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June 19, 2020
2020-5893

Canada: Prince Edward Island issues budget 202021

Executive summary

On 17 June 2020, Prince Edward Island Finance Minister Darlene Compton tabled the province’s fiscal 2020–21 budget. The budget contains tax measures affecting individuals and corporations.

The Minister anticipates a deficit of CA$172.7m1 for 2020–21 and projects reduced deficits for each of the next two fiscal years ($69.5m for 2021–22 and $38.4m for 2022–23).

The following is a brief summary of the key tax measures.

Detailed discussion

Business tax measures

Corporate tax rates

No changes are proposed to the general corporate tax rate. However, the Minister announced a reduction in the small-business rate to 2% from 3%, effective 1 January 2021. The $500,000 small-business limit remains unchanged.

Prince Edward Island’s (PEI) current and proposed future corporate income tax rates are summarized in Table A.

Table A – Corporate tax rates

Current PEI rate

Proposed 2021 rates

PEI

Federal and PEI combined

Small-business tax rate*,**

3.00%

2.00%

11.00%

General corporate tax rate

16.00%

16.00%

31.00%

* The small-business rate is based on a 31 December year-end.

** Prince Edward Island reduced its small business rate from 3.50% to 3.00% effective 1 January 2020.

Personal tax

Personal income tax rates

The budget does not include any changes to personal income tax rates.

The 2020 PEI personal tax rates are summarized in Table B.

Table B – 2020 PEI personal tax rates

First bracket rate

Second bracket rate

Third bracket rate

$0 to $31,984

$31,985 to $63,969

Above $63,969

9.80%

13.80%

16.70%

In addition, there is a 10% surtax on provincial income tax in excess of $12,500.

For taxable income in excess of $99,488, the 2020 combined federal-PEI personal income tax rates are outlined in Table C.

Table C – Combined 2020 federal and PEI personal tax rates

Bracket

Ordinary income*

Eligible dividends

Non-eligible dividends

$99,489 to $150,473

44.37%

24.56%

37.18%

$150,474 to $214,368**

47.59%

29.01%

40.88%

Above $214,368

51.37%

34.22%

45.23%

* The rate on capital gains is one-half the ordinary income tax rate.

** The basic personal amount comprises two basic elements: the existing personal amount ($12,298 for 2020) and an additional amount ($931 for 2020). The additional amount is gradually phased out for individuals with taxable income in excess of $150,473 and is fully eliminated for individuals with taxable income in excess of $214,368. Consequently, the additional amount is clawed back on taxable income in excess of $150,473 until the additional tax credit of $140 is eliminated; this results in additional federal income tax (e.g., 0.22% on ordinary income) on taxable income between $150,474 and $214,368.

Personal tax credits

This budget proposes changes to the following personal credits/amounts:

  • Increase in the basic personal income tax exemption to $10,500 from $10,000 as of 1 January 2021
  • Increase in the low-income tax reduction threshold to $19,000 from $18,000 as of 1 January 2021

Other personal tax measures include the introduction of a new $500 non-refundable Children’s Wellness tax credit to assist families with the cost of organized activities related to their children’s well-being, effective 1 January 2021.

Other tax measures

Tobacco tax

The Minister announced the increase of the tobacco tax rates to 27.52 cents per gram of tobacco and to 75% of the retail price for cigars. These increases will be effective the day following the Royal Assent of the implementing legislation.

Gasoline tax

The Minister also announced that the marked fuel program will be extended to all farm plated vehicles.

Endnote

1. Currency references in this Alert are to CA$.

_____________________________________________________________________________________________________________

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), Toronto
  • Linda Tang linda.y.tang@ca.ey.com
  • Mark Kaplan mark.kaplan@ca.ey.com
  • Phil Halvorson phil.d.halvorson@ca.ey.com
  • Terry McDowell terry.mcdowell@ey.com
Ernst & Young LLP (Canada), Montréal
  • Albert Anelli albert.anelli@ca.ey.com
  • Angelo Nikolakakis angelo.nikolakakis@ca.ey.com
  • Nicolas Legault nicolas.legault@ca.ey.com
  • Nik Diksic nik.diksic@ca.ey.com
Ernst & Young LLP (Canada), Calgary
  • Mark Coleman mark.coleman@ca.ey.com
Ernst & Young LLP (Canada), Vancouver
  • Eric Bretsen eric.r.bretsen@ca.ey.com
Ernst & Young LLP (United States), Canadian Tax Desk, New York
  • Trevor O’Brien trevor.m.obrien1@ey.com

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