Financial Planning, Investment Counselling, Tax and Accounting

Contents

GST
Personal income taxes
Benefits for children
The Canada employment credit
Pension income credit
Personal taxation of dividends
Capital gains on donations
Benefits for students
Transit pass credit
Small business tax rates
Corporate tax rates

Finance Minister Jim Flaherty recently unveiled the Conservative's first federal budget in 13 years.

The Conservative minority government's first budget is perhaps best described as just that —"conservative." It contained no radical changes to legislation. It is instead made up of several smaller cuts, aimed mostly at those in the middle and upper income tax brackets. The following overview highlighting a few of the noteworthy measures in this budget:

GST

Finance Minister Jim Flaherty stuck to the party line, reducing the GST to 6% as promised during the election campaign. In his speech to the House of Commons, Flaherty said that Canadians could expect to see the GST knocked down by another 1% "in a future budget". The potential savings to the average Canadian could be as little as a few hundred dollars a year, to over a $1,000 during those big ticket purchase years. On the other hand it will complicate matters for the retail and business owners, and of course their accountants.

Personal income taxes

Income in the lowest tax bracket will be taxed at a negligibly higher rate. For 2006, the lowest personal income tax rate will increase to 15.5% from 15% starting July 1st.

Benefits for children

The government is proceeding with its Universal Child Care Benefit, providing all families with $100 per month ($1,200 per year) for each child under the age of six. This new income will be taxable to the lower income spouse. The budget also offers parents a $500 non-refundable tax credit to offset fees paid to enrol a child under the age of sixteen years in an "eligible program of physical activity".

The Canada employment credit

Taxpayers will be now able to claim a tax credit on $500 of employment earnings to offset work-related expenses (such as a computer at home, for example). Since this measure will take effect on July 1st, the maximum amount for 2006 will be $250. For the 2007 tax year the credit will increase to $1,000, after which it will be indexed to inflation.

Pension income credit

The budget doubles the pension income credit from $1,000 to $2,000, saving the average pensioner $155 per year.

Personal taxation of dividends

The tax rate reduction on dividend income was actually announced by the previous government, but confirmed in this budget. The gross up has been incresed from 125% to 145%, and more importantly, the dividend tax credit has been increased from 13.3% to 19%.

Capital gains on donations

Those who wish to donate publicly-traded securities, mutual funds or ecologically-sensitive land to charitable organizations will no longer have to pay capital gains tax. This measure will apply to donations made on or after May 2, 2006. This will make for interesting tax planning for the philanthropists.

Benefits for students

Post-secondary students will be eligible for a 15.25% non-refundable tax credit for textbook expenses, calculated on $65 a month for full time students and $20 a month for part time students. The budget also proposes to fully exempt scholarship, fellowship or bursary income from tax (currently only the first $3000 is exempt).

Transit pass credit

Those who purchase monthly (or longer duration, e.g., annual) transit passes for local bus, streetcar, subway, commuter train, commuter bus and local ferry will be able to claim a non-refundable tax credit based on the lowest personal income tax rate for the taxation year (15.25% for 2006 and 15.5% for the 2007 and subsequent taxation years).

Small business tax rates

The amount of small business income eligible for the 12% tax rate will increase from $300,000 to $400,000, effective January 1, 2007. The small business tax rate will be reduced to 11.5% for 2008 and then to 11% for 2009.

Corporate tax rates

The general corporate income tax rate is going to be reduced — first to 20.5% on January 1, 2008, then down to 20% effective January 1, 2009, and finally to 19% effective January 1, 2010.