Budget 1999
Providing Tax Relief and Improving Tax Fairness: 1
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"Our goal and our commitment is to ensure that Canadians keep more of the money that they earn. After all, they worked for it. It's theirs." Finance Minister Paul Martin 1999 budget speech

Archived - Highlights

• The government's objective is to provide substantial tax relief in the fairest way possible. Each of the government's budgets has provided targeted tax relief where it would be most beneficial. Significant relief was directed at students, charities, persons with disabilities and the children of parents with low incomes.
• The elimination of the deficit in 1997-98 allowed the government to introduce measures providing broad-based tax relief. The 1999 budget builds on these measures as part of a long-term strategy to permanently reduce taxes.

Measures

• The 1998 budget raised by $500 the amount of income low-income taxpayers can earn before paying a cent of income tax. The 1999 budget increases that amount by a further $175 to $675 and extends it to all taxpayers -- more than offsetting the effects of inflation on this amount since 1992.
• The 1998 budget began the process of eliminating the 3-per-cent surtax. The surtax was eliminated for taxpayers with incomes up to about $50,000 and reduced for those with incomes between $50,000 and $65,000. The 1999 budget completes the process by eliminating the 3-per-cent surtax for all taxpayers.
• The 1998 budget announced a further $850 million under the Canada Child Tax Benefit (CCTB) for the National Child Benefit (NCB)system. The 1999 budget sets out the design for this increased assistance, agreed to by the federal, provincial and territorial governments. Together with the $850 million announced in the 1997 budget, this brings the federal investment in the NCB system to $1.7 billion, targeted at low-income families.
• The 1999 budget also commits an additional $300 million to increase CCTB payments for modest- and middle-income families.
• Total federal support for families through the CCTB increases by $2 billion through these measures and will reach an annual level of close to $7 billion by July 2000.

Impacts on Taxpayers

• The 1998 and 1999 budgets together provide tax relief of $3.9 billion in 1999-2000, $6 billion in 2000-01 and $6.6 billion in 2001-02, for a total of $16.5 billion over three years.
• In combination, the 1998 and 1999 budget actions, and the $800-million employment insurance (EI) premium rate reduction for 1999-2000 provide tax relief of $17.3 billion over the next three years.
• The 1998 budget reduced taxes for 14 million Canadian taxpayers. The 1999 budget will reduce taxes for all 15.3 million Canadian taxpayers.
• Together, the 1998 and 1999 budgets provide the largest proportionate tax reductions at the lowest income levels.
• Single taxpayers earning $20,000 and less will have their federal income taxes reduced by at least 10 per cent.
• Typical one-earner families with two children and incomes of $30,000 or less will pay no net federal tax.
• Families with incomes of $45,000 or less will have their taxes reduced by a minimum of 10 per cent and, in some cases, more.
• As a result of the 1998 budget, 400,000 lower-income Canadians no longer pay any federal income taxes. The 1999 measures will ensure that an additional 200,000 lower-income Canadians will no longer pay federal income taxes, bringing to 600,000 the total number of taxpayers removed from the tax rolls due to both budgets.

Introduction

Tax reduction plays a key role in building a better tomorrow.

The government is committed to providing substantial tax relief to Canadians on an ongoing basis. This will increase disposable incomes and enhance job creation and productivity through increased rewards for work, saving and investment.

Tax revenues finance important government programs that Canadians need and value such as health care and education. Taxes also pay for interest on the government's public debt.

A balance, therefore, must always be struck between keeping taxes low and providing a source of revenue for vital social and economic programs.

The government is committed to substantially reducing taxes, as and when it can. For tax relief to be permanent, it must be affordable and not jeopardize the soundness of Canada's finances.

For the first time since 1965, the 1999 budget provides tax relief for every taxpayer without the government having to borrow money to pay for it. The greatest proportionate relief goes to low- and middle-income Canadians.

Tax Policy Principles

Tax policy, an important pillar of economic and social policy, is based on three fundamental principles.

• Our tax system must be fair. Tax reductions must benefit first those who need them the most -- low- and middle-income Canadians.
• Broad-based tax relief should focus initially on personal income taxes. That is where the burden is greatest and where Canadian tax rates are most out of line with certain other countries.
• Because of our debt burden, broad-based tax relief should not be financed with borrowed money.

Targeted tax reductions to meet key social and economic priorities

Providing tax relief to those who need it most

There are many social and economic needs in the country where the benefits from tax relief outweigh any revenue cost to the government.

In recognition of this fact, each of the government's budgets has provided targeted tax relief where the payoff was substantial and where it would be most beneficial. Targeted tax relief was provided for students, charities, persons with disabilities and the children of parents with low incomes. Examples of actions taken in budgets from 1994 to 1997 are detailed below.

• For students, the amount of the education credit was increased; the basis for the education credit was doubled; ancillary fees were made eligible for the tuition credit; and a carry-forward was allowed for unused tuition and education credits. As well, the annual and lifetime limits on contributions to registered education savings plans (RESPs) were increased.
• For charities, the threshold at which charitable donations begin to earn the 29-per-cent tax credit was lowered; GST relief on purchases and fundraising was extended; and the percentage of net income that can be claimed as charitable donations was more than doubled.
• For persons with disabilities, the tax credit for infirm dependants was enriched; the medical expense tax credit was broadened; and the limit on the attendant care deduction was removed.
• For the children of parents with low incomes, the Child Tax Benefit was increased by $850 million in the 1997 budget.

With the books in balance in 1997-98, the government was able to deliver a comprehensive set of measures to further support Canada's students, families and workers as they pursue higher education, training and lifelong learning.

• The 1998 budget provided tax relief for interest on student loans; extended the education credit and the child care expense deduction to part-time students; and allowed tax-free withdrawals from RRSPs for lifelong learning.
• The 1998 budget also made tax-assisted RESPs more attractive by providing a 20-per-cent top-up to contributions through the Canada Education Savings Grant.

Personal income tax relief -- 1998 and 1999 budgets

The 1998 budget provided broad-based reductions in personal income taxes for low- and middle-income taxpayers. The 1999 budget builds on the actions taken last year.

Increasing tax-free income

Income tax relief for every Canadian taxpayer

Personal tax credits ensure that no tax is paid on a basic amount of income. They make the tax system fairer.

• The 1998 budget raised the amount of income that low-income taxpayers can earn before paying federal income tax by $500. The measure was targeted at low-income Canadians due to limited resources. The 1999 budget increases that amount by a further $175 to $675 and extends it to all taxpayers -- more than offsetting the effects of inflation on this amount since 1992.
• This measure will raise the basic amount to $7,131 and the spousal and equivalent-to-spouse amounts to $6,055 effective July 1, 1999.
• The largest proportionate benefits of these measures will accrue to low-income Canadians.
• Due to the 1998 budget, 400,000 lower-income Canadians no longer pay any federal income taxes. The 1999 budget measures ensure that 200,000 more Canadians will be removed from the tax rolls. Together, the 1998 and 1999 budgets will remove 600,000 Canadians from the tax rolls.

Eliminating the 3-per-cent surtax for all taxpayers

The 3-per-cent surtax was introduced in the 1986 budget as a temporary deficit fighting measure.

• With the books in balance, the 1998 budget began the process of eliminating the 3-per-cent surtax. The surtax was eliminated for taxpayers with incomes up to about $50,000 and reduced for those with incomes between $50,000 and $65,000.
• The 1999 budget completes the process by eliminating the 3-per-cent surtax for all Canadian taxpayers effective July 1, 1999.

Tax fairness

Improving the fairness of Canada's tax system

The 1999 budget proposes a number of measures that will improve the fairness of Canada's tax system.

• Currently, some low-income single parents may not fully benefit from the supplement under the GST credit. Changes are being proposed to ensure that all low-income single parents receive the maximum amount under the GST credit supplement. This measure will provide additional annual benefits of $20 million to 300,000 single-parent families with incomes under $12,000.
• Currently, it can take up to a year before GST credit payments are adjusted to reflect changes in family situations. Changes are being proposed that would shorten the response time.
• To provide increased assistance for people with disabilities, the list of expenses eligible for the medical expense tax credit is being expanded. For the 1999 and subsequent tax years, eligible expenses will include tutoring for persons with learning disabilities, therapy for persons with severe and prolonged disabilities and the costs of care and supervision of such persons in a group home.
• Changes are being proposed that would increase the fairness of the rules governing investments in foreign-based investment funds and transfers to non-resident trusts. This will ensure that Canadians keeping their money in Canada are not disadvantaged relative to those taking their money abroad.
• Changes are being proposed that would prevent high-income individuals from being able to reduce their taxes by income splitting with their minor children.
• To alleviate hardship when a parent of a child dies, the favourable treatment of the disposition of RRSP proceeds on death will be extended to include distribution to financially dependent children even when the annuitant has a surviving spouse.

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