Ottawa, December 9, 2005
2005-087

Archived - 2006 Indexation Adjustment for Personal Income Tax System

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All personal income tax amounts will be adjusted by 2.2 per cent in 2006 to ensure that inflation does not cause people to pay more income tax.

Restoration of full indexation of the personal income tax system was announced in Budget 2000 and took effect that same year. Since that time, personal income tax amounts have been indexed to inflation every year using Consumer Price Index data, as reported by Statistics Canada.

Changes to tax bracket thresholds and non-refundable credits will take effect as of January 1, 2006. Adjustments to the Canada Child Tax Benefit (including the National Child Benefit supplement and the Child Disability Benefit) and the goods and services tax credit will take effect as of July 1, 2006, to coincide with the beginning of the "program year" for these benefits.

A backgrounder containing further information on full indexation of the personal income tax system is attached. Also reflected in the backgrounder are changes that go beyond indexation due to tax measures announced in Budget 2005 as well as in the recent 2005 Economic and Fiscal Update.

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Backgrounder

How Tax Parameters Are Indexed

Tax parameters are indexed using the Consumer Price Index (CPI), as reported by Statistics Canada. An indexed parameter for a new taxation year is equal to the unrounded parameter from the previous year multiplied by (A divided by B), where:

A. is the average monthly value of the CPI for the 12 months ending in September of the preceding year (e.g. October 2004 to September 2005 is used to calculate the indexed parameters for 2006); and
B. is the average CPI calculated for the preceding 12-month period (e.g. October 2003 to September 2004).

This parameter is then rounded to the nearest dollar.

Other Changes

Beyond indexation, certain tax parameters will be adjusted in 2006 as a result of legislated and proposed measures announced in Budget 2005 and the 2005 Economic and Fiscal Update. These include:

  • A $700 increase in the basic personal amount.
  • A $595 increase in the spouse or common-law partner amount.
  • A $300 increase in the maximum annual Child Disability Benefit to $2,300, starting in July 2006.
  • A $250 increase in the maximum refundable medical expense supplement to $1,000.

Indexed Personal Income Tax Parameters


  2006 2005

  ($) ($)
Personal Amounts and Bracket Thresholds    
Basic personal amount1 9,039 8,648
Spouse or common-law partner amount1 7,675 7,344
  Net income threshold 768 735
Taxable income at which 22-per-cent bracket begins 36,378 35,5952
Taxable income at which 26-per-cent bracket begins 72,756 71,1902
Taxable income at which 29-per-cent bracket begins 118,285 115,7392
     
Credit Amounts to Reflect Needs    
Infirm dependant amount 3,933 3,848
  Net income threshold 5,580 5,460
Caregiver amount 3,933 3,848
  Net income threshold 13,430 13,141
Disability amount 6,741 6,596
Amount for children with disabilities 3,933 3,848
  Allowable child care and attendant care expenses 2,303 2,254
Maximum adoption expense amount 10,220 10,000
Medical expense tax credit-3 per cent of net income ceiling 1,884 1,844
Maximum refundable medical expense supplement 1,0002, 3 750
  Minimum earnings threshold 2,919 2,857
  Family net income threshold 22,140 21,6632
Age amount 4,066 3,979
  Net income threshold 30,270 29,619
Old Age Security repayment threshold 62,144 60,806
     
Goods and Services Tax Credit (GSTC)4    
Adult maximum 232 227
Child maximum 122 120
Single supplement 122 120
Phase-in threshold for the single supplement 7,539 7,377
Family net income at which credit begins to phase out 30,270 29,618
     
Canada Child Tax Benefit4    
Base benefit 1,255 1,228
Additional benefit for third child 88 86
Additional benefit for children under 7 years 249 243
Family net income at which base benefit begins to phase out 36,378 35,5952
     
National Child Benefit (NCB) Supplement4, 5    
First child 1,945 1,722
Second child 1,720 1,502
Third child 1,637 1,420
Family net income at which NCB supplement phase-out ends 36,378 35,5952
     
Child Disability Benefit4    
Maximum benefit 2,3002, 6 2,000
Family net income at which Child Disability Benefit begins to phase out 36,378 35,5952

1  In addition to the increases from indexation, the basic personal amount is being increased by $500 in 2005 and $200 in 2006, and the spouse or common-law partner amount is being increased by $425 in 2005 and $170 in 2006. These increases were announced in Budget 2005 and the 2005 Economic and Fiscal Update.

2  The parameter is set in proposed legislation as the rounded amount shown. This amount would be indexed in later years in the usual manner.

3  The 2005 Economic and Fiscal Update announced an increase in the maximum refundable medical expense supplement from $750 to $1,000 for 2006.

4  The GSTC and the Canada Child Tax Benefit (including the National Child Benefit supplement and Child Disability Benefit) are paid on a benefit-year cycle beginning in July.

5  Includes a $185 increase for the benefit period starting in July 2006 that was announced in Budget 2003.

6  The 2005 Economic and Fiscal Update announced an increase in the maximum annual Child Disability Benefit from $2,000 to $2,300, starting in July 2006.