Retreat from HST becomes income tax windfall
An unintended consequence of the HST debacle may be an income tax windfall for the cash-strapped Liberal government as it attempts to balance its 2013 budget.
In its retreat to the PST/GST the government will reduce the income tax deduction thresholds of all British Columbians on Jan. 1. While ardently claiming to be offering its hard working citizens the most attractive income tax regime in the country, the Liberals are poised to collect more income tax next year by way of a $1,000-plus reduction of the basic and spousal pre-tax income thresholds.
The Canada Revenue Agency has recently published a document titled “Payroll Deductions Formulas for Computer Programs” which places the B.C. basic personal exemption for 2013 at $10,276, a decrease of more than $1,000 from the 2012 basic exemption of $11,354. The spousal exemption for 2013 is set at $8,860, a decrease of more than $1,000 from the 2012 exemption of $9,964.
In every other province and territory the 2013 figures are higher than the 2012 threshold. For example: Alberta’s basic deduction increases more than $300 to $17,593 and Ontario’s increases $170 to $9,574.
My accounting sources say the lower basic personal amount is a consequence of moving back from the HST to the PST effective April 1, 2013. When the HST was introduced there was an increase in the basic personal amount at the provincial level but that increase will no longer be in place when we go back to the PST.
British Columbians voted to scrap the province’s controversial harmonized sales tax in a binding, province-wide referendum in August 2011. More than 54 per cent of the 1.6 million British Columbians who cast a ballot voted to get rid of the tax.
Retired Quadra Island chartered accountant and payroll formula developer Ted Conover, who has raised the issue, calls it “taxation by stealth.”
“In all my years I’ve never seen anything like this. Unlike all other jurisdictions B.C. is negatively adjusting the basic and spousal personal exemptions for 2013 thereby effectively pushing through a personal income tax increase under the radar,” Conover says.
A senior federal revenue official says: “British Columbia has traditionally utilized the indexing method for the basic personal amount. Effective January 1, 2013, however, the amounts have been legislated without indexing. The amounts as stated in the T4127 have been confirmed as correct by the government of British Columbia.”
This is coming to light as Premier Christy Clark and her Finance Minister Mike de Jong have been insisting the 2013/14 pre-election budget will be balanced despite the fact that the 2012/13 budget is headed for a newly recalculated deficit of $1.47 billion, about $500 million more than originally projected.
De Jong has said to achieve the 2013/14 balance target “we've still got $200 million to $300 million of work to do."
However, this income tax threshold change will raise more than half of that amount. My accounting sources calculate very conservatively that the reduction in the basic threshold will generate a minimum of $63 in new tax revenue per worker in B.C.’s workforce of about 2.5 million. That adds up to at least $160 million. And, that is without even factoring in spousal deductions.
One of the cornerstones of government’s current $15 million advertising campaign to sell the merits of the BC Jobs Plan is the pitch that BC has the lowest personal income taxes in the country. The Liberals claim to “have cut personal income taxes by 37 per cent or more, and removed 325,000 lower income citizens from paying any income tax at all.”