Department of Finance Canada
www.fin.gc.ca
Common menu bar links
January 2001 Tax Savings
- New Year's Tax Cuts.
- Tax Savings for Individuals and Families.
- Permanent Inflation Protection.
- Timely Relief for Heating Expenses.
- Education Tax Credit.
- Helping Canadians With Special Needs.
- Canada Child Tax Benefit.
- Entrepreneurship and Competitiveness.
New Year's Tax Cuts
Canadians have one more reason to celebrate New Year's Day.
On January 1, 2001, new federal tax cuts come into effect as part of the Government's $100-billion Five-Year Tax Reduction Plan - the largest tax cut in Canada's history.
"The bottom line is that all Canadians, especially families with children, will have more money in their pockets," Finance Minister Paul Martin said.
The tax measures range from cutting personal income tax rates and increasing the Canada Child Tax Benefit, to providing timely relief to help people cope with the high cost of heating their homes.
This tax reduction plan was announced in last February's budget and expanded in the October Economic Statement and Budget Update.
Under the plan, Canadians will get an average personal income tax cut of 21 per cent. Families with children will get an even larger cut - about 27 per cent on average.
Tax Calculator (requires ShockWave Flash plug-in).
Message from the Minister of Finance (Video clip - required RealPlayer plug-in).
Tax Savings for Individuals and Families
In 2001, a one-earner family of four with an income of $40,000 will save about $1,100 in federal personal income tax. A two-earner family of four earning $60,000 will save about $1,000.
Part of the reason for these savings is lower tax rates at all income levels starting January 1, 2001:
- The 17-per-cent low tax rate will be reduced to 16 per cent on income up to about $30,000.
- The 24-per-cent middle tax rate will drop to 22 per cent on income up to about $61,000.
- The 29-per-cent top tax rate will fall to 26 per cent on income between about $61,000 and $100,000.
- The deficit-reduction surtax will be eliminated.
Tax Calculator (requires ShockWave Flash plug-in).
Permanent Inflation Protection
It is important to ensure that cost-of-living increases do not push individuals into higher tax brackets.
This is why the 2000 budget announced that, every year, the personal income tax system will be adjusted to protect Canadians from inflation.
Inflation protection means more money in your pocket.
- For example, suppose Melanie has an income of $30,000 in 2000. She would be subject only to the low tax rate that year.
- If a 2.5-per-cent cost-of-living raise were to bring Melanie's income up to $30,750 in 2001, this cost-of-living raise would push her into the middle tax bracket of 22 per cent if there were no inflation protection in the tax system.
- Indexation protects Melanie from inflation. It means that her income remains subject only to the low tax rate, which is 16 per cent for 2001.
Timely Relief for Heating Expenses
The Government is concerned about the impact of rising heating costs on low- and modest-income Canadians. That is why it is providing Relief for Heating Expenses (RHE). This one-time relief is for individuals and families who, in January 2001, are eligible for the goods and services tax credit.
- A married or common-law couple's RHE amount will be $250.
- Single-parent families will also receive $250.
- Single individuals without children will receive $125.
This will directly benefit more than 11 million Canadians. Relief cheques are expected to be mailed out starting January 31, 2001.
Education Tax Credit
The education tax credit helps cover the non-tuition costs of post-secondary education, such as textbooks and other supplies.
For 2001, the amount used for calculating the education tax credit will double:
- For full-time students the education tax credit amount will rise to $400 per month from $200.
- For part-time students, the amount will increase to $120 per month from $60.
Helping Canadians With Special Needs
The Government understands that it is important to help Canadians who are disabled and the people who care for them. In support of this objective, the following tax measures will take effect on January 1, 2001:
- The amount that is used for calculating the disability tax credit will rise to $6,000 from $4,293. This credit helps people with severe and prolonged disabilities.
- The amount on which the caregiver tax credit and the infirm dependant tax credit are based will rise to $3,500 from $2,386. These credits help caregivers of elderly parents, grandparents and infirm dependent relatives.
- The amount used for calculating the supplement to the disability tax credit for children with severe disabilities will also be increased to $3,500.
Canada Child Tax Benefit
For families with children, a key part of the Government's Five-Year Tax Reduction Plan is an enriched Canada Child Tax Benefit (CCTB).
Families are already benefiting. In July 2000, maximum annual payments under the CCTB increased by about $250 per child.
But there is more to come. In July 2001, the maximum National Child Benefit (NCB) supplement for low-income families under the CCTB will increase by $300 per child. This will bring the maximum CCTB in July 2001 to $2,372 for the first child, with corresponding increases for additional children.
By 2004, the maximum annual benefit for the first child will rise to more than $2,500.
In addition to these increases, families will benefit from the measure to increase the net family income threshold at which the NCB supplement is fully phased out and the CCTB base benefit begins to be phased out.
- As a first step, this threshold will rise to $32,000 as of July 2001.
- Beyond that, the threshold will be indexed and increased with the second bracket threshold to $35,000 by 2004.
Entrepreneurship and Competitiveness
To secure a more prosperous future for Canadians, the Government is taking steps to promote entrepreneurship and make Canada more internationally competitive.
For example, the 28-per-cent general corporate tax rate will be reduced to 21 per cent by 2004 – starting with a one-point reduction on January 1, 2001. Further two-point cuts will take effect in each of the following three years.
These corporate tax reductions will complement other announced measures:
- The capital gains inclusion rate, previously reduced to two-thirds from three-quarters as of February 28, 2000, was further reduced to one-half as of October 18, 2000.
- To help businesses expand and prosper through greater access to capital, the Government announced, as of February 28, 2000, a tax-free rollover of capital gains on qualified small-business investments where they are reinvested in another small business. This measure was expanded as of October 18, 2000.
- The Government has also announced a measure to defer the income inclusion of benefits from employee stock options as of February 28, 2000.
These tax changes will give investors, businesses and all Canadians a competitive edge in the new economy.
