The 2017 Saskatchewan budget, tabled on March 22nd, proposed a number of corporate tax changes, elimination of personal credits, and significant changes to the Provincial Sales Tax (“PST”). Below is a brief summary of the tax changes contained in the budget. Please call our office if you have any questions. We would be happy to arrange a meeting to discuss how these measures may apply to your situation, assist you with the preparation and filing of your tax returns, and discuss tax planning opportunities.
Corporate Tax Changes
Corporate tax rates
The general corporate tax rate will be reduced 0.5% on July 1, 2017, (from 12.0% to 11.5%) and a further 0.5% on July 1, 2019, (from 11.5% to 11.0%). The small business ta rate will remain unchanged.
Research and development tax credit
A new 10% refundable research and development tax credit will be available to Canadian-controlled private corporations effective from April 1, 2017. This credit will apply to the first $1,000,000 of qualifying expenditures in Saskatchewan on an annual basis. Qualifying expenditures in excess of this limit will remain eligible the 10% non-refundable credit. Total credits, both refundable and non-refundable combined, are capped at $1,000,000 per year.
Credit Union tax reduction
The reduction that allows Credit Unions to pay a lower rate of tax on a portion of their income, subject to certain calculations, will be phased out over four years beginning in 2017.
Manufacturing and processing investment tax credit
The manufacturing and processing investment tax credit will increase from 5.0% to 6.0% for eligible capital acquisitions after March 22, 2017. This change mirrors in the increase in the PST rate from 5.0% to 6.0% (see below).
The corporation capital tax rate applicable to large financial institutions will be increased from 3.25% to 4.0% effective April 1, 2017.
Saskatchewan commercial innovation incentive
This new program was introduced in the budget, and will decrease the Saskatchewan corporate tax rate to 6.0% on income earned from the commercialization of qualifying intellectual property in Saskatchewan. The program is proposed to be in place for ten years. To be eligible for this program a corporation must be solely engaged in the commercialization of intellectual property and also meet other requirements.
Personal Tax Changes
Personal tax rates
All personal tax rates will be reduced by 0.5% on July 1, 2017, and a further 0.5% on July 1, 2019. This results in a 0.25% reduction in the tax rates each year from 2017 through 2020. The current Saskatchewan tax rates (pre-budget) were 11.00%, 13.00%, and 15.00%. These will be reduced to 10.00%, 12.00% and 14.00% by 2020.
Employee’s tools tax credit
This credit, available to tradespeople, is eliminated for 2017 and future years.
Post-secondary tuition and education tax credits
These credits have been eliminated starting in 2017; however, taxpayers will still be able to utilize any unused amounts carried-forward from previous years, and will still be able to access the federal tuition credit. The Saskatchewan graduate retention program remains in place.
Dividend tax credit
This credit, for eligible dividends, will be adjusted for 2017 through 2020 to mirror the decrease in the general corporate tax rate noted above.
Labour-sponsored venture capital tax credit
The provincial credit for eligible labour-sponsored venture capital investments will be reduced from 20.0% to 15.0%, starting with the 2018 taxation year. As a result, the maximum annual provincial credit will be reduced from $1,000 to $750 on a $5,000 investment.
Indexation of brackets and credits
The annual indexation of provincial personal tax brackets and various credits, which is intended to allow for the impact of annual inflation, will be suspended starting in 2018.
Provincial Sales Tax
Provincial sales tax rates
Effective midnight on March 22, 2017, the PST rate will increase from 5.0% to 6.0% and the tobacco tax will increase $0.02 per cigarette.
Elimination of exemptions
Effective April 1, 2017, children’s clothing, restaurant meals, and snack food, and permanently mounted equipment used in the oil and gas sector, will not longer been exempt from PST. Also, PST will now be calculated on the full value of new vehicle purchases regardless of whether or not a trade-in is part of the transaction (previously PST was only applicable on the net price above the trade-in value).
Also effective April 1, 2017, bulk purchases of gasoline will no longer be exempt, and the exemption on bulk purchases of diesel will be reduced to 80%.
Effective July 1, 2017, PST will apply to insurance premiums where the an individual who’s life or health is insured is resident in Saskatchewan, or where the property insured is located in Saskatchewan. Premiums on life insurance policies in place prior to July 1, 2017, will not be subject to PST.
Construction and real property
PST will apply to all contracts for the construction, repair, renovation, or improvement of real property that are entered into on or after April 1, 2017. In conjunction with this change, all contractors are required to be registered for PST and will not be required to pay PST on materials purchased to fulfill contracts. Contractors will still be required to pay PST on tools or other materials or supplies for their own use.
These changes are subject to a number of transitional rules with respect to contracts entered into prior to April 1, 2017, and materials on-hand at April 1, 2017.
Elimination of commissions
Businesses will no longer receive commissions for the collection and remittance of taxes including PST.