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Ottawa, December 22, 2006
2006-088
Canada's New Government Is Providing Real Tax Relief for Canadians
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Canadian families, students, workers and seniors will be able to keep more of their hard-earned money in 2006 and 2007. Canada's New Government is providing substantial and immediate tax relief in every way the government collects taxes.
"Within the first 100 days of taking office, our government moved swiftly to lower taxes in order to create the right conditions and opportunities for families and businesses to be successful" said Minister Flaherty. "While we have made great strides, Canadians still pay too much tax, and our government will continue to look at new ways to ease the tax burden and create a real Canadian tax advantage."
Budget 2006 set the tone for tax relief by proposing 29 personal and business tax reductions. Personal tax relief alone amounts to almost $20 billion over two years, more than the four previous federal budgets combined. These measures, which are making a real difference to Canadians, include:
- A 1-percentage-point reduction in the goods and services tax (GST) beginning on July 1, 2006. This benefits all Canadians, including those who do not earn enough to pay personal income tax.
- Increasing the basic personal amount-the amount that an individual can earn without paying federal personal income tax-so that it grows each and every year and remains above previously legislated levels in 2006 and 2007. The basic personal amount will be $8,929 in 2007 and will continue to increase incrementally, reaching at least $10,000 in 2009.
- Permanently reducing the lowest personal income tax rate from 16 per cent to 15.5 per cent effective July 1, 2006.
- Providing all Canadians a break on work-related expenses under the new Canada Employment Credit. This measure took effect July 1, 2006, and recognizes the cost of work-related expenditures such as home computers, uniforms and supplies.
- Creating a Children's Fitness Tax Credit to cover eligible fees up to $500 for enrolment in a physical activity program, effective January 1, 2007.
- Providing students with a new textbook tax credit, effective January 1, 2006, to provide better tax recognition for the cost of textbooks for students.
Canada's Tax Fairness Plan, announced on October 31, 2006, built on the tax cuts announced in the budget by proposing significant positive measures to help Canadian seniors by:
- Increasing the age credit amount by $1,000 retroactive to January 1, 2006.
- Introducing income splitting for pensioners to increase the rewards from retirement saving effective as of the 2007 taxation year.
On November 23, Canada's New Government introduced Advantage Canada: Building a Strong Economy for Canadians. A key element of the Plan is to provide a Tax Back Guarantee to Canadians by dedicating all interest savings from reducing the federal debt to personal income tax reductions.
These savings are substantial. Debt reduction in 2005-06 will result in ongoing interest savings of $660 million per year and, combined with interest savings from planned $3-billion annual debt reduction, will climb to $800 million in 2007-08 and $1.4 billion per year by 2011-12, resulting in significant personal income tax reductions.
"As debt reduction continues and interest savings accumulate, so too will the tax reductions for Canadian families and taxpayers-less debt means less interest means less taxes" said Minister Flaherty.
All personal income tax amounts will be adjusted by 2.2 per cent, effective January 1, 2007, to ensure that inflation does not cause people to pay more income tax. Adjustments to the Canada Child Tax Benefit (including the National Child Benefit supplement and the Child Disability Benefit) and the GST credit will take effect as of July 1, 2007, to coincide with the beginning of the "program year" for these benefits.
Canada's New Government also introduced corporate tax measures in Budget 2006 to help businesses grow and succeed and to encourage employers to hire new apprentices, including:
- A new Apprenticeship Job Creation Tax Credit, effective May 2, 2006, that gives eligible employers a tax credit equal to 10 per cent of the wages paid to qualifying apprentices in the first two years of their contract, to a maximum credit of $2,000 per apprentice per year.
- Increasing the annual amount of active business income eligible for the reduced tax rate of 12 per cent-generally referred to as the small business limit-to $400,000 from $300,000 as of January 1, 2007.
In addition, the goal of establishing the lowest tax rate on new business investment in the Group of Seven (G7) is part of the government's strategy to create a tax advantagefor Canada, one of five key advantages that will help our country become a world economic leader.
To this end, the government has also introduced significant corporate tax relief measures that will improve competitiveness and support small business growth, scheduled to take effect beyond 2007, including:
- Reducing the 12 per cent income tax rate applying to qualifying small business income to 11 per cent by 2009.
- Reducing the general corporate income tax rate to 18.5 per cent from 21 per cent by 2011, starting in 2008.
- Eliminating the corporate surtax for corporations as of January 1, 2008.
Attached is a detailed table of all new tax-cutting measures put forward in 2006.
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Summary of Federal Tax Relief for 2006 and 2007
Canada's New Government brought forward the following tax reduction measures in 2006:
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Sales and excise tax measures include:
Measure
Details
1
Reducing the GST to 6 per cent
July 1, 2006
Corresponding excise levy adjustments also came into force July 1, 2006.
2
Repealing the excise tax on jewellery
May 2, 2006
Applies to jewellery manufactured and sold in, or imported into, Canada.
3
Reducing the excise tax on Canadian vintners and small brewers
July 1, 2006
It is estimated these two measures combined will provide $20 million in tax relief in 2006-07 and $30 million in 2007-08.
Personal income tax measures include:
4
Legislating a permanent reduction in the lowest personal income tax rate
July 1, 2006
The rate is being reduced from 16 per cent to 15.5 per cent, applies to taxable incomes under $36,378 (for 2006) and is generally used to calculate tax credits.
5
Increasing the basic personal amount
January 1, 2006
The basic personal amount is the amount that an individual can earn without paying federal personal income tax. For 2006, it is $8,839 (or $191 more than the 2005 amount). In 2007, this amount will be $8,929.
6
Canada Employment Credit
July 1, 2006
This new tax credit gives Canadians a break on what it costs to work, recognizing expenses for things such as home computers, uniforms and supplies.
7
Income splitting for pensioners
January 1, 2007
The measure will allow pensioners to allocate to their resident spouse (or common-law partner) up to one-half of their pension income. For example, a typical senior couple with a single pension income of $30,000 will save some $1,100 in federal taxes, or 27 per cent.
8
Increasing the age credit amount
January 1, 2006
The measure increases the age credit amount by $1,000 from $4,066 to $5,066 effective January 1, 2006, under the Tax Fairness Plan.
9
Increased pension income limit
January 1, 2006
This measure increases to $2,000 from $1,000 the maximum amount of eligible pension income that can be used in calculating the pension income credit.
10
Children's Fitness Tax Credit
January 1, 2007
This credit will cover eligible fees up to $500 for enrolment in a physical activity program.
11
Tax credit for public transit passes
July 1, 2006
This credit allows individuals to claim a non-refundable tax credit for the cost of monthly public transit passes, or those passes of a longer duration (e.g. annual passes).
12
Measures for tradespeople
May 2, 2006
For tools acquired on or after May 2, 2006, employees can claim a new $500 deduction to offset the cost of tools in excess of $1,000 that they must acquire as a condition of employment, and the self-employed can benefit from an increase, to $500 from $200, in the limit on the cost of tools eligible for the 100-per-cent capital cost deduction.
13
Textbook tax credit
January 1, 2006
The textbook tax credit amount will be $65 for each month of full-time post-secondary study and $20 for each month of part-time post-secondary study. Eligibility rules will be the same as those for the education tax credit. It is estimated that this measure will provide $135 million in tax relief in 2006-07 and $125 million in 2007-08.
14
Full exemption of scholarship and bursary income from taxes
January 1, 2006
This measure will provide $50 million in tax relief in 2006-07 and $45 million in 2007-08 to more than 100,000 post-secondary students.
15
Measures for Canadian fishers
May 2, 2006
These measures include: · extending the 500,000 lifetime capital gains exemption to Canadian fishers; and · allowing a tax deferral in certain circumstances where an individual's fishing property is transferred to the individual's child or grandchild.
16
Increasing the maximum amount of the refundable medical expense supplement
January 1, 2006
This measure increases the maximum amount of the refundable medical expense supplement (RMES) to $1,000 from $767. The maximum amount will continue to be indexed to inflation thereafter. The 2006 budget also set the income threshold at which the RMES starts to be reduced at its 2005 level-$21,663-to ensure that the supplement continues to be targeted to low- and modest-income Canadians.
17
Full exemption of donations of publicly listed securities to public charities
May 2, 2006
This measure exempts donations of publicly listed securities to public charities from capital gains tax.
18
Full exemption of donations of ecologically sensitive land from capital gains tax
May 2, 2006
This measure exempts donations of ecologically sensitive land under the Ecogift program from capital gains tax, and is expected to reduce revenues by $5 million in 2006-07 and 2007-08.
19
Reintroducing the mineral exploration tax credit
May 2, 2006
This measure reintroduces the mineral exploration tax credit for flow-through share investors for the period from May 2, 2006 until March 31, 2007. The one-year "look-back" rule will allow funds raised with the benefit of the credit in 2007 to be spent on eligible exploration activity up until the end of 2008.
Business income tax measures include:
20
Reducing the general corporate income tax rate
January 1, 2008
These measures will reduce the general corporate income tax rate to 18.5 per cent from 21 per cent by 2011, starting in 2008. The general corporate income tax rate will be reduced to 20.5 per cent effective January 1, 2008, to 20 per cent effective January 1, 2009, to 19 per cent effective January 1, 2010, and to 18.5 per cent as of January 1, 2011.
21
Eliminating the corporate surtax
January 1, 2008
The elimination of the corporate surtax for all corporations is equivalent to a 1.12-percentage-point reduction in corporate income tax rates and will simplify the tax system.
22
Eliminated the federal capital tax
January 1, 2006
The federal capital tax was eliminated as of January 1, 2006, two years ahead of schedule.
23
Reducing the small business tax rate
January 1, 2008
This measure reduces the small business tax rate from 12 per cent to 11.5 per cent for 2008 and to 11 per cent for 2009.
24
Increasing the small business limit
January 1, 2007
This measure increases the annual amount of active business income eligible for the reduced tax rate-generally referred to as the small business limit-to $400,000 from $300,000.
25
Apprenticeship Job Creation Tax Credit
May 2, 2006
This measure will give eligible employers a tax credit equal to 10 per cent of the wages paid to qualifying apprentices in the first two years of their contract, to a maximum credit of $2,000 per apprentice per year, providing $190 million in tax relief in 2006-07 and $200 million in 2007-08.
26
Capital Cost Allowance treatment of tools
May 2, 2006
Businesses can benefit, for tools acquired on or after May 2, 2006, from an increase, to $500 from $200, in the limit on the cost of tools eligible for the 100-per-cent capital cost deduction.
27
Extending the carry-forward period for losses and investment tax credits
January 1, 2006
Extending the carry-forward period for losses and investment tax credits to 20 years from 10 years helps businesses benefit from investments in scientific research and experimental development, and will apply to losses incurred and credits earned in taxation years that end after 2005.
28
Modifying the minimum tax on financial institutions
July 1, 2006
This measure replaces a dual tax rate by a single tax rate of 1.25 per cent on a new, higher taxable capital threshold of $1 billion to better reflect the growth of financial institutions.
