To advise your clients, you need to stay aware of updates to the tax code. And in British Columbia, the 2018 changes are numerous. In fact, it’s the first year this province’s New Democratic Party has passed a full budget since 2001. Here’s what to expect.
Real Estate Speculation Taxes
If you have foreign clients who have real estate in British Columbia, you may want to let them know about the new speculation tax. It’s a 0.5% tax on homes owned by people who don’t pay taxes in British Columbia, and it’s set to increase to 1% the following year. In addition to foreign investors, this tax also applies to Canadian citizens and residents who have property in British Columbia but live and pay taxes in other provinces.
On top of that, B.C. residents who own vacant homes in busy parts of the province may also face the speculation tax. Luckily, about 99% of B.C. residents are exempt from this tax, but you may want to help your clients determine if they have to pay it. Basically, the tax is designed to penalize people who hold onto empty properties for speculation purposes. Because of that, it typically only applies to properties in urban areas, and it does not apply in most remote areas or resort towns such as Whistler. Additionally, B.C. residents qualify for up to a $2,000 income tax credit, and there’s relief for owners in areas where you’re not allowed to rent out your property. This essentially cancels out the speculation tax on any properties worth less than $400,000.
Additional Real Estate Taxes
As of 2018, the foreign home buyer’s tax rate is increasing, and its area is expanding. Under the new budget, this tax increases from 15% to 20%, and the area is expanding to include the Capital Regional District, the Fraser Valley, the Central Okanagan and the Nanaimo Regional District, as well as Metro Vancouver.
For all homeowners, regardless of location or residency, the transfer tax on properties worth over $3 million is increasing from 3 to 5%. This tax only applies at the time of sale. It isn’t a general property tax.
The Employer Health Tax
The Employer Health Tax came into effect on Jan. 1, 2018, and if you have clients with employees, you should make sure they’re ready. This new tax is based on payroll. Businesses with less than $500,000 in payroll don’t pay anything. Those with between $500,00 and $750,000 pay .098% on their total payroll amount. The 1.46% rate applies to businesses with payroll between $750,000 and $1 million. Businesses with $1 million to $1.25 million in payroll face a 1.76% tax rate, and those with payroll over $1.25 million are taxed at 1.95%.
This tax replaces the Medical Service Plan, which is paid by individuals and set to be phased out by 2020.
Financial Assistance for B.C. Families
You may want to ensure your family clients know about the province’s new financial assistance for child care. Families earning less than $40,000 and potentially even up to $55,000 can receive a full or partial subsidy for child care costs. To qualify, the child care must meet certain criteria, and the parent must be working, in school, looking for work, or unable to care for the child due to a medical condition. Parents with special needs children may receive an extra $150 per month. Although many family benefits are granted automatically when taxpayers file their returns, this program requires a special application.
Low-income families are also going to save on some health care costs under the new budget. As you may know, the Fair PharmaCare program helps B.C. families with the costs of prescription drugs and medical supplies. Under the new budget, premiums are being completely eliminated for families earning less than $30,000 per year.
Luxury Tax on Cars
Do you have clients who like luxury cars? If so, you may want to remind them that the luxury tax on cars worth over $150,000 is doubling. It’s increasing from 10 to 20%. As a result, the tax on a $200,000 car increases to $40,000 in 2018. Previously, it was just $20,000.
Tax Credit Extensions
The B.C. budget also extends a number of tax credits that were due to expire. The interactive digital media credit is now in play until at least Aug. 31, 2023, and the book publishing credit lasts until March 31, 2021. Additionally, the scope of the film incentive credit has been revised to include script writing expenditures incurred after the final script stage of the production. If you have clients in the film or production industries, you may want to review their files to see if they qualify.
Changes to Corporate Income Tax Rates
The 2018 budget did not change the province’s corporate income tax rates, but those rates were already set to go down. The province’s small business rate falls to 2% for 2018 and 2019. That’s the rate on the first $500,000 of corporate business income. As of 2018, the combined federal and provincial rate on small business income is 12%, and that falls to 11% the following year due to a scheduled decrease in the federal rate.
Staying up to date on the tax code is essential whether you handle the books for individuals or businesses. To ensure you know what’s happening, you may want to set up Google alerts, sign up for the Canada Revenue Agency’s newsletters, or take other steps to stay informed. You should also consider using accounting programs such as QuickBooks that update automatically.