Last updated: March 24 2010

Manitoba Budget Day Summary

The red ink flowed in the Manitoba Budget today, however, in the context of the current economic environment--post-financial crisis--new Finance Minister Rosann Wowchuk's first provincial budget will likely be best judged five years from now, when her plan for a return to a budget surplus is either met, or not, and the accumulating debt load that is anticipated, is well managed. Knowledge Bureau President Evelyn Jacks reports from the Budget Lockup:

This year's Manitoba provincial budget contains three pieces of significant news for taxpayers, and a lot of tinkering.

First, a significant milestone arrives for small business corporations in Manitoba on December 1, 2010: a 0% small business tax rate on income under $400,000. Manitoba is the first jurisdiction in Canada with this claim to fame, but good news travels fast. The small business tax rate goes to 0% in BC effective April 2012. (Its rate for 2010 is 2.5%, on a $500,000 income limit as of Jan 1, 2010).

While this is great news for the multiplicity of small businesses that make up the backbone of Manitoba's economy, and hopefully, the new businesses the provision may attract, there is little in the way of good news on the personal tax side. Unfortunately, the best that can be said is that personal tax rates and brackets are unchanged from last year. There have been no inflation adjustments and so again this year, the $25 million increase in personal income tax collections is the result of the hidden taxes by way of "bracket creepî.

Further, the highest marginal tax rate of 17.4% levied on taxable incomes over $67,000 amounts to a penalty for the upper middle class and in particular, the highly educated and highly mobile graduates of our expensive educational institutes, who can simply look to neighboring Saskatchewan to earn incomes up to $115,297 before paying a top rate of only 15% there. Taxpayers at top tax brackets fare better in every other western province, and in Ontario too.

Lower income earners are not spared, either. With a Basic Personal Amount of only $8134, the lowest of the Western provinces and Ontario, Manitoba continues to tax non-discretionary earnings sooner than other nearby provinces. In Alberta, for example, individuals pay no tax on the first $16,825 in income in Alberta ($33,650 per couple or single with dependant child); and $13,348 in Saskatchewan ($26,695 per couple or single with dependant child).

This continued stubborn bracket creep in the post-financial crisis environment is puzzling, as one of the best ways to stimulate the economy is to give people more money in their jeans every two weeks at payday. Raising the basic personal amounts would accomplish that. Purchasing power is also enhanced when personal amounts and tax brackets are inflation-adjusted.

These are the kind of differences in tax competitiveness that spur employees to choose one province over another; however, it is true that taxes are not the primary factor in inter-provincial migration. The main one is the ability to land a good job. Manitoba should come through the recession well, if zero taxation on business income fosters an economic climate that creates great, sustainable jobs at the higher wage rates skilled graduates of our wonderful schools are looking for.

However, it faces accumulating debt, and higher debt servicing costs, as it prepares to spend $2 billion more than it will take in now until 2014. That in fact, is perhaps the bigger story in this budget. Technical details follow:

PERSONAL TAXATION

Personal Tax Brackets and Rates (Line 428 on the Federal T1 Tax Return): For individuals there are no new changes over those announced last year. Noteworthy is that by 2010 the lowest provincial tax rate will be 10.70% and by 2011--10.50%. An inter-provincial comparison of tax rates and brackets follows:


Provincial Tax Brackets and Rates for 2010

Province

Tax Brackets

Rate

Surtax

FEDERAL

BPA $10,382

$10,382

$10,383- 40,970

$40,971 - $81,941

$81,942-$127,021

$127,022 and up

0%

15%

22%

26%

29%

British Columbia

BPA $11,000

Spouse $9,653

$0 to $35,859

$35,860 to $71,719

$71,720 to $82,342

$82,343 to $99,987

Over $99,987

5.06%

7.70%

10.5%

12.29%

14.7%

Alberta

BPA $16,825

Flat tax of

10%

Saskatchewan

BPA $13,348

Up to $40,354

$40,355 to $115,297

Over $115,297

11.0%

13.0%

15.0%

Manitoba

BPA $8134

$0 to $31,000

$31,001 to $67,000

Over $67,000

10.8%

12.75%

17.4%

Ontario

BPA $8943

$0 to $37,106

$37,107 to $74,214

Over $74,214

5.05%

9.15%

11.16%

20% > $4,006

36% > $5,127

Non-Refundable Tax Credits:

The Fertility Treatment Tax Credit will allow 40% of the costs up to $20,000, including treatment and drugs, to be claimed, up to a maximum of $8000. The credit will be transferrable between spouses and eligible costs paid after September 2010 will be claimed as a medical expense using federal income tax rules.

Refundable Tax Credits. There is important news for students who pay tuition fees in Manitoba.

Tuition Fee Income Tax Rebate Advanceóan refundable advance of 5% of tuition and ancillary fees paid after August 31, 2010 to a maximum of $250 will be allowed; and 10% to a maximum of $500 in 2011 and following years to a lifetime Advance "capî of $5000. Amounts so claimed will reduce the lifetime maximum of $25,000 allowed under the Tuition Rebate Program which follows graduation.

No Change to Education Property Tax Credit. While the Education Property Tax Credit was increased from $600 in 2008 to $650 in 2009, the scheduled increase to $700 for 2010 did not materialize. Further, farmers will not benefit from a scheduled increase in the Farm School Tax Rebate. The rate stays the same at 75% and there is no indication of when the deferred rate of 80% will be instituted.

REFUNDABLE MANITOBA PERSONAL

TAX CREDITS

2008

2009 and 2010

Basic Personal Credit for Self or Spouse

$190

$195

Age Credit for Self or Spouse

$110

$113

Disability Credit for self, spouse or dependant

$110

$113

Disability Credit for Dependants

$60

$62

Credit for Dependent Children

$25

$26

Education Property Tax Credit

$600

$650

Other Personal Tax News:

Mirroring New Federal Rules from the March 4, 2010 budget, Manitoba taxpayers will also benefit from provincial tax reductions due to

(a) The Fitness Tax Credit, which will be expanded for young adults age 16 to 24 (currently claims are limited to those up to age 15). However this new tax treatment will start only in 2011.

(b) Manitoba will allow single taxpayers with a dependant child to recognize income from the Universal Child Care Benefit in the income of the child, making the benefit tax free for most in this situation.

(c) The new rules surrounding Stock Option Benefits, including elimination of a double deduction, and deferral of the benefit, and the provision limiting tax on disposition of a deferred benefit to proceeds of disposition will be mirrored in Manitoba.

BUSINESS TAX NEWS

The general corporate tax rate will fall from 14% to 13% on July 1, 2008 and again to 12% on July 1, 2009. The goal to drop the general rate to 11% sometime after this, was not confirmed in this budget.

The Small Business Rate charged on taxable income under $400,000 will be reduced from 3% to 2% in 2008 and then to 1% in 2009, falling to 0% in 2010.

New Profits Tax: Credit Unions and Caisse Populaires will be subject to a 1% profits tax on taxable income over $400,000 effective January 2, 2011. A tax return will need to be filed 6 months after year end.

A New Co-operative Development Tax Credit will be introduced for contributions made to a fund managed by the Manitoba Cooperative Association after September 2010, used for technical assistance, co-ordination of existing resources and to provide small grants and strategic investments.

In addition, changes to the following existing tax provisions were announced:

Small Supplier Amount for RST: Small business with annual taxable sales under $10,000 will no long need to register and collect Manitoba Sales Taxes.

The 20% Research and Development Tax Credit which promotes co-operation between corporations and research institutes is fully refundable for R & D carried on in Manitoba under a contract with a qualifying research institute. This credit will be extended to in-house research starting in 2011 when one quarter of the 20% credit will be refundable; starting in 2012, 50% of the 20% credit will be refundable.

The Small Business Venture Capital Tax Credit, set to expire on December 31, 210 is extended to December 31, 2013. Formerly known as the Community Enterprise Investment and Development Tax Credit, its purpose is to prioritize economic development in line with provincial objectives. This is a non-refundable one equal to 30% on a maximum $450,000 investment in equity capital.

The maximum annual approval limit for this program doubled to $33,000,000 starting in 2009. The value of issuable shares that a business can apply for doubled from $500,000 to $1 Million, starting in 2009. This is non-refundable personal income tax credit is equal to 30% on a maximum $30,000 investment.

Interactive Digital Media Tax Credit. This credit was new to corporations which produce interactive digital media projects in Manitoba in 2009, including videos and games and educational media/webcasts. The maximum credit on an eligible project is $500,000 and it is calculated as 40% of the remuneration paid to Manitobans on eligible projects as approved by Manitoba Science, Technology, Energy & Mines. It has been extended to December 31, 2013 and is claimable on expenditures made on a taxation year basis.

Film and Video Production Tax Credit. After 2007 a 5% Producer bonus is introduced as well as a Frequent Filming bonus. Eligible salaries paid to non-residents for work in Manitoba is increased from 20% to 30%. This credit was extended in the budget to March 1, 2014 and enhanced to allow a 30% credit on production costs paid for labour, goods and services provided in Manitoba for an eligible film.

Manufacturing Investment Tax Credit. A generous increase from 35% to 70% comes into effect retroactively on January 1, 2008 and this credit will be available until December 31, 2011.

Co-op Education and Apprenticeship Tax Credits have been broadened starting in 2011 to include employers who hire high school and post-secondary Level 1 and 2 apprentices who are not eligible for federal Apprenticeship Job Creation Tax Credits. This is a credit of 10% of wages and salary to a maximum of $2000.

Evelyn Jacks is President of The Knowledge Bureau and author of Essential Tax Facts 2010, Master Your Taxes, and Make Sure It's Deductible; all available from the Knowledge Bureau bookstore at bulk purchase pricing for advisors and their clients.