Budget 2003 - Budget Plan
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Archived - Annex 2
Building on the Five-Year Tax Reduction Plan

Overview

In the October 2000 Economic Statement and Budget Update, the Government announced a plan to reduce taxes by $100 billion over five years—the largest tax cut in Canadian history.

About three-quarters of the tax relief provided under this plan goes toward reducing the tax burden of Canadian families and individuals. By 2004–05 the Government’s tax reduction plan will have reduced federal personal income taxes by 21 per cent on average. Families with children benefit even more—with average tax savings of 27 per cent.

The Government’s Five-Year Tax Reduction Plan is also promoting economic growth and jobs by creating an advantage for investment in Canada. In particular, the 28-per-cent general corporate income tax rate has already been reduced to 23 per cent and is legislated to fall to 21 per cent in 2004. As of January 2003 Canada’s average federal/provincial corporate tax rate is below the average U.S. rate (see chart at the top of page 246). Moreover, with the reduction in the capital gains inclusion rate to one-half in October 2000, capital gains are now typically taxed at a lower rate in Canada than in the U.S. (see chart at the bottom of page 246).

The Government’s tax reduction plan provided timely and significant economic stimulus of about $17 billion in 2001 and $20 billion in 2002 (see Table A2.1), playing a key role in sustaining Canadian economic performance in the face of a global slowdown and enabling the Canadian economy to outperform the U.S. during this period.

This year and next, the Government’s tax reduction plan will continue to provide significant tax relief—about $24 billion in 2003 and more than $30 billion in 2004.

Table A2.1
Five-Year Tax Reduction Plan: 2001 to 2004 Calendar-Year Tax Relief

	2001	2002	2003	2004
	(billions of dollars)
Total tax relief	17.3	19.9	24.2	30.6
Personal income tax	14.4	15.7	18.1	22.5
Corporate income tax	0.5	1.4	2.5	3.7
Employment insurance	2.4	2.8	3.6	4.4

Most of the initiatives under the Government’s tax reduction plan have already been implemented. The remaining elements are legislated to take effect in 2004 and will mean further tax reductions for Canadians, enhanced benefits for families with children, and a more competitive climate for business in Canada.

Budget 2003 builds on the Five-Year Tax Reduction Plan, enhances support for Canadian families and communities, and contributes further to a productive and sustainable economy.

Budget 2003: Building on the Five-Year Tax Reduction Plan Supporting Families and Communities This budget: increases the National Child Benefit supplement for low-income families; introduces a new Child Disability Benefit for low- and modest-income families with a child with a disability; and sets aside $80 million per year to enhance tax measures for persons with disabilities, drawing on a forthcoming evaluation of the disability tax credit and the expert advice of a technical advisory committee. Contributing to a Productive and Sustainable Economy This budget: increases the limits on tax-assisted savings in registered pension plans (RPPs) and registered retirement savings plans (RRSPs); supports small businesses and entrepreneurs through a number of tax changes, including an increase in the small business deduction limit from $200,000 to $300,000 over four years; phases out the federal capital tax over a period of five years—eliminating it next year for medium-sized corporations; improves the tax structure for the resource sector; enhances the Film or Video Production Services Tax Credit; and extends tax assistance to emerging renewable energy technologies.

Tax Relief to 2003

The Government’s tax reduction plan includes tax relief for individuals and measures to encourage jobs, growth, entrepreneurship and innovation.

Personal Income Tax Relief

• Full indexation of the personal income tax system was restored as of January 1, 2000. In 2003 tax filers will benefit from the indexation factor of 1.6 per cent (see Table A2.2).
• Personal income tax rates for all taxpayers were lowered effective January 1, 2001.

• The 17-per-cent tax rate was reduced to 16 per cent.

• The Canada Child Tax Benefit (CCTB) was substantially increased to help low- and middle-income families with children.
• Additional tax assistance was provided to those who need it most, including people with disabilities and caregivers.
• Tax support for students in post-secondary education was substantially increased.

The Five-Year Tax Reduction Plan: Tax Savings for Typical Individuals and Families Compared to what taxes would have been in 2003 without the Government’s tax reduction plan: A typical two-earner family of four with a combined income of $60,000 will pay $1,395 less net federal income tax—a savings of about 24 per cent. A typical one-earner family of four with $40,000 in income will pay $1,477 less net federal income tax—a savings of about 44 per cent. A typical single parent with one child and $25,000 in income will receive additional net benefits of $806.

 

Budget 2003: Additional Support for Families With Children This budget proposes to increase the National Child Benefit supplement component of the Canada Child Tax Benefit (CCTB) by an annual amount of $150 per child in July 2003, $185 in July 2005 and $185 in July 2006. With these increases, the maximum CCTB benefit is projected to reach $3,243 for the first child in 2007. This will bring the estimated annual support delivered through the CCTB to over $10 billion—an increase of over 100 per cent since 1996. This budget also introduces a new Child Disability Benefit, which will provide up to $1,600 annually to low- and modest-income families with a disabled child.

Measures for Jobs, Growth, Entrepreneurship and Innovation

• The general corporate income tax rate has been reduced to 23 per cent in 2003, after being reduced from 28 per cent in 2000 to 27 per cent in 2001 and 25 per cent in 2002. Canada’s average federal/provincial corporate tax rate, including capital taxes, is now below the average U.S. rate (see chart at the top of page 246). This comparison is unaffected by the recent tax changes proposed by the U.S. administration.
• The corporate tax rate on small business income between $200,000 and $300,000 earned by a Canadian-controlled private corporation from an active business carried on in Canada was reduced from 28 to 21 per cent effective January 1, 2001.
• The capital gains inclusion rate was cut to one-half as of October 18, 2000. As a result, capital gains are typically taxed at a lower rate in Canada than in the U.S. (see chart at the bottom of page 246). Again, this comparison is unaffected by recent U.S. administration tax reduction proposals.
• Employees may defer the income inclusion from exercising certain employee stock options in publicly listed corporations until the shares are sold.
• Individuals may defer qualifying capital gains on small business shares to the extent that the proceeds are reinvested in other eligible small business shares.

Budget 2003: Support for Saving, Entrepreneurship and Small Business This budget proposes to increase the RPP and RRSP limits to support savings and investment; better meet the retirement savings needs of Canadians, including skilled workers and small business owners; and improve the ability of employers to attract and retain highly qualified personnel. A lower small business corporate income tax rate of 12 per cent applies on the first $200,000 of qualifying income. With this budget, the limit for application of the lower 12-per-cent rate will rise from $200,000 to $300,000 over four years. Investors may, subject to certain limits, defer the taxation of capital gains on investments in eligible small business shares if the proceeds of disposition of their shares are reinvested in other eligible small business shares. With this budget, entitlement to this deferral is expanded by eliminating the individual investor limits on the amount of the original investment and reinvestment eligible for the deferral and by extending the allowable period for the reinvestment.

Tax Relief in 2004

Personal Income Tax Relief

Under the plan, further measures have been legislated that will provide tax relief in 2004. These measures will:

• ensure that the basic personal amount, the amount an individual can earn tax-free, is at least $8,000 (from $7,756 in 2003);
• ensure that the spousal amount is at least $6,800 (from $6,586 in 2003);
• raise the second bracket threshold to at least $35,000 (from $32,183 in 2003);
• raise the third bracket threshold to at least $70,000 (from $64,368 in 2003);
• raise the fourth bracket threshold to at least $113,804 (from $104,648 in 2003);
• raise the amount of family net income at which the National Child Benefit supplement is fully phased out and the CCTB base benefit phase-out begins to at least $35,000 (from $33,487 in 2003); and
• reduce the phase-out rate of the base benefit of the CCTB from 5 to 4 per cent (from 2.5 to 2 per cent for families with one child).

Measures for Jobs, Growth, Entrepreneurship and Innovation

Under the Five-Year Tax Reduction Plan, businesses will also see further tax relief in 2004.

The general corporate income tax rate will be reduced from 23 to 21 per cent. This will encourage job creation and growth, reward entrepreneurship and innovation, and improve the international competitiveness of Canada’s business environment.

Corporate tax rate cuts, together with other measures in the Government’s tax reduction plan, such as the reduction in the capital gains inclusion rate, have created a tax advantage for investment in Canada relative to the U.S.

Budget 2003: Building on the Canadian Advantage When the phase-out of the federal capital tax announced in this budget is fully implemented, the average corporate tax rate in Canada will be 6.6 percentage points lower than in the U.S. (see chart at the top of page 246). This comparison is unaffected by the recent tax changes proposed by the U.S. administration.

Table A2.2
Detailed List of Indexed Personal Income Tax Parameters
Including Budget 2003 Measures

	Pre-2000  budget	2002	2003
		(dollars)
Personal amounts and bracket thresholds
Basic personal amount	7,131	7,634	7,756
Spousal/equivalent-to-spouse amount	6,055	6,482	6,586
Net income threshold	606	649	659
Taxable income at which 22-per-cent bracket begins	29,590	31,677	32,183
Taxable income at which 26-per-cent bracket begins	59,180	63,354	64,368
Taxable income at which 29-per-cent bracket begins	n/a	103,000	104,648
Credit amounts to reflect needs
Infirm dependant amount	2,353	3,605	3,663
Net income threshold	4,778	5,115	5,197
Caregiver amount	2,353	3,605	3,663
Net income threshold	11,500	12,312	12,509
Disability amount	4,233	6,180	6,279
Disabled child amount	n/a	3,605	3,663
Allowable child care and   care expenses	n/a	2,112	2,145
Medical expense tax credit—3 per cent of  net income ceiling	1,614	1,728	1,755
Refundable medical expense tax credit supplement	500	535	544
Minimum earnings threshold	2,500	2,676	2,719
Family net income threshold	17,419	20,296	20,621
Age amount	3,482	3,728	3,787
Net income threshold	25,921	27,749	28,193
Old Age Security repayment threshold	53,215	56,968	57,879
Goods and Services Tax credit1
Adult maximum	199	213	216
Child maximum	105	112	114
Single supplement	105	112	114
Phase-in threshold for the single supplement	6,456	6,911	7,022
Family net income at which credit begins to phase out	25,921	27,749	28,193
Canada Child Tax Benefit1
Base benefit	1,020	1,151	1,169
Additional benefit for third child	75	80	82
Additional benefit for children under 7 years	213	228	232
Family net income at which base benefit begins to phase out	29,590	32,960	33,487
National Child Benefit (NCB) supplement2
First child	955	1,293	1,463
Second child	755	1,087	1,254
Third child	680	1,009	1,176
Family net income at which NCB supplement begins to phase out	20,921	22,397	21,529
Family net income at which NCB supplement phase-out ends	29,590	32,960	33,487
Child Disability Benefit3
Maximum benefits	n/a	n/a	1,600
Family net income at which Child Disability Benefit begins to phase out	n/a	n/a	33,487
1 The GST credit and CCTB are paid on a benefit-year cycle beginning in July. 2 Includes Budget 2003 increase of $150 per child for July 2003. 3 Introduced in Budget 2003.

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