Even though Canada’s economy has performed much better than anticipated this year, resulting in greater revenue for provincial coffers, there were not that many tax changes in this year’s batch of provincial budgets. British Columbia was the only outlier within this group.
“In most cases, provincial governments chose to improve their balance sheets,” says Sébastien Lavoie, chief economist with Laurentian Bank of Canada in Montreal.
A big reason for this low level of activity is that Alberta, Prince Edward Island and Newfoundland and Labrador go to the polls in 2019, while Saskatchewan and Manitoba have elections in 2020. Sitting governments usually wait until closer to election time to provide goodies.
Another reason for this prudence lies in the risks for the economic outlook. These risks include the impact of the recently completed negotiations for the new U.S./Mexico/Canada Agreement; the outcome of the U.S./China trade war; and further problems in emerging economies, such as the recent crises in Turkey and Argentina.
In addition, Canada’s provinces are grappling with the possibility of Ottawa imposing a carbon tax on Jan. 1, 2019. Federal law allows Ottawa to do this in all provinces in which the carbon pricing regimes don’t meet national guidelines. Only B.C. and Quebec have systems that are in compliance, so provinces that are not compliant may need financial room to rebalance their tax regimes if a federal carbon tax is implemented.
Alberta was in compliance, but announced it would no longer raise its carbon tax in line with federal guidelines after the Federal Court of Appeal ruled this past summer that the Trans Mountain Pipeline extension could not go ahead as planned.
Ontario also had been in compliance, but the new Progressive Conservative (PC) government, which won the June 7 election, immediately cancelled the Liberal predecessor government’s carbon cap-and-trade system and joined Saskatchewan and Manitoba in challenging the federal legislation’s constitutionality. The Maritime provinces have proposed other solutions, while Newfoundland and Labrador’s plan still is being developed.
Besides Ontario’s election, two other provinces went to the polls this year. The Coalition Avenir Québec (CAC) defeated the governing Liberals in Quebec on Oct. 1 and New Brunswick has a minority PC government after the Sept. 24 election.
Here’s a look at the tax changes and potential changes in B.C., Ontario, Quebec and New Brunswick:
– British Columbia. The minority government led by John Horgan’s New Democratic Party increased the foreign buyers tax on housing to 20% from 15% as of Feb. 20; this tax now also applies to purchases in cities outside Vancouver. As well, the property transfer tax increased to 5% from 3% for residences worth more than $3 million, and there was a speculation tax of 0.5% imposed this year, rising to 2% in 2019, on purchases by people who don’t pay income taxes in the province. Principal residences and rental properties are excluded.
The province also increased the surtax on vehicles that cost between $125,000 and $149,000 to 15% from 10% as of April 1; the surtax on vehicles that cost $150,000 or more rose to 20% from 10%.
B.C.’s new payroll tax is designed to replace the revenue generated by the medical services premium that individuals and families pay. This premium was cut in half this past Jan. 1 and will be eliminated in 2020. The payroll tax, which is effective Jan. 1, 2019, is 1.95% for payrolls of more than $1.5 million, with a lower pro-rated rate for payrolls between $500,000 and $1.5 million.
Changes to the child-care tax credit, accompanied by a child-care fee reduction program, is expected to make child care free for some lower-income families.
B.C.’s minimum wage increased to $12.65 on June 1 from $11.35. This is to be followed by increases to $13.85 in 2019, to $14.60 in 2020 and to $15.20 in 2021.
– Ontario. The PCs promised tax cuts during the election, but are leaving those for later in the party’s mandate. These potential changes include a 20% cut for the second personal income tax bracket, to 7.32% from 9.15%, for those earning between $42,960 and $85,923; this cut is scheduled to begin in the third year of the PCs’ mandate. A cut in the small-business tax rate, to 3.2% from 3.5%, is scheduled for the second year, which would go along with a drop in the corporate tax rate to 10.5% from 11.5%.
For small businesses, the PCs also are cancelling the scheduled increase in the minimum wage, which was to rise to $15 from $14 as of Jan. 1, 2019.
– Quebec. The CAC promised to lower the school-related portion of property taxes and increase family allowances for children under the age of 18.
– New Brunswick. The PCs won 22 seats, the formerly governing Liberals won 21 seats, and the Green Party and the People’s Alliance Party each took three seats. As of Oct. 4, the PCs were expected to form the government with the unofficial support of the People’s Alliance. Both parties vowed to fight the federal carbon tax plan.