BC Latest Province to Add High Income Surtaxes

A trend appears to have started in balancing provincial budgets, as BC follows Ontario, Nova Scotia, and Quebec in its February 19 budget with the introduction of a "high income surtax" which could, in the absence of planning, increasingly penalize the wealth accumulations of retirees.

Singles and widowed survivors must now plan more carefully not to leave taxable lump sums in registered accounts before death. Corporate tax increases are also in store for private business in BC. Here are the details:

BC is "temporarily" increasing the personal income tax rate for incomes over $150,000 from 14.70 per cent to 16.80 per cent, for two years starting January 1, 2014, a provision set to expire on December 31, 2015. Problem is, these taxes hit hard when a single or widowed senior passes away with deposits in a registered account such as an RRSP or RRIF. The full amounts of those accumulations are added to income on the final return; if that spikes taxable income over $150,000 in BC, the new tax rates will apply.

The trend is worrisome for Canadians. Ontario, Quebec and Nova Scotia have previously introduced high income surtaxes. Problem is, these taxes hit hard when a single or widowed senior passes away with deposits in a registered account such as an RRSP or RRIF. The full amounts of those accumulations are added to income on the final return; if that spikes taxable income over $150,000 in BC, the new tax rates will apply.

In BC, business will be also be hit with tax increases, with an increase to the general corporate income tax rate. This measure was previously announced in the 2012 budget to begin on April 1, 2014. The rate will now increase sooner: going up from 10% to 11% on April 1, 2013. In addition the school property tax credit for light industry will be phased out over two years so that it is eliminated for the 2014 tax year.

A broad-based tax increase comes in the form of premium increases under the BC Medical Services Plan. Starting January 1, 2014 it will cost quite a bit more; the increases are at twice the rate of inflation: maximum monthly premium rates go up by about 4 per cent or $2.75 per month to a total of $69.25 for single persons, by $5.00 per month to a total of $125.50 for two person families and by $5.50 per month to a total of $138.50 for families of three or more persons. Smokers, by the way, will also pay more on their tobacco taxes.

The only bright spot is for parents. The BC Training and Education Saving Grant, a one-time $1200 RESP contribution, will be made by the provincial government when the child is six years old, if the application is made before the child's seventh birthday.

Tax and wealth advisors in BC will want to consult with clients now during tax season to inform them of the proposed tax expenses and prepare retirement and estate plans to help clients avoid high taxable incomes on terminal returns. In the case of corporate business owners a review of pricing and staffing costs are the likely short term deflectors of the new business taxes. This budget is, however, subject to change depending on the results of the May 14, 2013 BC election.