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CORNWALL, P.E.I. - The P.E.I. government is giving Island businesses a tax break and increasing the personal tax exemption for residents.
On Tuesday in Cornwall, Finance Minister Heath MacDonald announced that the small business tax rate was dropping from four per cent to 3.5 per cent on Jan. 1 while the basic personal amount was increasing by $500 to $9,160 (retroactive to Jan. 1, 2018).
The province says this is the fifth time since 2015 that the basic personal amount has been raised, including another $500 increase last year.
“We feel it’s an opportunity for us to show the success that they’re having, to give back and to put more money in Islanders’ pockets,” said MacDonald.
The province estimates the personal tax exemption will benefit about 84,000 Islanders and save them an extra $4.1 million overall. As well, the province says the tax changes will mean about 5,200 Islanders will not be required to pay provincial income tax.
The small business tax reduction is expected to affect about 2,600 businesses and increase total savings by $1.2 million.
The tax changes follow last week’s announcement that the province has a $75.2-million surplus – significantly larger than the $1.2 million that was estimated in the 2018 budget. The surplus was due, in part, to increases in revenue from corporate income taxes ($38.2 million), the Harmonized Sales Tax ($25.4 million) and personal income taxes ($8.4 million).
“We feel it’s an opportunity for us to show the success that they’re having, to give back and to put more money in Islanders’ pockets."
MacDonald said that surplus is going toward paying down the province’s debt.
MacDonald also said the province is spending more, with expenditures up by about $11 million compared to last year.
“So, it’s not like we’re cutting anything. We’re adding programs and we’re trying to build a very strong economy.”
With the $75.2 million surplus, there was some pressure to either cut taxes or increase spending, he said.
“I think so. And that’s why we’re here today,” MacDonald said.
MacDonald added that more announcements are planned for Thursday with respect to housing.
A multi-year commitment to reduce the small business tax rate was announced in last year’s budget, but specific reductions weren’t identified.
Penny Walsh-McGuire, CEO of the Greater Charlottetown Area Chamber of Commerce, said the personal tax exemption increase and small business tax reduction are both welcomed. But the chamber is also looking for that tax rate to be reduced further to two per cent, which would make it the lowest in Atlantic Canada.
She also said the chamber supports the province using the surplus to pay down the debt, and the reduction in the tax rate will lead to revenues that are the same or more for the province since those tax savings will be spent in the economy and re-invested by businesses.