Finance Minister Graham Steele tabled the 2010 Nova Scotia provincial budget on April 6, 2010. After an initial forecast of $592 million, the deficit for the just completed 2009-2010 fiscal year is estimated to be $488 million. The minister indicated that after consultations with the public and the report of the experts on the Economic Advisory Panel, it was necessary to “get back to balance.” The government laid out its four-year plan to return to balanced budgets by the 2013-2014 fiscal year. The budget projects a deficit of $222 million for the 2010-2011 fiscal year, notwithstanding significant efforts at expenditure control. The four-year planning horizon calls for cumulative savings of $772 million, including reducing the size of the civil service by 10% by 2013.
The government also intends to secure the public service pension plan by borrowing $536 million at today’s low interest rates to eliminate the unfunded pension liability. In addition, there are expected annual savings of between $150 and $200 million by limiting pension increases to 1.25% per year for each of the next five years. Annual increases from 2016 and on will only be made if the plan is in a surplus position.
On the tax side, there were tax increases for high-income earners, a drop in the small business corporate tax rate, and an increase in the harmonized sales tax.
We have summarized the changes announced in the budget. Please note that these changes are still proposals until passed into law by the provincial government.
Personal income tax rates
The budget proposes to change the personal tax rates and tax calculation for high-income Nova Scotians. The first element of the change is the suspension of the high-income surtax until the budget returns to balance. Effective January 1, 2010, the 10% surtax that applies to provincial income tax payable in excess of $10,000 will be eliminated. Also effective January 1, 2010, is the creation of a fifth personal income tax bracket applicable to taxable income in excess of $150,000. The provincial tax rate for this new bracket will be 21%, resulting in a combined federal-provincial marginal tax rate of 50%. Both of these measures are temporary and are only planned to be effective until the budget is balanced. The table below shows Nova Scotia tax rates for 2010.
Taxable income range 2010 tax rates
$8,231 - $29,590 8.79%
$29,591 - $59,180 14.95%
$59,181 - $93,000 16.67%
$93,001 - $150,000 17.5%
Over $150,000 21%
Basic personal amount
The basic personal amount is equivalent to the amount of income you can earn without paying any tax. In 2006 the government implemented legislation to increase the personal amount by $250 in each of the four subsequent years. The final $250 increase, to $8,231, is effective for the 2010 tax year.
Other Non-Refundable Credits
Other non-refundable credits will increase proportionately to the basic personal amount (3.13% for 2010).
The list of affected credits is as follows:
• spouse or common-law partner;
• dependent;
• pension income;
• disability;
• caregiver;
• age; and
• infirm adult dependents.
Low-income tax reduction
The budget proposes that, effective January 1, 2010, the definition of adjusted family income for the purposes of the low-income tax reduction will exclude the guaranteed income supplement (GIS). This should result in GIS recipients not being liable for provincial income tax.
Equity tax credit
The budget proposes to increase the equity tax credit rate from 30% to 35%, effective January 1, 2010. In addition, the maximum annual credit is increased from $15,000 to $17,500, and the expiration date is extended by two years to December 31, 2011. The tax credit is designed to assist small businesses, co-operatives and community economic development initiatives in obtaining equity financing by offering a personal income tax credit to individuals investing
in eligible businesses.
Labour sponsored venture capital tax credit
The labour sponsored venture capital tax credit was scheduled to expire on December 31, 2009. The budget proposes to extend the expiry date by two years, to December 31, 2011.
Graduate retention tax rebate
The budget confirms the government’s intention to proceed with the previously announced graduate retention tax rebate. This program will provide a tax rebate for university graduates of up to $15,000 over six years, to a maximum of $2,500 per year. College graduates will be eligible for up to $7,500 over six years, to a maximum of $1,250 per year. These rebates are available to individuals who graduate in 2009 and subsequent years if they choose to live and work in Nova Scotia.
Harmonized sales tax
The budget proposes to increase the harmonized sales tax (HST) by 2%, to 15%, effective July 1, 2010. This will be accomplished by increasing the provincial portion of the HST from 8% to 10%. The government will have transitional rules to assist consumers and suppliers in implementing this change.
Point-of-sale HST rebates
Effective July 1, 2010, point-of-sale rebates will be available for the provincial portion of the HST on the following products:
• children’s clothing;
• children’s footwear;
• children’s diapers; and
• feminine hygiene products.
The current point-of-sale rebates on books and home energy will continue with adjustment for the new HST rate. The rebates for public sector organizations and first-time home buyers will also continue, although there may be some changes in administrative practice.
Affordable living tax credit
Low- and modest-income households will be eligible to receive a refundable tax credit payment beginning in July 2010. The credit will be payable on a quarterly basis in conjunction with the federal GST credit, and will require the filing of a personal income tax return in the prior year to qualify. The credit will be available to households earning less than $34,800 per year. The annual credit will be $240 per household plus an additional $57 per dependant child under age 19 living in the household. The full credit will be available for family incomes of $30,000 or less. Every $1 of income in excess of $30,000 will result in a five cent reduction of the credit, until it is completely eliminated at an income level of $34,800.
Poverty reduction credit
In addition to the affordable living credit, the budget proposes a new poverty reduction credit, to be effective July 1, 2010. This new credit is aimed at providing quarterly tax-free payments totalling $200 per year to about 15,000 low-income Nova Scotians, many of whom have a disability. To qualify, an individual must:
• be over the age of 19;
• have no dependants;
• be receiving social assistance through the income assistance program as their main source of income; and
• have total annual income of $12,000 or less for the previous tax year.
Sales tax measures
Effective July 1, 2010, tax on the sale of used motor vehicles, boats and aircraft in Nova Scotia will be 15%, up from the current 13% rate. The proposal to increase the rate to 15% makes purchases of used vehicles and other property subject to the same tax rate as purchases of new motor vehicles.
Out of province medical treatment assistance
The budget proposes to provide assistance for patients who need medical treatment that is not available in the province. These patients may be eligible to receive up to $1,000 for round trip travel and $1,500 for accommodations for up to 12 medical visits per year.
Source:
Jerry S. Rubin, B.E.S., B.Comm.(Hons), CMA, TEP, CFP,
Vice-President, Wealth Planning Group,
United Financial, a division of CI Private Counsel LP
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