Provincial budgets bring changes for payroll

Shortly before the Alberta government announced a May 5 provincial election, Finance Minister Robin Campbell tabled the province’s 2015-16 budget. The Mar. 26 budget included a plan to introduce a new health-care contribution levy that Campbell said would be paid through the income tax system and administered by the Canada Revenue Agency (CRA) through source deductions. If the government wins the
election, it proposes to implement the health levy on Jul. 1.

The amount each individual would pay for the levy would be based on their taxable income:

Since the government would implement the levy mid-year, Campbell said the amount payable for 2015 would be one-half of the full-year amount. If the government wins re-election, it is expected the CRA will provide information in the coming weeks on how it plans to implement the levy so employers have time to make changes to their payroll systems before Jul 1.

Campbell also proposed moving the province’s personal income tax system from a flat rate structure to a graduated one, with three tax brackets, beginning next year. If enacted, the current 10 per cent flat tax rate that applies to all taxpayers would apply only to the lowest income tax bracket.

A second tax bracket would apply for taxable income from over $100,000 to $250,000. The rate for the bracket would be 10.5 per cent in 2016, 11 per cent in 2017 and 11.5 per cent in 2018 and later years. A third tax bracket would apply for taxable income over $250,000. The rate for the bracket would be 11 per cent for 2016, 11.5 per cent for 2017, 12 per cent for 2018 and 11.5 per cent for 2019 and later years.

The New Brunswick government is proposing to change its personal income tax brackets and rates this year, Finance Minister Roger Melanson announced in releasing the province’s 2015-16 budget on Mar. 31. The changes would create two new personal income tax brackets and tax rates, retroactive to Jan. 1.

A new 21 per cent tax rate would apply to taxable income between $150,000 and $250,000, while a rate of 25.75 per cent would

apply for taxable income greater than $250,000. The rates for individuals with a taxable income below $150,000 would not change.

It is expected the CRA will implement the changes on July 1 for source deduction purposes, although this could not be confirmed at press time. In the past, the CRA has generally implemented personal income tax changes on Jan. 1 and July 1.

Nova Scotia:

The Nova Scotia budget, released on Apr. 9, did not include any payroll-related tax changes. The government did, however, announce it would set up a working group to study recommendations put forward in a tax review report released last fall and would continue to consultwith the public and tax experts about the recommended tax changes.

The report, Charting a Path for Growth: Nova Scotia Tax and Regulatory Review, recommended widespread changes to the province’s tax system, including reducing personal income tax rates, raising the basic personal exemption and indexing tax brackets. To read the full report, go to www.novascotia.ca/finance/en/home/taxation/default.aspx.

Quebec’s budget, which Finance Minister Carlos Leitão released on Mar. 26, contained a number of proposals that will impact payroll. Some of the major payroll-related changes include:

• Health contribution to be eliminated: Leitão says the government plans to gradually eliminate a mandatory health contribution that provincial residents aged 18 and over are required to pay (unless exempted) if their income exceeds a specified threshold. Employees pay it through income tax source deductions. The phase-out would begin Jan. 1, 2017, and would take three years.

• WSDRF threshold to increase: Leitão announced the government would increase the threshold from $1 million to $2 million for mandatory participation in the province’s Workforce Skills Development and Recognition Fund (WSDRF). The change would take effect this year. Quebec law requires employers whose total payroll for a calendar year exceeds the threshold to spend at least one per cent of payroll on eligible employee training and development. Employers that fail to do so have to pay a contribution to the WSDRF equal to the difference between what they were required to spend and what they actually spent.

• HSF rate reductions and holidays announced: The budget proposes to gradually reduce the Health Services Fund (HSF) contribution rate for small and medium-size enterprises (SMEs) in the service and construction sectors if their annual payroll is less than $5 million. The rate reduction would occur over three years, beginning in 2017. For SMEs with a total annual payroll of $1 million or less, the rate would eventually be reduced from 2.7 per cent to 2.25 per cent. Those with a payroll over $1 million but under $5 million, would also see their rate go down based on a formula tied to the size of their annual payroll. The rate for employers whose total annual payroll is $5 million or more would remain 4.26 per cent.

The budget also proposes to extend eligibility for a tax holiday from HSF contributions for businesses that carry out large investment projects in the province to new projects of $75 million or more in certain designated regions. Leitão says the budget proposal builds on an enhancement to the tax holiday that he announced earlier this year. In February, Leitão said the government would lower the minimum capital investment threshold for eligibility for the tax holiday from $200 million to $100 million and extend the holiday from 10 years to 15 years.

• Eligibility threshold for age tax credit to rise: The budget proposes to gradually increase the age at which individuals can claim an age amount tax credit from 65 years to 70 years, beginning next year. Individuals claim the non-refundable tax credit on a Source Deductions Return. The budget proposes that the age of eligibility would go up by one year every year from 2016 to 2020.

• Changes to tax credit for older workers proposed: The budget proposes to gradually reduce the eligibility age for a tax credit for older workers that eliminates income tax payable on the first $4,000 of employment income over $5,000. Employees 65 and older can claim the tax credit on a Source Deductions Return. The government is proposing to lower the age to 63 over the next two years. It also plans to gradually increase the maximum amount of eligible work income on which the tax credit is calculated from $4,000 to $6,000 for workers who are 63 years old, $8,000 for those who are 64 and $10,000 for those 65 and older.

• QST ITR restrictions for large businesses to be phased out: The budget proposes to phase out restrictions under the Quebec Sales Tax (QST) system for large businesses claiming input tax refunds (ITRs) on certain property or services, beginning in 2018. The phase-out would take place over three years.

Currently, large businesses cannot claim an ITR when they acquire certain property or services, including road vehicles under 3,000 kilograms, gas for these vehicles, telephone and telecommunications services (excluding Internet-access services and 1-800-type services) and food, beverages and entertainment that are only 50 per cent deductible under the Quebec Taxation Act.

The budget proposes to allow large businesses to claim an ITR for these items and services at a rate of 25 per cent in 2018, 50 per cent in 2019, 75 per cent in 2020 and 100 per cent in 2021.

• Fondaction rate to change: The budget proposes to temporarily set the rate of the tax credit for buying Fondaction shares at 20 per cent for shares acquired after May 31, 2015 and before June 1, 2016. The tax credit rate has been 25 per cent since 2009 when the government temporarily increased it from 15 per cent. Until this year’s budget announcement, the rate was expected to return to 15 per cent after May 31, 2015.

• Government bodies to be consolidated: The budget proposes to consolidate the Commission de la santé et de la sécurité du travail (CSST), the Commission des normes du travail (CNT) and the Commission de l’équité salariale. It also proposes to consolidate the Commission des relations du travail and the Commission des lésions professionnelles. Leitão says the government will announce other consolidations soon.

The Yukon government is proposing changes to the territory’s income tax structure that will affect payroll deductions this year. The government included the proposals in its Apr. 2 budget, although Premier Darrell Pasloski announced the changes just before releasing the budget.

The changes include eliminating a five per cent surtax that applies to territorial tax payable over $6,000, revising all personal income tax rates and increasing the number of tax brackets from four to five to add a new tax rate of 15 per cent for individuals with taxable income over $500,000.

Although Pasloski announced the changes in Apr., they are retroactive to Jan. 1. It is expected that the CRA will implement them on Jul. 1 for source deduction purposes.