P.E.I. announces cuts to income tax, tax on small businesses
Income tax change retroactive to the start of 2018
The P.E.I. government has increased the basic personal income tax exemption and will lower taxes on small businesses in the new year.
On Tuesday Finance Minister Heath MacDonald said a $500 increase in the exemption, which had been scheduled to come into effect in 2019, has instead been made retroactive to Jan. 1, 2018.
That means it combines with another $500 increase for 2018 announced in the province's spring budget, pushing the amount of income Islanders can earn without paying taxes up by $1,000 this year, to $9,160.
That is still among the lowest amounts in Canada but it has increased each year since 2016. The change will lower government tax revenue by about $4.1 million.
In making the announcement, MacDonald tied the increase to a surprise budget surplus announced last week for the 2017-18 fiscal year. The surplus which had originally been budgeted at $601,000 instead came in at $75.2 million, as provincial tax revenues came in higher than estimated.
"This is basically a direct result of how successful the Island is shaping up," MacDonald said. "We felt that if we can do this ... we wanted to give back to Islanders, the sooner the better."
Small business rate drop
The biggest windfall for the province in that surplus was corporate income tax revenue, which came in $38 million more than expected.
MacDonald said the tax rate on small businesses will drop 0.5 per cent, effective Jan. 1, 2019, a move expected to cost the province $1.2 million in revenues.
In the spring budget the province announced a similar reduction in the small business tax rate for 2018, and said it was "the first decrease of a multi-year commitment."
While the $75.2 million surplus was for the fiscal year that ended Mar. 31 2018, MacDonald said it's a "strong possibility" the province could see tax revenues come in tens of millions over budget again in the current fiscal year. He said that brings pressure for government to do something with the excess revenue, either by increasing spending or reducing taxes.
"That's why we're here today," MacDonald said, adding a funding announcement for housing is coming Thursday.
"It's a good position to be in. When you say you have a surplus, the hands come out."
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Clarifications
- The province initially said the announcement was new. In fact, it is an acceleration of a previous announcement. CBC has changed its headline to remove the word “new.”Nov 07, 2018 10:10 AM AT