BC’s Finance Minister Carole James delivered the province’s 2018 budget on February 20, 2018.  The budget anticipates a surplus of $219 million for 2018, $281 million for 2019 and $284 million for 2020.  The budget strongly emphasizes the province’s housing plan and making life more affordable.  Specifically, the budget eliminates the Medical Services Plan premiums effective January 1, 2020, introduces an Employer Health Tax effective January 1, 2019, and includes various housing related tax measures, including the addition of a new ‘speculation tax.’

Employer Health Tax and Medical Services Plan premiums

The budget announces a new Employer Health Tax (EHT) starting in the 2019 calendar year.  The EHT is intended to help fund the elimination of the Medical Services Plan premiums, which the budget announces will be eliminated, effective January 1, 2020.  BC previously cut Medical Services Plan premiums in half, effective January 1, 2018.  The EHT will be calculated as a percentage of payroll as follows:

The budget does not provide details on the frequency of installment payments and how payroll would be aggregated and computed amongst associated businesses; however, BC indicates it will provide further details before the change is implemented.  Many local governments have annual payroll greater than $1.5 million, and will experience an incremental net cash outflow in 2018 to 2020, due to the timing difference between implementation of the new EHT prior to elimination of MSP premiums.

Provincial Property Transfer Taxes

The budget increases the provincial Property Transfer Taxes (PTT) to 5% (from 3%) on residential property values above $3 million.  This measure is effective February 21, 2018 and will be administered by the Province. 

In addition, the budget stipulates that the additional PTT that applies to foreign purchases of residential properties located in the province will increase to 20% (from 15%) and expands the tax from the current Greater Vancouver Regional District to include the Fraser Valley, Capital, Nanaimo and Central Okanagan Regional Districts.  These measures are also effective February 21, 2018.  Transitional rules (although not defined in the budget) may exempt eligible property transactions entered into before February 21, 2018 for these newly added areas.  However, no transitional rules will apply for transactions in Metro Vancouver. 

Speculation tax

The budget introduces a new speculation tax on residential property in BC at a rate of $5 per $1,000 assessed value, starting in 2018.  This tax will increase to $20 per $1,000 of assessed value in 2019 and will initially apply to the Metro Vancouver, Fraser Valley, Capital and Nanaimo Regional Districts an in the municipalities of Kelowna and West Kelowna.  This tax will be administered by the Province. 

This new annual property tax is intended to target foreign and domestic home owners who do not pay income tax in BC, and will provide up-front exemptions for most principal residences, qualifying long-term rental properties and other special cases that were not defined in the budget.

In addition, the budget introduces a non-refundable income tax credit to offset the new property tax to provide relief to persons who may not otherwise qualify for an up-front exemption, but otherwise pay income taxes in BC.  This non-refundable income tax credit can be carried forward to future taxation years.  BC indicates it will provide further detail before this change is implemented.  As BC has not yet proposed legislation for this new speculation tax, there is a lack of clarity as to how it will apply, including what up-front exemptions will exist.   

Other housing-related measures

The budget also announces other housing-related measures, including changes to:

—   Increase the property value threshold for full home owner grant to $1.65 million for the 2018 tax year, as previously announced on January 3, 2018.  For properties valued above this threshold, the grant is reduced by $5 for every $1,000 of assessed value in excess of this threshold. 

—   Increase the provincial school tax on most residential properties with an assessed value in excess of $3 million to 0.2% and to 0.4% for residential properties with an assessed value in excess of $4 million. Starting in 2019 the tax will continue to be administered by municipal collectors and part of the existing property tax collection process. 

—   Enhance tax administration and information sharing, including measures to:

—  Require developers to collect and report comprehensive information about the assignment of pre-sale condo purchases

—  Introduce the collection of additional information about beneficial ownership on the Property Transfer Tax form, including tax identification numbers for transferees through bare trusts

—  Increase the limitation period for assessments and introduce administrative penalties for non-compliance

—   The MSP Task Force Interim Report provided a number of recommendations under consideration including replacing the home owner grant with an income-tested program delivered through the income tax system.

—   Work has begun to allow collection of social insurance numbers as part of the home owner grant application process. Collection is expected to begin in 2019.

—   The budget states that BC is looking to change the property tax treatment of residential property in the Agricultural Land Reserve (ALR) as part of a broader review to ensure the ALR land is being used for farming.

KPMG can help you assess the effect of the tax changes in this year’s BC budget on your local government, and point out any benefits or ease in their impact.  We can also keep you abreast of the progress of the proposals as they make their way into law.