British Columbia’s Finance Minister Selina Robinson delivered the 2022 Budget and Fiscal Plan on Feb. 22, 2022. Tabled with a deficit, the budget focusses on investing in British Columbia’s economic, environmental and social strengths.
Direct tax measures
The 2022 budget focuses on future growth through the continuation or extension of existing programs. No changes were proposed to British Columbia personal or corporate income taxes.
Scientific Research and Experimental Development Tax Credit extended
The provincial Scientific Research and Experimental Development (SRED) tax credit program has been extended for an additional five years to Aug. 31, 2027. Providing relief for Canadian-controlled private corporations that conduct research and development, the refundable SRED credit can result in long-term economic growth for the province.
The extension of this program will provide long-term benefits to qualifying CCPCs engaged in research and development activities.
Clean Buildings Tax Credit
Effective Feb. 23, 2022, the Provincial Government is introducing a new temporary tax credit for retrofits that improve the energy efficiency of multi-unit residential buildings with four or more dwellings, and prescribed types of commercial buildings.
To qualify, a taxpayer must improve the energy efficiency of their building(s) to meet a prescribed energy target. These targets exceed the current minimum requirements for existing buildings and supports the government’s CleanBC roadmap. Taxpayers may receive a refundable tax credit equal to 5% of the eligible expenditures paid. The eligible expenditures must be made prior to April 1, 2025 and must be under a contract entered after Feb. 22, 2022. It is currently unknown if a cap on this credit will be implemented.
By investing in energy-efficient retrofits, taxpayers who own eligible residential and commercial buildings may be eligible for a 5% refundable tax credit.
Training tax credits extended
The current training tax credits are extended for an additional two years, allowing taxpayers to claim the tax credit to the end of 2024. This refundable tax credit is available to eligible corporations in British Columbia that paid salaries or wages, prior to Jan. 1, 2025, to an employee that was registered in a prescribed program that is administered through the British Columbia Industry Training Authority. There is also an enhanced tax credit available for First Nations individuals or persons with disabilities for all trade programs.
Shipbuilding and Ship Repair Industry Tax Credit extended
The current Shipbuilding and Ship Repair Industry Tax Credit is extended for an additional two years, allowing the tax credit until the end of the 2024 calendar year. Eligible employers in the British Columbia shipbuilding and ship repair industries who employ apprentices can claim this credit to offset salaries and wages paid.
Eligible employers should continue to utilize these programs to offset their remuneration expenses.
Equity Tax Credit for clean technology
Effective for the 2022 to 2024 taxation years, the total equity tax credit budget is temporarily increased to $41 million from $38.5 million. The $2.5 million increase will be allocated to investments in clean technology businesses. The equity tax credit offers individual investors a 30% refundable tax credit (annual maximum of $120,000) or corporations a 30% non-refundable tax credit (no annual maximum).
Tax credits are issued on equity investments only if the eligible business corporations (ECB) raised the equity capital under a pre-approved authorization and is in compliance with the Small Business Venture Capital Act and the Small Business Venture Capital Regulation.
Individual and corporate investors, investing in ECBs may be eligible for provincial tax credits on new investments made in the year.
Speculation and Vacancy Tax
Strata accommodation properties
Individual and corporate owners of strata accommodation properties (also called strata hotels) will permanently remain exempt from the British Columbia Speculation and Vacancy Tax. This exemption was previously set to expire at the end of 2021.
As the provincial government fine-tunes the Speculation and Vacancy Tax regime, they continue to work with taxpayers to ensure the program is fair and consistent.
Hazardous or Damaged Residential Property exemption temporarily expanded
Effective for the 2021 tax year only, the hazardous or damaged residential property exemption has been expanded. This expansion includes residential properties damaged by the floods in late 2021 in Abbotsford, Chilliwack and Mission. The expanded exemption allows properties damaged in the floods to claim the Hazardous or Damaged Residential Property exemption, even if the property was uninhabitable for less than 60 days, if the disaster prevented them from claiming another exemption under the Speculation and Vacancy Tax Act. Ordinarily, the Hazardous or Damaged Residential Property exemption requires the property to be uninhabitable for a period of 60 or more days.
This expansion will allow individuals impacted by the devastating floods of 2021 to claim exemptions from the Speculation and Vacancy Tax. With many additional exemptions available in 2021 to claim an exemption from the British Columbia Speculation and Vacancy Tax, taxpayers should review their situation and take advantage of any exemptions from the speculation and vacancy tax that may be available to them.
Indirect tax measures
The British Columbia government introduced measures that will increase revenues by an expected $160 million in this fiscal year and $190 million in the next fiscal year. The majority of the increase is the result of better expected collection of sales taxes from online sales in addition to the reduction of a tobacco exemption. The other budget measures are designed to incentivize change to cleaner burning fuels and equipment.
Provincial Sales Tax measures
Obligations for online ‘marketplace facilitators’
This measure is designed to increase the collection of existing provincial sales tax (PST) by imposing collection, remittance and reporting obligations on marketplace facilitators who facilitate sales and leases to consumers. It is expected to increase revenues by $100 million in the current fiscal year and $120 million in the next.
This follows changes that were made by other provinces and the federal government in the last year. It will be effective July 1, 2022 and will initially require marketplace facilitators to collect PST on taxable goods shipped from within Canada, taxable services (including short-term rentals and other taxable accommodation, but not including legal services), software and leases of goods made through their online marketplace to consumers within British Columbia. Additionally, marketplace facilitators will be required to charge PST on their facilitation services that they provide to online sellers.
In the coming months, detailed rules will be released that will also apply to the sales of goods shipped from outside Canada to consumers in British Columbia.
Online retailers and service providers should consider whether they are required to collect and remit PST on their goods and services.
PST and tobacco
Effective July 1, 2022, PST will apply to tobacco. Since tobacco is not currently subject to PST, this measure is expected to increase revenue by $78 million in this fiscal year and $84 million in the next. This is designed to raise money for healthcare costs and decrease smoking rates in the province. No direct linkage between healthcare transfers and the new collections has been announced.
PST will be expanded to apply on the sale of tobacco.
An exemption for used Zero-Emission Vehicles (ZEV) was introduced in addition to a passenger Vehicle Surtax Threshold for ZEVs.
These two measures taken together are designed to increase the use of ZEVs by reducing the PST cost of purchasing these vehicles. The measures are expected to reduce PST revenue by $33 million in this fiscal year and by $44 million in the next fiscal year.
Effective Feb. 23, 2022, and until Feb. 22, 2027, used ZEVs are exempt from provincial sales tax. The exemption applies to sales of all used ZEVs from motor dealers, as well as private sales of used ZEVs that have been driven for at least 6,000 kilometres.
Additionally, effective Feb. 23, 2022, and until Feb. 22, 2027, the passenger vehicle surtax threshold for ZEVs is increased to $75,000 from $55,000. Currently, all vehicles valued over $55,000 are subject to PST at a rate of between 8% to 10%. With this change, the purchaser of a $75,000 ZEV will save $600.
The Provincial government is incentivizing the purchase of new and use ZEVs by reducing the PST burden on purchase.
PST on private vehicle sales
Effective Oct. 1, 2022, PST on private sales of motor vehicles will be based on the greater of the reported purchase price and the average wholesale value of the vehicle. The measure is expected to increase PST collection by $15 million in the current fiscal year and $30 million in the next. This is intended to address tax avoidance arising from underreporting the price of private sale motor vehicles. The measure will not apply for motor vehicles involved in a trade-in.
PST on private vehicle sales will be calculated on the greater of the reported purchase price and the average wholesale value to prevent underreporting.
PST incentives to lower carbon emissions
The budget introduces a PST exemption for heat pumps coupled with a rate increase on fossil fuel heating equipment.
These measures are designed to increase the use of heat pumps over fossil fuel-burning heating equipment. Since heat pumps are generally powered by electricity, this measure is intended to decrease carbon emissions. The measures are expected to increase PST by $1 million in each of the next two fiscal years.
Effective Apr. 1, 2022, heat pumps used to move heat from one location to another are exempt from PST. If a heat pump is purchased prior to April 1, 2022, to fulfil a contract where the heat pump is affixed or installed into real property on or after April 1, 2022, the person who paid the PST on the heat pump will be eligible to apply for a refund of that tax.
Effective Apr. 1, 2022, The PST on fossil fuel combustion systems that heat, or cool buildings or water will be increased from 7% to 12%. In relation to contracts entered into prior to Feb. 23, 2022 and affixed or installed into real property on or after Apr. 1, 2022, such systems will be subject to a tax rate of 7%. Contracts entered into after February 23, 2022 and affixed or installed into real property on or after Apr. 1, 2022 will be subject to the 12% PST rate.
The provincial government has applied direct pressure to reduce carbon emissions from fossil fuel combustion systems with a 5% increase in tax while incentivizing the use of cleaner heat pumps through a PST exemption.
Motor Fuel Tax measures
Hydrogen exemption expanded
Effective Feb. 23, 2022, hydrogen fuel is classified as a Category 1 alternative motor fuel. This will have the expected result of reducing motor fuel tax collection by $1 million in each of the current and next fiscal year.
Hydrogen will be exempt from motor fuel tax provided that:
- The hydrogen is purchased for use in an internal combustion engine vehicle; and
- The hydrogen is not produced by electrolysis using coal-generated electricity, unless the carbon dioxide emitted as a result of the process is captured and stored or captured and sequestered.
An alternative motor fuel exemption has been available for hydrogen used in fuel cell vehicles since 2009. Expanding the hydrogen exemption to include use in internal combustion engine vehicles recognizes that hydrogen produces no carbon when combusted and will help support the decarbonization of the transport sector.
It is expected that more detailed rules will be developed to address how the criteria for the exemption should be interpreted and validated.