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Archived - Reducing the Tax Burden for Canadians

Highlights

• Tax reductions are an essential part of Canada's Economic Action Plan. They support Canadians and Canadian businesses in the short term by providing stimulus, putting money in the hands of Canadians to spend as they see fit, thus encouraging job creation and helping create a long-term advantage for sustained economic growth.
• Canada's Economic Action Plan includes measures that will reduce the tax burden for Canadian families and businesses by more than $20 billion over 2008–09 and the following five fiscal years. This builds on early action taken by the Government in the October 2007 Economic Statement to offset the economic downturn with substantial and permanent tax reductions.
• Canadians have been seeing the benefits of income tax reductions announced in the Action Plan on their pay stubs since April 2009.
• Increased child benefits started to flow in July, providing up to $436 per year for a family with two children, making raising children more affordable.
• Tax relief for low- and middle-income seniors has been put in place, providing up to an additional $150 in annual tax savings, to help our seniors thrive in retirement.
• Consultations with provinces and territories on the design of an enhanced Working Income Tax Benefit (WITB) have been completed. The enhanced WITB will further reduce the welfare wall by helping ensure that more low-income Canadians are financially better off as a result of getting a job.
• Tax assistance of up to $1,350 per family in support of home renovations and improvements is helping stimulate the economy and encouraging investment in Canadian homes. The Canada Revenue Agency has received about 2.2 million enquiries about the Home Renovation Tax Credit through its website and by telephone.
• To help small businesses retain more of their earnings for reinvestment, expansion and job creation, the Economic Action Plan increased the amount of small business income eligible for the reduced federal income tax rate of 11 per cent from $400,000 to $500,000. This enhanced support took effect on January 1, 2009 and can save small businesses up to $8,000 each in 2009 taxes.
• Canada's manufacturers and processors are benefiting from a temporary 50-per-cent straight-line accelerated capital cost allowance (CCA) rate on machinery and equipment purchases, first introduced in Budget 2007 and extended in Budget 2008 and the Economic Action Plan, and the permanent elimination of tariffs on a wide range of machinery and equipment effective January 28, 2009. These measures are helping businesses in the manufacturing and processing industries make the necessary equipment purchases and position themselves for long-term success.
• To help businesses adopt new technology at a faster pace, a two-year 100-per-cent CCA rate for investments in computers has been in effect since January 28, 2009.
• Mineral exploration activity across Canada is being supported by the one-year extension of the temporary 15-per-cent Mineral Exploration Tax Credit, which took effect April 1, 2009.
• In total, actions taken by this Government since 2006 will reduce taxes by $220 billion over 2008–09 and the following five fiscal years, allowing Canadian individuals, families and businesses to keep more of their money.

Introduction

Canada's Economic Action Plan includes $6.2 billion over two years to stimulate the economy and support job creation by providing personal tax relief to Canadians, allowing Canadians to decide how best to spend their money.

Reducing the Tax Burden for Canadians and Canadian Business

The tax reductions in Canada's Economic Action Plan are an essential part of the Government's effort to stimulate the economy and to create or maintain jobs. Lower taxes help ease the financial pressure on individuals, families and businesses and help build a solid foundation for future economic growth. Lower taxes also stimulate individual spending, which helps to protect and create jobs. The tax reductions in the Plan reinforce the Government's ambitious agenda of tax relief aimed at creating a tax system that fuels job creation and investment in Canada, improving the standard of living of Canadians.

Canada took early significant action in the October 2007 Economic Statement, anticipating the prospect of a weaker global economy. This Government put in place broad-based permanent tax reductions that are sustainable for the future. As a result of these actions, Canada is better positioned than most countries to withstand the effects of today's global economic challenges.

Tax reductions support Canadians, Canadian businesses and jobs in the short term by providing immediate economic stimulus, which helps individuals and businesses to weather the global recession, and also create a long-term advantage for sustained economic and employment growth.

Actions taken by the Government since 2006, including those proposed in the Economic Action Plan, will reduce taxes on individuals, families and businesses by an estimated $220 billion over 2008–09 and the following five fiscal years. Of this amount, the tax relief proposed in the Economic Action Plan totals more than $20 billion.

Tax Relief for Individuals and Families

The Economic Action Plan introduced significant new personal income tax reductions that are providing immediate relief, particularly for low- and middle-income Canadians, as well as measures to help Canadians purchase and improve their homes. For example:

• The temporary Home Renovation Tax Credit will provide an estimated 4.6 million Canadian families with up to $1,350 in tax relief on eligible renovation projects, thereby providing needed stimulus to the economy. In addition, the First-Time Home Buyers' Tax Credit will provide relief of up to $750 to help with the purchase of a first home.
• The amount of income that Canadians can earn before having to pay federal income tax was further increased, and the top of the two lowest income tax brackets was increased so that Canadians can earn more income before being subject to higher tax rates.
• Tax relief provided by the Working Income Tax Benefit (WITB), first introduced in Budget 2007, will be effectively doubled to further strengthen work incentives for low-income Canadians already in the workforce, and to encourage low-income Canadians to enter the workforce.
• The Age Credit amount was increased by $1,000 to provide tax relief to low- and middle-income seniors. This means additional annual tax savings of up to $150.
• In addition, the Economic Action Plan has raised the level at which the National Child Benefit Supplement for low-income families and the Canada Child Tax Benefit are phased out, providing a benefit of up to $436 for a family with two children. Additional monthly benefits under these programs began to be paid to families with children in July 2009.

Tax relief for individuals and families announced in Canada's Economic Action Plan is now largely committed, and Canadians are realizing its benefits through higher take-home pay.

Consultations with provinces and territories on the design of the enhanced WITB have been completed and a Notice of Ways and Means Motion to implement the enhanced WITB was tabled in Parliament on September 14, 2009 and adopted by the House on September 18, 2009. The Government expects that low-income working Canadians will receive benefits from the enhanced WITB when they file their 2009 tax returns.

Tax Relief for Canadian Businesses

A competitive business tax system is essential for creating an environment that encourages new investment, growth and job creation in Canada. The Economic Action Plan builds on corporate income tax reductions to help position Canadian businesses to weather the effects of the current global economic challenges, maintain and create jobs and emerge from the economic downturn even stronger:

• To help businesses adopt newer technology at a faster pace, a temporary two-year 100-per-cent capital cost allowance (CCA) rate for computers acquired after January 27, 2009 and before February 1, 2011 was introduced.
• To help businesses in manufacturing and processing industries to restructure and retool to position themselves for long-term success, the 50-per-cent straight-line accelerated CCA rate for investments in manufacturing or processing machinery and equipment was extended to include investments undertaken in 2010 and 2011. Manufacturers and processors are already benefiting from this measure, which was first introduced in Budget 2007 and extended in Budget 2008.
• To help small businesses retain more of their earnings for reinvestment, expansion and job creation, the amount of small business income eligible for the reduced federal income tax rate was further increased to $500,000 effective January 1, 2009, following a previous increase to $400,000 from $300,000 as of January 1, 2007.
• To support mineral exploration activity across Canada and help our mining industry grow, the temporary Mineral Exploration Tax Credit was extended for an additional year.
• Consultations on the possible extension of accelerated CCA to assets used in carbon capture and storage were held in the spring and submissions are now being analyzed.
• Consultations on the desirability and feasibility of an Arrivals Duty-Free Program were launched in March 2009. These consultations have concluded and submissions are being analyzed.

The Government has introduced significant tax relief for Canadian businesses since 2006, including measures in the Economic Action Plan, that total more than $60 billion over 2008–09 and the following five fiscal years.

Key actions include:

• Substantial, broad-based tax reductions that are lowering the federal general corporate income tax rate from 22.12 per cent (including the corporate surtax) in 2007 to 15 per cent by 2012. These tax reductions include the elimination of the corporate surtax in 2008 for all corporations and a reduction in the federal general corporate income tax rate to 19 per cent as of January 1, 2009.
• A reduction of the federal income tax rate applying to qualifying small business income to 11 per cent in 2008.
• Alignment of CCA rates for a number of assets to better reflect their useful life—this both reduces the tax burden on investment and ensures neutral tax treatment of CCA, encouraging investment to flow to its most productive uses.
• Elimination in 2006 of the federal capital tax, a particularly damaging tax for business investment, and the introduction in 2007 of a temporary financial incentive to encourage provinces to eliminate their general capital taxes and to eliminate or replace their capital taxes on financial institutions with a minimum tax. All provincial general capital taxes will be eliminated by 2012.

Early actions taken by this Government as well as the measures included in Canada's Economic Action Plan are positioning Canadian businesses to succeed in these tough economic times. At the same time, the broad-based corporate income tax reductions and other tax relief measures are building a solid foundation for future economic growth, job creation and higher living standards for Canadians.

As a result of federal and provincial business tax changes and bold tax reductions, Canada will have the lowest overall tax rate on new business investment¹ in the Group of Seven (G7) by 2010 and the lowest statutory corporate income tax rate in the G7 by 2012. By 2012, Canada will also have a tax rate on new business investment that is lower than the Organisation for Economic Co-operation and Development (OECD) average (Chart 2.5). The competitiveness of our business tax system encourages new investment in Canada, including direct investment from abroad.

Improving the competitiveness of the Canadian tax system requires collaboration among all governments to help Canadian businesses compete globally as the economy recovers. Provinces and territories have taken action to enhance Canada's business tax advantage, building on actions taken at the federal level.

Several provinces are reducing their corporate income tax rates. Over the next few years, Ontario, British Columbia and New Brunswick will be reducing their corporate income tax rates to 10 per cent or below. Alberta is currently at 10 per cent. Together with the scheduled reductions in the federal general corporate income tax rate to 15 per cent by 2012, these provincial actions will help Canada move closer to the Government's goal of a 25-per-cent combined federal-provincial statutory corporate income tax rate.

Further reductions in provincial corporate income tax rates and other actions would do even more to improve the competitiveness of Canadian businesses across the country and further encourage investment and job creation.

¹ The marginal effective tax rate (METR) on new business investment takes into account federal and provincial statutory corporate income tax rates, deductions and credits available in the corporate tax system and other taxes paid by corporations, including provincial capital taxes and retail sales taxes on business inputs. The methodology for calculating METRs is described in the 2005 edition of (Department of Finance Canada).

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