Special Feature

Special Report on Taxes 2016

In this special feature: The CRA eyes the principal residence exemption; changes in the insurance "exempt test"; bad news for offshore tax cheats; cross-border tax planning and much, much more from the Mid-October 2016 issue of Investment Executive.

Three of the Atlantic provinces, hobbled by debt and population losses, resorted to tax hikes in their latest budgets

By Catherine Harris | Mid-October 2016

Although most of the provinces held the line on increases in taxes and fees in their 2016 budgets despite their debt loads and listing economies, taxpayers in three of the four Atlantic provinces were whacked - New Brunswick, Prince Edward Island and Newfoundland and Labrador.

The reasons are familiar in a region that has long struggled to maintain healthy economies and fight long-term debt and population losses that have consistently dragged down growth.

A comparison of Newfoundland and Labrador with Alberta helps to illustrate the difference in provinces' fortunes. The price of oil, which began skidding last autumn and has yet to recover fully, hit both of these oil-producing provinces hard. But Alberta remains in a net asset position, albeit a small one, and can afford to run significant deficits for several years. Indeed, Alberta's projected debt of $32.9 billion as of March 31, 2019, would be equivalent to only 8.9% of gross domestic product (GDP). That is well below the debt load (as of March 31, 2016) of 30% or more of GDP for seven of Canada's other provinces. And Alberta's projection still is less than British Columbia's 17.3% and in line with Saskatchewan's 8.3%.

In contrast, Newfoundland and Labrador's debt sat at 41.2% of GDP as of March 31. Despite raising virtually every tax and fee, the province is projecting deficits through fiscal 2022-23 (which end on March 31), which would push its debt burden to around 50%.

The other, non-oil producing Atlantic provinces are benefiting from low oil prices. However, their economies lack sectors that are strong drivers of growth. Perhaps more of a concern is that these provinces' populations are aging at a rate that is faster than in the rest of the country, coupled with difficulty retaining residents and attracting new ones through immigration. New Brunswick is struggling the most in this regard; its population actually is declining.

Nova Scotia has better prospects, thanks to huge federal government shipbuilding contracts. And P.E.I. continues to be a popular tourist destination, although the Island still needs to raise its portion of the harmonized sales tax (HST) to keep its deficit moving downward.

Here's a look at the tax measures, by province:

- British Columbia. There were no tax changes in the budget, but the province implemented a whopping 15% tax on non-resident purchases of residential real estate as of Aug. 2. (The City of Vancouver also is imposing taxes on vacant residential property.)

- Alberta. This province implemented tax increases in the autumn of 2015, including: replacing the previous flat 10% personal income tax rate with a progressive rate system; bringing in a new child benefit; increasing the corporate tax rate; increasing the minimum wage; and adding a new carbon tax that takes effect in 2017.

This year's budget focused on offsetting the negative impact of the carbon tax on lower-income taxpayers, who will receive rebates, and on small businesses, whose tax rate drops to 2% from 3% (both measures as of Jan. 1, 2017).

- Saskatchewan. The governing Saskatchewan Party won the April 2016 election and, as promised during the campaign, raised no taxes in its June 1 budget.

- Manitoba. The Conservative Party defeated the governing New Democratic Party in the April 2016 election. The Conservatives' May 31 budget curtailed eligibility for the seniors' school tax rebate, reducing it for those with net family income above $40,000 and eliminating the rebate when net family income is above $63,500. The rebate now is part of the annual income tax return. A proposed personal tax exemption and tax brackets will be indexed to inflation as of the 2017 taxation year.

- Ontario. There were no major tax increases, but there were some minor changes. The education and tuition tax credits are eliminated as of September 2017; in their place is the Ontario student grant for students from families with income of less than $50,000. As well, the children's activity tax credit and the healthy homes renovation tax credit will end on Dec. 31.

- Quebec. The budget introduced a tax credit for qualified "green" housing renovations undertaken by March 31, 2017. The province will begin reducing the personal health contribution, which will be eliminated by 2018.

- New Brunswick. Besides increasing business taxes, the budget raised the province's portion of the HST to 10% from 8% as of July 1. As well, the real property transfer tax was raised to 1% from 0.5% as of April 1. However, the top tax bracket was eliminated and the rate for taxable income over $150,000 was lowered to 20.3% from 21% as of Jan. 1.

- P.E.I. The budget increased the province's portion of the HST to 10% from 9% and removed the land transfer tax for first-time homebuyers, both as of Oct. 1.

- Newfoundland And Labrador. The budget raised most taxes and fees as of July 1. All personal tax rates were increased - by one percentage points for the lowest tax bracket up to three percentage points for the top two brackets. There's a new "deficit reduction levy" of up to $900 a year. The province's portion of the HST increases to 10% from 8%.

© 2016 Investment Executive. All rights reserved.