The government of Manitoba is in the midst of a string of deficits, so it is not surprising that Budget 2013, which was released on April 16, contained a sales tax increase and very few income tax breaks.
The biggest news was the proposed increase to the provincial sales tax, from 7% to 8%. This proposal is contrary to the Balanced Budget, Fiscal Management and Taxpayer Accountability Act, which provides that the PST may not be raised without a referendum. The Opposition is looking at ways to block the increase, but if they are unsuccessful then the PST will increase effective July 1, 2013. Also effective July 1, the following items will be exempt from PST: child safety restraint systems, certain baby supplies, and bicycle helmets for both children and adults. As a result of this increase, a number of tax credits that are intended to offset the PST will also be increased. Various tax credits that were due to expire on December 31, 2013 have been extended, and there is also a change to the dividend tax credit as a result of the recent federal budget. Budget 2013 proposed a new tax credit, the Rental Housing Construction Tax Credit, which is designed to stimulate the construction of rental housing in Manitoba. The small business limit has been increased.
The following changes may also be of interest:
Dividend Tax Credit
The 2013 federal budget changed the dividend gross-up and the associated Dividend Tax Credit on non-eligible dividends received by individuals from Canadian-controlled private corporations. Non-eligible dividends are dividends paid out of income that has not been taxed at full corporate rates. As a consequential amendment the Manitoba government proposes to reduce the 1.75% Dividend Tax Credit on non-eligible dividends to 0.83% beginning in 2014. The government states it is doing this to maintain integration.
Manufacturing Investment Tax Credit
The Manufacturing Investment Tax Credit is a 10% tax credit on qualifying plant and equipment purchased for first-time use for manufacturing or processing in Manitoba. It is intended to offset Manitoba sales tax payable by manufacturers.
The tax credit is currently 70% refundable and 30% non-refundable. This will change to 80% refundable and 20% non-refundable for qualifying property acquired after June 30, 2013.
Data Processing Investment Tax Credit
The Data Processing Investment Tax Credit was introduced in 2012 and was available to corporations with a permanent establishment in Manitoba whose primary business activity is data processing. This tax credit will be expanded to include companies that are not engaged primarily in data processing in Manitoba but that invest at least $10 million in data processing equipment.
A taxable Canadian corporation with a permanent establishment in Manitoba that acquires at least $10 million of eligible data processing equipment in a taxation year will qualify for an 8% refundable investment tax credit. Eligible property includes Class 46 and Class 50 data processing equipment purchased or leased and made available for use in Manitoba after April 16, 2013 and before 2016. Classes 46 and 50 include data network infrastructure equipment and electronic data processing equipment.
Commensurate with the change in the PST rate from 7% to 8%, the refundable Data Processing Investment Tax Credit available to corporations that are primarily engaged in data processing in Manitoba will increase from 7% to 8% on “data processing centre equipment” and from 4% to 4.5% on “data processing buildings.”
The tax credit effectively offsets PST on data processing equipment and buildings.
Rental Housing Construction Tax Credit
The Rental Housing Construction Tax Credit is a new tax credit intended to stimulate construction of rental housing units. It is equal to 8% of the capital cost of new rental housing construction in Manitoba and is intended to offset PST payable on new rental housing construction. In order to qualify, eligible landlords must be residents of Manitoba or have a permanent establishment in Manitoba. Eligible projects include the construction of five or more new residential rental units. The maximum credit will be $12,000 per eligible rental unit.
Small Business Limit
Canadian-controlled private corporations that qualify for the small business deduction pay 0% Manitoba Corporation Income Tax on the first $400,000 of active business income. This limit will be increased to $425,000 effective in 2014.
Research and Development Tax Credit
The Manitoba Research and Development Tax Credit is a 20% tax credit on eligible expenditures.
Various changes are being made to the tax credit to reflect changes made by the 2012 federal budget to the Scientific Research and Experimental Development Tax Credit. The 65% prescribed proxy amount will be reduced from 65% to 60% of direct labour costs in 2013 and to 55% starting to 2014. In addition, contract payments will be 80% claimable instead of fully claimable.
Small Business Venture Capital Tax Credit
The Small Business Venture Capital Tax Credit is a non-refundable 30% income tax credit for Manitoba investors who acquire equity capital in emerging enterprises. The maximum tax credit that an investor can earn in a year is $135,000 and the maximum that can be deducted in a year against Manitoba income tax is $45,000. Any unused credits may be carried forward for up to ten years or carried back for up to three years.
This tax credit was to expire December 31, 2013 but has been extended to December 31, 2016.
Film and Video Production Tax Credit
The Film and Video Production Tax Credit is designed to stimulate film and video production in Manitoba. It was due to expire in 2013 but will be extended to December 31, 2016. This tax credit is equal to 45% of the remuneration paid to Manitobans on eligible projects as well as additional bonuses for frequent filming and use of northern and rural locations. There is also a Manitoba producer bonus. An eligible project is one which has been certified by the Minister and which is a drama, variety show, animation, children’s programming, music programming, informational series or documentary that is intended for television, cinema, video tape, digital, CD-ROM, multimedia or nontheatrical production.
Interactive Digital Media Tax Credit
The Interactive Digital Media Tax Credit is extended to December 31, 2016. The tax credit is equal to 40% of the remuneration paid to Manitobans on eligible interactive digital media projects. An eligible project must be certified by the Minister to be a project to develop an interactive digital media product for sale to an arm’s-length party. The maximum tax credit for a project is $500,000.
Corporation Capital Tax
The Corporation Capital Tax on financial institutions will be increased from 4% to 5% for taxation years ending after April 16, 2013.
So there you have it — Manitoba’s Budget 2013. Good for you for making it this far.
For the proposed sales tax increase, the real excitement will be watching the Opposition try to prevent it from passing.
The Tax Team at Lazer Grant is always willing to help if you have any questions or require further information about Budget 2013. We are Ken Goodridge, Garry Chan, Elena Kalish, Ann Fuller, Alex Zhang and Marty Minuck. Get in touch with us anytime at 204-942-0300.