.
In addition, vendors paying or remitting PST of $5,000 or more per month will be required to file returns and remit or pay PST electronically. Monthly filers will also be ineligible to claim PST commissions from the province. However, quarterly and annual filers remitting less than $3,000 per reporting period will be unaffected by this change.
Enhanced Enforcement Measures
The budget documents indicate that the province intends to introduce amendments to enhance the enforcement and administration provisions in The Tax Administration and Miscellaneous Taxes Act, but details on the proposed measures were not announced.
Further information on Manitoba’s 2019 budget may be found on the province's website at: Manitoba Budget 2019
If you have any questions about how these proposed changes might impact your organization, please do not hesitate to call the Ryan TaxDirect® line at 1.800.667.1600.