Finance & Tax
- Policy reviews, analyses and reports on finance/taxation issues at all government levels
For more information or to join, contact Anne Peterson.
ALERT – Proposed Tax Changes for Canadian-controlled Private Corporations (CCPC)
The issue: BC Red Tape – 2016 Recommendations
What it’s about: The Surrey Board of Trade (SBOT) applauds Minister Oakes for undertaking the worthy and necessary initiative to reduce red tape in the BC Government. We welcome the release of the Red Tape Engagement Report and encourage Minister Oakes to make Red Tape Reduction an ongoing review process to ensure BC
retains our competitive edge for business attraction and retention.
The Surrey Board of Trade surveyed their membership in support of the Red Tape Reduction initiative and received feedback ranging from issues around interprovincial vehicle licensing, business licensing, standardization of government authorization forms, and calls for a third party efficiency review of provincial and municipal processes, among others.
The Surrey Board of Trade, which supports and attracts business to Surrey, has an interest in reducing red tape because they want businesses, large and small, to:
- Have a more predictable business environment
- Strengthen international trade
- Free up capital to invest in business, not in process
- Allow small businesses to compete and grow
- Give Surrey businesses a competitive edge in the global market
- Create a more predictable environment for businesses
- Businesses compete and create jobs
Red tape reduction is a low-cost way to stimulate the economy and boost productivity as Canada emerges from the global recession.
The term “red tape” is associated with the time and resources spent by business to demonstrate compliance with government regulatory requirements. It is also a major irritant for Surrey business owners (ie. 70% of Canadian business owners indicate that red tape adds significant stress to their lives and two thirds saying that it significantly reduces their productivity.)
Studies by Industry Canada show that the smaller the business, the greater the impact of red tape. Surrey is a city of small and medium sized businesses. Studies indicate that red tape costs:
- Small business over 30 million hours a year to comply with some or all of 12 of the federal, provincial and municipal information obligations; and
- Firms with less than five employees spend about seven times more per worker on administrative processes at the different government levels than businesses with 20 or more employees.
These numbers are especially important in a country like Canada, where 98% of firms have less than 100 employees.
We understand that this is not a one-time process but that it is an ongoing process of collaboration and communication. If BC is to maintain its competitive edge, increase productivity and spur innovation, we must constantly strive to improve the conditions for doing business.
Recommendation: As well as promoting the “Reducing Red Tape for British Columbia” process and website, the Surrey Board of Trade calls for:
- Streamlining regulatory approval processes
- Reducing reporting requirements and information demands
- Improving the coordination of compliance and enforcement activities
The issue: Road Travel Rebate Incentive Program For Increased Tourism Revenue (2015)
What it’s about: Canadian border towns face serious economic challenges in an era of expanding online commerce and a significant sales tax percentage differential between Canada and the United States. However, a simple and cost-effective Road Travel Rebate Incentive Program (Road TRIP) such as the one championed in recent
years by a broad range of political leaders and industry stakeholders could increase Canadian revenue and employment considerably. These economic benefits would accrue overwhelmingly to the Canadian border towns where they would make the maximum positive impact.
Over the past decade, these border communities have suffered the consequences of high gas prices, increased competition from American and online retailers charging lower sales taxes, a depressed American economy, and tightened border security following the September 11th terrorist attack on the World Trade Center. The combined effect of all of these factors has been disastrous for the Canadian border towns that depend on the jobs and revenue stimulated by American tourists.
Since 2002, Canada has experienced an overall 23.9% decline in American visitors. If that statistic were not troubling enough, the picture darkens considerably when it focuses on the specific experience of Canadian border communities during that same period. Same day visitors, who are understood to be mainly road travelers, have declined by a full 55.9%. Furthermore, depressed border tourism tends to affect small and medium-sized businesses severely. Using Duty Free retailers as an example, these tourism-dependent outfits have experienced an approximate 40% decline in sales since 2002.
However, the conditions are currently ripe for reversing this trend. The US economy is recovering from its long recession with a stronger dollar, lower gas prices, and Americans who are ready to travel again. In fact, the number of Americans carrying passports today has doubled since 2008 to reach 100 million. Despite declines over the past decade, the US remains Canada’s largest source of tourism and shopping ranks among the top three reasons for traveling to Canada, so these travelers are predisposed to enrich the Canadian economy. The Canadian tourism industry is poised to capitalize on these promising conditions by mounting robust new marketing initiatives. In particular, the Tourism Industry Association of Canada’s industry-championed ‘Connecting America’ initiative is reaching out to Americans living within a four-hour drive of a border crossing in order to increase Canada’s gross receipts from tourism by a projected $1.5 billion.
In this context of serious challenge and emergent opportunity, Road TRIP has the potential to reinforce positive trends with little to no government cost and a simple plan for implementation and monitoring. Initially proposed by the Frontier Duty Free Association, this 3-year pilot program would provide cross-border visitors with a rebate of the 5% Goods and Services Tax (GST) on goods verified as exported from Canada. These ‘traveler incentive’ rebates would be processed in the Canadian land border Duty Free shops where the Canadian export status of the goods can be verified. If implemented, Road TRIP would be aggressively marketed to American tourists with a ‘Take 5’ (5% tax rebate) campaign that would work in tandem with the overarching ‘Connecting America’ initiative. With this approach, Canada could stand to once again become an attractive destination for American shoppers who have been dissuaded by large sales tax differentials of as much as 15%.
Econometric Research Limited’s (ERL) 2014 study of Road TRIP’s projected economic impacts led the esteemed consulting firm to offer its unqualified endorsement of the program. They found that demand for tourism exports appears to be generally price elastic, meaning that a 1% reduction in the cost of Canadian export goods causes a larger than 1% increase in demand for such goods. Given this elasticity of demand, they determined that the 5% rebate could cause tourism flows to rise incrementally by up to 620,000 visits annually. In this scenario, Canadian Gross Domestic Product could rise by up to $89.6 million; workers could experience wage and salary increases of up to $55.6 million; and up to 1,374 Full Time Equivalent Jobs could be created. Struggling border communities would capture the lion’s share of these gains, experiencing transformative and sustained benefits.
While Road TRIP represents a potentially game-changing deal for border communities, its cost to the government is projected to be negligible. ERL estimates that cost to fall between $5.2 and $9.0 million in GST rebates, a sum that is handily offset by increased tax revenues from economic growth. In fact, in a high elasticity of demand scenario, those tax revenue increases could exceed $40 million. Even according to the most conservative calculations and under the most adverse conditions, Road TRIP would remain revenue neutral.
Finally, Road TRIP promises to be lucrative without being administratively onerous. Duty Free retailers can easily and effectively implement the program since they have the existing capacity to verify export goods and award rebates at a time close to actual purchase. Also, they are well positioned to recapture a good portion of these rebates and increase sales of Canadian products. Duty Free operators report that up to 60% of customers who are awarded rebates will spend them in their shops, where Canadian-made goods like wine, ice wine, maple syrup, and crafts predominate. Furthermore, the Duty Free industry is able to track the data the government will need to conclusively assess the program’s cost and benefits.
Since the benefits of a tourism-boosting initiative like Road TRIP are so clear, it should come as no surprise that many of Canada’s competitors in the global tourism market have already adopted similar programs. Rivals such as Great Britain, India, and the European Union are already enjoying a competitive advantage over Canada thanks to their tax rebate programs for international visitors. Given the exponential changes taking place in the global tourism market—25 years ago, only 10 countries were contending for tourism dollars, while today over 100 countries are vying for market share—the Canadian tourism industry needs to secure competitive advantage whenever and wherever it can. For this reason, members of Parliament, several chambers of commerce, municipal politicians, industry stakeholders such as the Tourism Industry of Canada and the Retail Council of Canada, and scores of key duty-free supplier companies are strenuously championing the Road TRIP 3-year pilot program.
Recommendation: That the Federal Government:
- Launch a 3-year pilot project for a Road Travel Rebate Incentive Program that would make international visitors eligible for a rebate of 5% GST on goods exported from Canada;
- Authorize Duty Free operators to process these rebates, and track the data necessary for assessing the program’s costs and benefits.
- The issue: City Budget 2016
What it’s about: The Surrey Board of Trade’s observations and recommendations for the 2016 City of Surrey Budget are:
2016 TAX INCREASES
The Surrey Board of Trade recognizes the City of Surrey’s budgetary challenges and we support the investment that Surrey is making in our social and physical
infrastructure. The need for more police officers, light rail and amenities for recreation and the arts are an absolute requirement for the continued development of Surrey as the location of choice for residents and businesses to work, rest and play.
As such the Surrey Board of Trade supports, with caution, the proposed increased property tax over the five-year plan described in the Budget Report today. As the independent voice of business we do request that the City reduce the new higher, property tax rate at the earliest possible opportunity to maintain Surrey’s competitive status for business attraction in the region. We are hopeful that the significant investment of Light Rail in Surrey and the supporting growth in residents and businesses will produce the desired economic benefits to reduce the strain on the business and residential taxpayers.
In recent years, the CD Howe Institute, Ottawa, an independent not for profit research institute (www.cdhowe.org), has increased its review of City and Municipal financial matters in order to bring a stronger understanding of this area of our Canadian governments to Councilors, Citizens and Stakeholders. Their recent report, Building Better Budgets – Canada’s Cities should clean up their Financial Reporting, was issued in November 2015.
The City of Surrey is to be congratulated for being the only City of the 24 large cities included in the Institute’s Report to earn an “A” level score.
Further congratulations are in order as we also recognize Surrey’s recognition as one of the top three cities in Canada according to the Open Canada Index and the Canadian Award for Financial Reporting from the Government Finance Officers Association of the United Sates and Canada.
Social Policy: Affordable Housing
Surrey’s rapid growth in residential developments is driving up the costs of land, housing and the cost of older units of affordable and Co-op housing in Surrey. This continued growth in costs will drive long time Surrey residents out of areas that are seeing the most development and displace residents who have deep roots in their community.
The absence of federal programming in affordable housing over several years requires the City to take a leadership role in protecting long time residents and ensuring Surrey is a welcoming community for all residents and not just those who can still afford it. Innovative programs in other jurisdictions are allowing the costs of new development to support new affordable housing units and co-op opportunities for families and seniors.
- That Surrey use its regulatory process to increase the amount of affordable housing in Surrey:
a. Re-introducing an affordable housing levy on new residential developments.
b. Requiring a percentage of units of affordable housing in new developments.
Development and Land Use: Red Tape Reduction and Nexus Lane & Concierge.
The Development and Land Use Advocacy Team has identified several areas of desired improvement for Development in Surrey that will have budget implications. The strongest request from our members was a reduction in red tape for the development process and a streamlining of the timeline for developers with positive experience in Surrey over a period of time. We understand Surrey is considering these steps and we encourage their implementation.
- Surrey should establish a “Nexus Lane” policy allowing developers with significant track records in Surrey the ability for a streamlined process with reduced timelines for approvals. The policy should provide for clarity and transparency in its regulations and policies for developers seeking the designation. The chief approval criteria for access should be positive experience with development in Surrey and not focused on the size or financial status of any individual developer.
- Surrey should implement a “Development Concierge” for its development process where a single point of contact is made between the developer and staff that is retained through the entire process facilitating a stronger relationship and communication between the development community and City staff.
Tourism, Arts and Culture: Cultural Grants Process and Budget Reports.
Since the inception of the Surrey Cultural Grants in 2013 the City of Surrey has increased the amounts available each year. While that is a positive trend research into Arts and Culture Grants in the region indicate that Surrey’s Grant structure should be measured on a per capita basis for clarity in comparison with neighbouring jurisdictions.
We appreciate the challenge staff and Council have in ensuring competing priorities are met however the Cultural Grant programs is one of the few that will return dividends to the City with increased economic activity created by the Arts and Cultural Community. The standard ratio estimated for economic impact is a 3-1 return on investment as per the Hills Strategies Report “Artists and Cultural Workers in Canadian Municipalities.”
Research across Canada bears out this economic impact. “The Alberta Arts Foundation, the provincial body that gives grants to artists, estimates that the 500 arts organizations it funded with $35 million in grants in 2009 created $235 million in direct economic activity, including 1,344 full-time positions and more than 4,000 part-time jobs.” Alberta Venture 2010.
While Artists and Cultural Workers receive an annual salary lower that the average salary across Canada they are much more heavily concentrated in cities of 500,000 or more and will be an increasing economic force as Surrey grows. Support for local Arts and Culture Groups in Surrey is needed now.
- The City evaluates the current level of cultural grants in the context of per capita amounts across the Metro Vancouver region.
- Surrey review the limits to grants to Surrey based Arts and Culture groups and establish a limit that will assist in developing established and long lasting impact on the Cultural development of Surrey.
- The City expands its expenditure disclosures in support of Arts and Culture within the Recreation budget report process to allow for greater clarity of the budget dollars flowing to Arts and Culture.
Transportation: Light Rail
The NO Vote in the Metro Vancouver Congestion Plebiscite has the potential impact of slowing down the Surrey Light Rail project causing further delays and increased costs in movement of goods and people throughout Surrey and the region. Such delays will also negatively impact the development of Surrey communities, business and industry. Mayor and Council have been clear that the City is moving forward on this necessary project.
- The Surrey Board of Trade supports Surrey’s efforts to establish the Light Rail Coalition and move forward on the Surrey Light Rail project in cooperation with TransLink, the Provincial and Federal governments.
Crime and Justice: Increased integration of programs/services.
Surrey tracks Community Safety performance and published the results in its 2014 Annual Report. A significant increase noted in “crimes against property” may be the successful result of an effort to increase the amount of reporting of criminal behaviour.
We congratulate Surrey on the recent hiring of Dr. Terry Waterhouse as the Director of Public Safety Strategies and we look forward to supporting his efforts. As the City moves towards the Integrated Services Model in the development of the Courthouse precinct and the re-purposing of the former City Hall, the Surrey Board of Trade notes that the diverse programs across Surrey that help to prevent crime and deter gang activity amongst youth would benefit from the same coordination of efforts.
- The City support increased integration of programs and services focused on reducing crime and specifically providing youth with supportive programming to avoid gang related crime.
International Trade: Manufacturing.
Surrey has the ability to enhance opportunities for Surrey businesses involved in International Trade and Manufacturing. As a large border city with significant port industry, post secondary academic and trades institutions, a burgeoning health technology industry and Innovation Boulevard, Surrey has the capacity to encourage the development of industries that are growing in Surrey. We believe that Surrey needs to take the lead for further development
1. The City coordinate a Pilot Project with Surrey based Industry and Manufacturing operations, the Surrey Board of Education and post-secondary institutions to develop and encourage the high tech, manufacturing and industrial growth and employment opportunities for domestic and international trade that will support Surrey’s growth and provide local and global employment opportunities for our youth.
Finance and Taxation: Internal Audit Enhancements.
Internal Audit – Strengthening its role
The current mandate of the City’s Internal Audit does not include the common role of Internal Audit in large Cities to carry out the mandate of conducting audits to determine due regard for ‘economy’ and ‘efficiencies’. A review of the internal audit mandates for the cities of Vancouver, Richmond, Calgary, Edmonton and Brampton, Ontario have found their Internal Audit mandates include the broader mandates.
- The City expand the Internal Audit mandate to include projects targeted to review ‘economy’ and ‘efficiencies’, and to properly resource the Internal Audit to meet those objectives.
Council’s Audit Committee – Expanding the disclosure of Committee work
Under the Community Charter, Section 90, parts of a council meeting may be closed to the public. A review of Council’s Audit Committee’s minutes for the past four years show the repeated use of this Charter Section in each Meeting. As a result, the extent of the Committee’s work to review the reports of Internal Audit is not available to the public. A review of the larger cities mentioned above show significant more disclosure of the internal audit work. In some cases, the annual letters from the external auditor to the Audit Committee on their observations that have identified where improvements in management internal control processes have been identified are included in the ‘Audit Committee’ reports.
- Surrey City Council review the Audit Committee’s use of the Charter Section 90, leading to an expansion of the Committee’s disclosure, where appropriate, of the City’s Internal Audit reports and external Auditor reports.
Our members, 15% of whom are outside Surrey, often tell us that the City is far ahead of other Metro Vancouver cities in the way it communicates, innovates, and handles growth.
We echo these sentiments and look forward to a continued strong association in the future.
The Surrey Board of Trade’s role is to ensure that the City is spending the right amount of effort to be accountable to its residential and business taxpayers and stakeholders. We congratulate the City of Surrey on continued successful governance and management of its overall fiscal matters.
The issue: The Business Case for a Tax on Sugar Sweetened Beverages
What it’s about: The Canadian Diabetes Association, the Dieticians of Canada and other national health organizations are calling for a national reduction in sugar consumption. One method of achieving this goal is the introduction of an excise tax on Sugar-Sweetened Beverages (SSBs)
The prevalence of diabetes in Canada is estimated at 9.3% of the population (3.4 million people) in 2015. Another 22% of people aged 20 and older have pre-diabetes. If current trends continue, one in three people will have diabetes, pre-diabetes or undiagnosed diabetes by the end of this decade.
An aging population, sedentary lifestyles, and the fact that 60% of Canada’s population is overweight or obese, are the main drivers of type 2 diabetes. Diagnosis is also increasingly occurring at younger ages (including the 20s and 30s).
It is estimated that over half of type 2 diabetes cases could be prevented or delayed with
healthier eating and increased physical activity. Diabetes cost the Canadian healthcare system and economy $11.7 billion in 2010, an increase of nearly 70% since 2000. Costs are forecast to reach $13.5 billion by the end of 2014 and $17 billion in 2024.
Mortality and disability account for 79% of the total cost. Thirty percent of people with diabetes have depressive symptoms, and people with depression have a much higher risk of developing type 2 diabetes.
A 2% reduction in prevalence rates would have a 9% reduction in direct healthcare costs.
An analysis of claims data from 2010 to 2012 indicates that plan spending for prescription drug claims for employees treating type 2 diabetes is about $2,000 per capita, compared with $478 for all other claimants. The average age of type 2 diabetes claimants in 2012 was 54.6 years.
IMPACTS ON BUSINESS
Studies have shown that SSBs add an excessive amount of sugar to the diet of children and adults leading to increased obesity and the heightened risk of Diabetes and numerous other health risks. Further, with our aging population we are currently facing a wave of increased costs from diabetes and other diet and lifestyle related ailments.
A workplace survey conducted across Canada determined that employees with type 2 diabetes cost employers an estimated $412 per person annually due to reduced productivity while at work and $1,042 per person due to missed work (absenteeism). Employees with diabetes who experience non-severe hypoglycemic events (low blood sugars) lose between 8.3 and 15.9 work hours per month. Those who experience hypoglycemia at night, while sleeping, lose an average of 14.7 work hours per month as a result.
Based on 2012 disability claims data that indicated diabetes as the primary cause of disability, the average duration of leave is 15% longer than for those without diabetes as the primary diagnosis. Sixty-five percent remain on disability for the maximum benefit period or until death.
In British Columbia SSBs are currently exempt under the PST as groceries. While removing that exemption may seem a quick approach for the provincial government research has demonstrated that the higher shelf prices that an excise tax will produce are a greater deterrent than an additional sales tax added at the cashier. Various taxation methods have been applied globally to reduce consumption of SSBs and the current best practice recommendation of international and national health organizations is to introduce an excise tax on SSBs.
The increased revenue from this approach needs to be dedicated to education for all Canadians to understand the positive impacts of a healthy diet and the costs of unhealthy choices.
Recommendation: That the Provincial Government work with the Canadian Government to introduce an excise tax on Sugar-Sweetened Beverages and use the revenues generated to promote the health of Canadians.
The issue: Small Business Benefits with a Revised MSP
What it’s about: B.C. is the only province in the country to levy a healthcare premium, while other provinces such as Ontario and Quebec use a payroll and/or income tax surcharge. Further, this is a flat tax impacting all equally. The Province recently announced some changes to help alleviate the hardship caused on those with lower
incomes. However, this does not address business costs as most provide MSP as part of a benefits package for their employees or the increases that are carried by employers with a union workforce. There needs to be a more equitable and less costly health care funding system.
Every resident of B.C. is required to have MSP coverage and pay premiums, either directly or through their employer. As of January 1st, 2016, if the employer isn’t picking up the MSP expense, a person’s monthly fee is $75 for singles, $144 for a family of two, and $150 for a family of three of more. An individual earning $30,000 pays the same premiums as one making $300,000, and a family earning $40,000 pays the same premiums as a $400,000 family. The amount of uncollected premiums is approaching half a billion dollars and the costs to maintain the increasingly complex system is reducing the impact of the $2.4+ billion dollars collected annually to help fund health care. The 2016 budget did include minor changes that remove children from the calculation of premiums and raises the income level at which MSP payments start to alleviate the costs for a certain percentage of the low income population.
The MSP program imposes a tax on BC residents that has been called “punitive, regressive, inefficient, administratively expensive and discriminatory” MSP premiums, often defended as a means of controlling health care costs through consciously making individuals aware that health care is not free, has failed to be an incentive for individuals to conserve on their usage.
Abolishing the MSP premiums would not be easy as it generates almost $2.5 billion annually (in 2015-16, according to the 2016 BC Budget document page 16, Table 1.8). MSP premiums are B.C.’s single largest source of non-tax, own-source revenues, and they exceed other notable revenue sources such as corporate income tax or natural gas royalties. MSP premiums do not cover the full cost of health care in B.C., which is projected at $19.6 billion of the province’s $48.1-billion budget.
BC is the only remaining province in Canada to have a separate funding mechanism to collect funds for medical services. One of the reasons for this approach is to be an educational tool to reinforce the high cost of medical services and reduce unnecessary usage. Ontario eliminated its health care premiums in 1990 by introducing an employer payroll tax. In 2004, the province reintroduced individual health care premiums through the income tax; these are not flat-rate levies but rise with income to a maximum annual $900 at taxable incomes of $200,000 and higher. This approach avoids regressive effects as well as the administrative and compliance costs of collecting separate premiums. Alberta, too, eliminated premiums in 2009 and introduced a new health care contribution levy in 2015.
Eliminating the bureaucratic apparatus needed to collect the premiums by collecting the MSP revenues through one or more existing taxes would eliminate the financial burden on employers, the self-employed and retirees as well as those associated with premium assistance. Small business owners and the self-employed also realize these costs through higher benefit expenses for employees and individual premiums that rise faster than the rate of inflation. The MSP is a cost driver for employers, and in that sense it poses problems.
Recommendation: That the Provincial Government:
- Explore an overhaul of the current MSP system through the new Provincial Tax Competitiveness Commission (PTCC).
- The PTCC give consideration to the following options:
a. Replace the MSP with a progressive and equitable approach to health care funding.
b. Abolish the current MSP premium system and implement a line item to the provincial income tax.
c. A reasonable approach might be to announce at least a year in advance that the MSP tax would be replaced with a combination of a payroll tax and an income tax surcharge, as is done in Ontario.
 BC Budget 2016
 Vancouver Sun Editorial – February 19, 2016
 Business Council of B.C.
 Vancouver Sun, T Sherlock – February 16, 2016
 Jon Kesselman, Canada Research Chair in Public Finance, Simon Fraser University.
The issue: BC Corporate Tax – The BC Government should not be contemplating any increases in the BC Corporate Tax rates, particularly in light of the negative impact on business of the returning BC PST.
What it’s about: At a time when striking a balance between generating more government revenue and encouraging business to grow, contemplating an increase in the BC Corporate Tax is seen as a negative action which is contrary to any attempts to grow the provincial economy.
What the Surrey Board of Trade did: Issued a policy position stating that the BC Government should not be contemplating any increases in the BC Corporate Tax rates, particularly in light of the negative impact on business of the returning PST. The BC Government should instead be seeking measures to mitigate such impacts. In particular, the BC Government should protect and further encourage business investing, upgrading and innovation in BC.
The result: Ongoing advocacy.
The Issue: Carbon Tax.
What it’s about: The Surrey Board of Trade agrees with the philosophy of the Carbon Tax to change behaviour to seek alternative energy sources and alternative transportation, however, the unintended negative consequences impacting the provincial economy, business competitiveness, the increased cost of living and other
impacts to reduce the increased cost of fuels may outweigh the value of continuing the carbon tax in BC. The Lower Mainland pays 49 cents per litre in fuel taxes, including 7 cents per litre in carbon tax (6.67 cents plus 5% PST on top and 17 cents per liter for transit). High fuel taxes are driving customers out of Surrey and the surrounding region. Abbotsford, subject to the carbon tax but free of TransLink, and saving 12 cents per litre in taxes—registered a one-third increase in gasoline and diesel sales from 2007 to 2010. Their population only grew 5.5 per cent in that time. People take the opportunity to go east to save 12 cents per litre on gas whenever they can. Further, exceptional fuel savings in Washington State, coupled with the strong Canadian dollar, encourage BC drivers to travel to the US, where they frequently purchase other commodities as well as fuel, to the significant detriment of businesses in communities adjacent to the border.
What the Surrey Board of Trade did: There is no doubt that the Carbon Tax has had an impact on BC, however its significantly negative impact seems to outweigh any positive impact it has had on the environment and should be urgently reviewed. The Surrey Board of Trade asks for a comprehensive and urgent review of the carbon tax to ensure its efficacy across all industries.
The result: Ongoing advocacy.
The issue: Inform Surrey business about the re-implementation of the Provincial Sales Tax (PST).
What it’s about: To prepare the Surrey Board of Trade members and the Surrey business community to be able to handle the transition back to the PST after abolishing the HST.
What the Surrey Board of Trade did: Utilizing Senior Managers of CA firms, provided forums to give a general overview of the PST and general descriptions of transitional rules for the re-implementation of the PST, other than transitional rules related to housing. The transitional rules described how and when PST applied to transactions that straddled April 1, 2013.
The result: Members who were better prepared to deal with the PST implementation.
The issue: PST – reduce red tape/administration.
What it’s about: The Surrey Board of Trade wants to reduce the red tape around PST. The PST is an extremely burdensome tax for business. The Surrey Board of Trade’s Finance & Tax Team wrote to the BC Government’s Expert Panel on Tax to make recommendations on how BC’s business tax environment might be made more
competitive. This is only one of a series of the Surrey Board of Trade’s tax evaluations, this time focusing on the PST. While the BC government is required to reinstate the PST in conjunction with the GST, the BC government must chart a course that will create and defend jobs for families in every corner of the province. In our opinion, PST (the BC Social Services Tax) is an antiquated tax that has burdened BC businesses for over 60-years. Reinstating the PST in the same form as it was in effect before July 1, 2010 would create a chill effect on the BC economy and jeopardize the government’s efforts to create and defend jobs for British Columbians. The BC government recognized the necessity to improve the PST statute in the August 26, 2011 News Release and Backgrounder. A summary of the key aspect include:
a) The PST will be reinstated at 7%
b) There will be permanent PST exemptions
c) There may be some “common sense” administrative improvements to the PST
d) The transition period is expected to take 18-months
e) There will be provincial and federal transitional rules
What the Surrey Board of Trade did: After considerable research and consultation with the Canadian Tax Foundation, we recommend that the following aspects of the PST be fixed or improved:
- Three classifications for software but only one be taxable.
- Some services are classified as “exempt taxable services”.
- There is no recognition of a legal partnership as a person.
- Services to cranes that run on rails are subject to tax, but services to radial access cranes with a pivot point are not taxable.
- Legal services provided by a law firm or notary public office are subject to PST, but if a service is provided by a lawyer employed by an accounting firm, the service is not taxable.
- Freight is subject to PST, but only if the items are sold “Free on Board” estimation and the seller arranges the shipping. Free on Board is a shipping term. It refers to the physical location that title to the goods changes hands from the shipper or supplier to the recipient or buyer. At that point, the buyer takes responsibility.
- A retailer or wholesaler with no permanent establishment in BC who sells to a customer located in BC must register to collect the PST even though the BC tax authority has no statutory authority in the seller’s jurisdiction.
- A bullet proof vest worn by a police officer is not treated as safety equipment.
- Materials acquired by a manufacturer to maintain or repair its production machinery and equipment is subject to PST, but the same materials can be acquired PST exempt by a contractor to repair or maintain its customers production machinery and equipment.
- Use includes the storage of tangible personal property.
- A vendor is not authorized to refund the PST when a sale price is reduced after the tax is collected and remitted.
A. Permanent Exemptions
The News Release states the “PST will be reinstated … with all the permanent PST exemptions”, but it doesn’t explain what gives an exemption a “permanent” status. Also, the News Release doesn’t differentiate between PST exempt status and non-taxable status. We assumed both will survive and be permanent exemptions.
It would be reasonable to assume a permanent exemption is one that has been in place for many years before the PST was eliminated on June 30, 2010. If this is the case, the following exemptions (and non-taxable status) would be treated as “permanent exemptions” when the new PST was launched and this would include:
- Bicycles with 2 wheels
- Residential energy
- Haircuts and other personal services
- Listed equipment acquired by bona-fide farmers
- Children’s clothing and shoes
- Listed medical devices
- Prescriptions and medicaments
- Professional services other than legal services
- Goods and services purchased for re-sale or export
- Food, candy and soft drinks for human consumption
- Listed safety equipment
- Production machinery and equipment acquired by qualifying manufacturers
- Hydro-electric penstock and related apparatus
- School supplies
- Chemicals and direct agents used in manufacturing
- Devices used to assist disabled people
- Non-prescribed fixtures
B. The following are four examples where improvements are required:
1. Children’s Clothing and Shoes – It is simply not acceptable for retailers to ask customers to certify in writing the clothing or shoes they are acquiring is for use by a person under 15 years of age. Even if customers will sign the certificate sheet, a retailer that keeps this information on file is probably in violation of the provisions in the Freedom of Information and Protection of Privacy Act. From a practical perspective a retail cashier should neither be required to demand a certification from a customer nor be given the ability to grant a PST exemption at will. The obvious solution to fixing this exemption is to adopt the GST/HST rules where the point of sale exemption is based on sizing alone.
2. Safety Equipment – By combining a list of qualifying safety equipment that must be worn by a worker with the requirements of occupational health and safety rules for employees only, this exemption is far too complicated and puts retailers in the awkward position of having to be familiar with the unique rules that apply to certain industries. Finally, the exemption does not cover rescue equipment such as stretchers, eye wash devices, and defibrillators. These rules should be simplified and provide industry with more options to protect and care for workers and the general public without incurring additional PST expenditure.
3. Production Machinery and Equipment – The restrictions to this exemption based on, among other things, substantial change (essentially a defined term), the description of a manufacturing site, and the first-stored / first-placed on a conveyance criteria provide far too much room for interpretation. Too often PST auditors take on the role of production engineer when deciding whether or not to allow the exemption. If this exemption is designed to encourage investment in manufacturing equipment and new processes it should be revised to recognize the “integrated plant concept” where all aspects of the operation are part of the production process, including fire suppression and safety apparatus, lighting etc. This change of focus to the exemption will allow manufacturers to design their facilities and processes to maximize productivity rather than focus on maximizing PST exemptions.
4. Non-Prescribed Fixtures – The history associated with prescribed and non-prescribed fixtures goes back to the 1990s and the Westshore Terminal case. While the PST exemption for the purchase of non-prescribed fixtures and services relating to these fixtures are desirable, there is a hidden “gotcha” provision that leaves manufacturers exposed to an assessment when they claim a production machinery and equipment exemption on a non-prescribed fixture (also exempt): where both these exemptions apply a tax liability is triggered under the Property Transfer Tax Act using the refund provisions. If the BC Government intends to collect Property Transfer Tax on non-prescribed fixtures that are production machinery and equipment, a specific taxing provision should be added to the statute. It’s not acceptable to use a refund provision to generate tax revenue.
C. Possible Administrative Improvements
The Backgrounder to the News Release states, “the Provincial Government… may make some administrative changes to streamline and improve the PST.” In the opening comments on the News Release it uses the phrase “common sense” to clarify the type of changes that may be made.
With the decrease in tax revenue that will result from transitioning back to the PST it is unlikely the Province will make any changes that have a material impact on revenue. The following suggested administrative changes should bring new “common sense” to the PST without significantly impacting revenue.
1. Section Numbering – The section references in the Social Service Tax Act and the Regulations should be revised in a manner that it is easier to locate the regulation that relates to a particular section.
2. Vendor Number – There should no longer be a requirement to publish a customer’s vendor number on an invoice when an exemption is granted.
3. Filing Procedures – Vendors should be able to file their PST returns on-line and remit taxes owing electronically, and align remittance dates with the GST.
4. Partnerships – Rather than treat partnerships as a joint ownership arrangement, a legal partnership should be treated as a person for all aspects of the PST rules including the exemptions that are available for transfers within a closely related group.
5. Appeals – There should be an opportunity to demand that an appeal be handled by the courts rather than allowing the province to endlessly delay the administrative appeal procedure.
6. Waivers – In cases where a vendor has chosen to issue a waiver for statute barring provisions the Ministry should be given a specific period to complete the audit, and if this doesn’t occur the waiver will expire.
7. Exemption Certificates – These certificates should be made available on-line using a fillable format. The certificates should be written in a manner that does not require a person’s vendor number, if the person doesn’t require a vendor number to qualify for the exemption.
8. Delivery – Currently the PST only applies to delivery charges when an item is sold FOB destination, and the shipping is provided by or coordinated by the seller. Delivery is not a taxable supply, and should never attract PST. If there is a concern that vendors will apply too much of a purchase price to delivery to reduce the PST payable, then the provisions that allows the commissioner to assign a value can be used.
9. Reporting Periods – Vendors who use a reporting period other than the calendar month should be able to elect to file their PST returns using the same period.
10. Business Number – The vendor number should be based on the federal business number that is used for GST/HST purposes.
The result: Sent to Ministry of Finance. Some administrative improvements have been made to the PST but more is required.
The issue: Taxation of Corporate Groups
What it’s about: We called on federal parliamentarians to follow through on their promise to reduce business taxes. Businesses across the country have invested with the understanding that taxes would decline. A sudden change of course would constitute a broken promise to thousands of businesses and the people they employ.
With government stimulus programs ending in 2012, the tax reductions are especially important, as they will free up capital to be put to work to grow Canada’s businesses and its economy. This strategy has been supported by a majority of parliamentarians in two federal budgets since its inception in 2007.
Government stimulus was important during the crisis, but it’s not the basis of real economic growth. Sustainable growth requires the private sector investment that can generate new jobs and federal revenues to pay down the deficit. The current tax plan, which was supported by both Liberal and Conservative parliamentarians, is essential for that investment.
Business tax reductions are relevant to all Canadian business, large and small, in all regions of the country. In particular, small business has a keen interest in this issue. Most small businesses are suppliers to bigger businesses; opportunities flow when the larger firms have the capital to buy. The alternative rising taxes dries up those opportunities. A vibrant large business sector leads to a strong and prosperous small business sector.
What the Surrey Board of Trade did: The Surrey Board of Trade issued a media release and sent letters to MP’s. Ongoing observation and action continues.
The result: Canada has made steady progress in improving its business tax competitiveness over the last decade and that those actions have not gone unnoticed. The report demonstrates that increasing taxes on Canadian families and businesses is the wrong way to eliminate deficits. In a highly integrated global economy, the tax base is constantly on the move. Skilled workers, businesses, jobs and capital move easily across national borders, seeking the best economic opportunities. They are drawn to low-cost, low-tax environments.
The issue: Accelerated Capital Cost Allowance.
What it’s about: Making The Accelerated Capital Cost Allowance for Computer Equipment Permanent Capital Cost Allowances (CCA) rates are generally intended to reflect the economic benefit of the asset over time – i.e. over its useful life. The depreciation rate is intended to reflect the fact that depreciable assets contribute to
earnings over a period of time and are not consumed in the year in which they are acquired. Given how quickly technology changes, however, it would seem inappropriate to assume that computer equipment has a useful life and contributes to the earnings potential of a business over a period of more than one year.
On February 1, 2011, a special economic incentive program to stimulate computer equipment upgrades expired. Now, businesses will depreciate computer equipment (fully) over a longer period of time – i.e. roughly over a period of 9-10 years with most of the depreciation being taken within the first 3-4 years. This depreciation rate (even over 3-4 years) would appear to be inconsistent with the intended principle behind the CCA rates (i.e. depreciating an asset over its useful life) as most computer equipment is not useful for that period of time.
The Surrey Board of Trade wants the Federal Government to permanently change the Cost Capital Allowance (CCA) depreciation period for computer equipment, to a period of one year (as reflected in the recent accelerated CCA program).
What the Surrey Board of Trade did: Composed a Canadian Chamber resolution for support.
The result: Continue to advocate at the Federal Government level. A renewed position paper to the Federal Government to be sent in September 2014.
The issue: Value added tax (HST).
What it’s about: The Board of Trade/Chamber of Commerce movement is strong and credible because we receive input from experienced business people from both small and large businesses, plus economists, professionals and business individuals on our Finance and Tax Team. The debate of the HST was not taken lightly by the
Surrey Board of Trade. Our directors, representing both small and large businesses, received the feedback and recommendation from our Finance and Tax Team, debated it, and asked for feedback from our membership. We realistically and factually believe that what the HST needs is a sound tax policy, which will benefit the economic future of BC. We are mindful of how Canadian businesses have improved after twenty years of the GST tax policy, which replaced the draconian and hidden federal manufacturing tax. There have been thousands of jobs created in Canada as a result of the removal of a production tax to a consumption tax.
The result: HST was defeated at referendum. BC returned to PST. The Surrey Board of Trade still in favour of a value added tax. Don’t foresee any resolution on this in the near future.
The issue: Pensions
What it’s about: The Surrey Board of Trade’s Finance and Tax Team has explored different avenues on how to best address anticipated future shortfalls in Canada’s retirement income system. We know that at present, three-in-four private-sector workers are not covered by an employer-sponsored pension plan. Research indicates that
many private sector workers who do not have access to employer-sponsored pension plans, or who do not have sufficient personal savings, will not have adequate retirement income in the future. It is clear that a review of the Canadian Pension System is welcomed and needed. As the baby boomer population enters retirement, and for our young population, it is necessary that we ensure that they are taken care of, either through personal savings and/or government support.
What the Surrey Board of Trade did: The Surrey Board of Trade provided the following input on ways to strengthen the Canada pension system and expand pension coverage for the majority of workers currently without occupational pension plans. We understood that results of the consultation were used to develop recommendations to be presented to Canada’s Premiers at the next Council of Federation meeting.
1. A Focused approach on education to our youth: youth need to have an understanding of finances, handling debt and a sense of the value of pensions and preparing for them.
2. An Investment Policy Review: provincial entities need to be responsible for the investment of long term funds to ensure the appropriate attention is given to the balance of investment risk against investment returns, including the costs of administration of such investment funds
3. Encouraging employers to facilitate the use of outside, professional advice to employees to use a tax-free savings account including employee education of their value. In addition employers should encourage employees to transfer funds automatically to the TFSA. Encourage employers to educate employees to contribute to RRSP’s. Employers, where possible, can match contributions. Consider using the Provincial Tax Act to find mechanisms, which encourage or support employers matching employee contributions. In many cases careful management of other employment related expenses such as WCB can result in funds being made available to match the contributions. Also, from the not-for-profit sector, many are unable to provide pension benefits to staff. There are some good private plans for group RRSP but they are hard to sell to young employees and require a total staff buy-in. We ask you to consider how to best serve this sector and assist it in providing a retirement future for them. The not-for-profit sector is a significant source of employment.
4. There is a need to have a cultural and behavioural change on use of credit cards and lines of credit. Too often marketing to consumers is via “easy financing” and unrealistically low minimum payments result is ultimately un- or barely -manageable debt burdens resulting in no money being used to fund retirement. Some controls on financial institutions could help hugely in this regard.
5. Portability of Pension obligations needs to be examined. Majority of workers tend to have more than one employer in their lifetime. The concept of pension obligations attached to the individual not the company needs to be explored.
6. With the view to limit the future tax revenue requirements sources onto BC taxpayers – the majority of whom do not have the luxury of a public pension plan and, with a growing demographic of retired, fixed income households, the province should undertake an assessment of all provincial public sector pension plans to address the long term funding (taxation sources) and payout obligations, and where appropriate, bring changes to the plan benefits or cost sharing between the plan members and the public taxpayer. New plans can be instituted for new public sector employees, leaving the existing members grandfathered in the existing plans.
The Surrey Board of Trade also met with local government officials to bring this issue to light. We continue to meet with and comment to Municipal Finance Officials.
The result: Ongoing observation and action will continue. Partnered with the Chamber Group Insurance Plan to offer low fee/cost effective RRSP programs to members.
The issue or project: Employment Insurance
What it’s about: In Budget 2009, the federal government provided additional fiscal stimulus by temporarily extending benefits by five weeks and freezing premiums. As an “automatic stabilizer”, the EI program has played a critical role in mitigating the severity of the economic downturn. The Canadian Chamber of Commerce believes that
the program can be fundamentally improved to make it more relevant to the long-term needs of the Canadian economy.
What the Surrey Board of Trade did: Position approved – media release and letters sent to MP’s and appropriate Ministers.
1. Immediately and permanently make access to benefits equal wherever the unemployment rate is less than 10 per cent by easing the variable entrance requirements from the current 420-700 hours to 560 hours.
2. Refrain from eliminating the two-week waiting period as it serves to enhance the efficiency of the EI program.
3. Refrain from directly enhancing benefits by boosting the earnings-replacement rate – presently EI benefits replace 55
percent of a claimant’s weekly insurable earnings.
4. Amend the present rate-setting formula so that deficits in the EI account are funded over a business cycle of up to 10 years.
5. Gradually phase in an employer-based experience rating system.
6. Gradually reduce the employer EI premium rate to equal that paid by employees.
7. Immediately implement a system that allows for over-contributions by employers to be refunded.
8. Operate the EI program as a true insurance program – one that provides income support for those who are temporarily unemployed through no fault of their own and who qualify for the program. Remove the social-program aspects of EI from the regular premium structure and place within general program spending.
The result: Ongoing observation and advocacy.
The issue: Property Transfer Tax.
What it’s about: The Surrey Board of Trade has a real concern with the BC Property Transfer Tax (PTT) and wants to have this tax significantly reduced in order to stimulate more housing construction and aid in making housing in BC more affordable. Neither Alberta or Saskatchewan have such a tax, and compared to the second
highest tax regimes of Ontario and Quebec, where purchasers paid 1.1 % of the fair market value, BC purchasers paid PTT equal to 1.5%. Currently, the level which invokes a 2% rate is only $200,000, which in BC is extremely low. It was set in 1987 when the median home cost was $121,000. We support the request to raise the increase of that threshold rate to $400,000. This reduction in the tax could be an important stimulus for this industry as well as for homebuyers in BC, which has the highest affordability index of all provinces.
What the Surrey Board of Trade did: Presented this to the Provincial Ministry of Finance.
The result: Ongoing observation and advocacy. Some improvements were made, but more needs to be done.
The issue: Consolidated Tax Returns for Groups of Companies
What it’s about: To streamline and make more efficient, the process of filing tax returns for groups of companies to enable the transfer of losses to other companies within the group to reduce administrative and compliance costs, increase cash flow within the group and simplify Canada’s corporate tax system, bringing it in line with
the other countries of the G7, and improve the competitiveness of Canadian businesses. This would provide a simplified and efficient method of achieving that, which is already done after complex, expensive and inefficient practices which arrive at the same result. It would simply allow Canadian businesses to operate with much less expense and effort, with no change in the amount of tax collected by the Canadian Government.
What the Surrey Board of Trade did: Issued recommendation to appropriate Ministries and MP’s.
The result: Ongoing observation and advocacy.
The issue: Health Care.
What it’s about: We congratulated the government on the expansion of health facilities in Surrey and the South Fraser Region. The Jim Pattison Outpatient Care and Surgery Centre at 140th and Fraser Highway and the new Emergency Care facility at Surrey Memorial Hospital are important keys in creating a health care campus
suitable for a city the size of Surrey.
What the Surrey Board of Trade did: Presented this to the Ministry of Finance and we encouraged them to invest further in this area by assisting Simon Fraser University as it moves ahead with its Health Sciences programs and Kwantlen Polytechnic University with its Nursing program. The government has brought focus to bear on healthy lifestyles and we applaud that. We them to continue this focus by providing greater access to low cost, preventative and alternative treatments such as naturopathic, chiropractic, and therapeutic massage among others.
The result: Ongoing observation and advocacy. A Surrey-specific position paper on health care to be released in Fall 2014.
The issue: BC Film industry
What it’s about: Ontario has a harmonized tax regime, whereas BC is returning to the PST which leaves the BC film industry in an unbalanced position with respect to government incentives, resulting in an outflow of productions and workers to Ontario, negatively impacting BC’s industry.
What the Surrey Board of Trade did: The SBOT has asked the provincial government for an increase in tax credits to support BC’s film industry to help create jobs. In research and evaluation by the Surrey Board of Trade’s Finance and Tax Team and the organization’s Board Directors, there is an economic urgency for the province to support its creative economy, specifically its film & television industry.
The result: Ongoing advocacy for the BC Government to offer further tax credits to the Film Industry.