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The federal budget, released March 19, 2007, and titled Aspire to a Stronger, Safer, Better Canada, is a departure from the past few budgets in that most of the dollar items correspond directly to correct what the federal government calls "the fiscal imbalance" between the provinces and the federal government.
The budget centres around the transfer of approximately $15 billion dollars to the provinces based on a number of qualifying calculations that the provinces have the choice of using.
Income Tax rates for personal and corporate entities did not change in this budget.
The environment also is highlighted with the introduction of rebates for fuel-efficient cars and a penalty for vehicles that do not meet mileage tests. Funds have also been earmarked for water cleanup as well as credits for alternative energy sources.
The following are the tax highlights for both personal and corporate income taxes:
Personal Income Taxes
Registered Disability Savings Plan & Canada Disability Savings Grant
The government has introduced a new Registered Disability Savings Plan (RDSP) with a Canada Disability Savings Grant (CDSG) program.
The program is similar to the Registered Education Savings Plan (RESP) where for eligible persons (persons eligible for the Disability Tax Credit), an amount may be put into these programs that earns income on a tax-deferred basis where the income is only taxed when the eligible person takes money out of the program in later years.
The lifetime maximum contributions are $200,000.
The CDSG program will match any contributions at rates of 100, 200 or 300 percent based on eligibility.
Registered Educations Savings Plans (RESP)
The $4,000 annual RESP contribution limit will be eliminated and the lifetime RESP contribution limit will be increased to $50,000 from $42,000.
The maximum annual RESP contribution qualifying for the 20-per-cent Canada Education Savings Grant (CESG) will be increased to $2,500 from $2,000, thus increasing the maximum CESG to $500 from $400.
Personal Tax Items
- For 2007 and subsequent years, the spousal credit will match the basic personal exemption available to all individuals - an increase of $1,348 in 2007.
- The age credit available to individuals when they attain the age of 65 is increased by $1,000 starting in 2007, as well as enhancing pension splitting income possibilities.
- A new $2,000 child tax credit will be available for every child under the age of 18. This will provide an annual tax savings of $310 per child.
- The age limit where Registered Retirement Savings Plans (RRSPs) and other pensions have to be converted to Registered Retirement Income Funds (RRIFs) increases from 69 to 71.
- The traveler's exemption on duty-free goods for people out of the country for at least 48 hours increases from $200 to $400.
- The capital gains exemption for qualified small business shares and other assets increases to $750,000 from $500,000.
- Donations of publicly listed securities to private foundations will no longer attract taxable capital gains to the donor.
Other Personal Items
- The threshold for tax installments has been increased to $3,000 from $2,000.
- Certain new vehicles that meet efficiency guidelines will be eligible for a $2,000 rebate.
- Certain new vehicles that do not meet efficiency guidelines will be hit with a "gas guzzler tax". This new tax will be based on a rising scale, depending on a litres/km rating, from $1,000 to a maximum of $4,000 per vehicle.
- The budget proposes to allow employers to simultaneously pay a partial pension to an employee and provide further pension benefit accruals to the employee. This will allow retirees to keep a foot in the labour market.
Corporate Income Taxes
- Manufacturing and Processing (M&P) has been given a temporary accelerated write-off for new equipment used in M&P activities. Equipment and Machinery purchased between March 19, 2007, and before 2009 will be allowed a 50 percent straight-line write-off per year.
- Buildings used in manufacturing activities will have their Canadian Chartered Accountant (CCA) rates rise to 10 percent from 4 percent.
- All other non-residential buildings will have their CCA rates increase to 6 percent from 4 percent.
- Computers will have an increase in CCA rates to 55 percent from 45 percent.
- The federal government will offer financial incentives to all provincial governments to speed up the elimination of all capital taxes charged to corporations.
- For all yearends ending after 2008, the federal government, on behalf of the Province of Ontario, will undertake the administration and collection of all income taxes. There will be no need for an Ontario return and installments.
- Under the Canada-U.S Tax Treaty, withholding taxes on interest payments between parties in the United States and Canada will be phased out over three years once the convention is updated.
Ontario Budget Enhancements
The government of Ontario has proposed to relieve Ontario businesses of approximately $1.1 billion in taxes over the next 3 years.
Some of the highlights include:
- Eliminating Capital Tax for Ontario companies primarily engaged in manufacturing and resource activities, effective January 1, 2008.
- Cutting Capital Tax rates for all businesses by 21 per cent, retroactive to January 1, 2007, with full elimination in 2010.
- Increasing the small business deduction threshold to $500,000 from $400,000 retroactive to January 1, 2007.
- Increasing the film tax credits, effective January 1, 2008.
- Extending the phase-out of the Labour-Sponsored Investment Fund tax credit and increasing the maximum eligible investment.
Federal Budget 2009
The January 27, 2009 Federal Budget offered new Personal and Business Tax breaks. The largest effect of these breaks will be to middle and low income Canadians.
A brief synopsis is listed below:
Personal Tax
- The basic personal exemption rises from $9,600 to $10,230, starting in 2009.
- The income brackets for the changes in federal tax rate also rise in the 2 lowest tax brackets.
- The income levels on which income-testing of the base benefit under the Canada Child Tax Benefit (CCTB) and the National Child Benefit (NCBs) are based, will be increased in line with the increase in the upper limit of the lowest personal income tax bracket.
- Budget 2009 proposes to enhance the tax relief provided by the Working Income Tax Benefit (WITB) by an additional $580 million for the 2009 and subsequent years.
- The Age Credit will be increased by $1,000 to $6,408 in 2009 for individuals attaining the age of 65. The threshold for the phase-out remains the same.
- The Home Renovation Tax Credit will allow homeowners to take a 15% tax credit for eligible expenditures totaling between $1,000 to a maximum of $10,000. The maximum credit will be $1,350 ($9,000 X 15%). This credit will only apply to the 2009 year.
- The Home Buyer's Plan will be increased from $20,000 to $25,000. Also their will be a First-Time Home Buyers' Tax Credit for upto $5,000 for first time home buyers. There is also a special provision for individuals eligible for the Disability Tax Credit.
Other Measures
Some of the highlights proposed by the budget are:
- The Small Business Limit will be increased to $500,000 of net income for qualified small business income.
- M&P equipment and certain other assets (Computer Equipment) will be eligible for larger depreciation amounts for tax purposes.
The above is only a brief summary of the actual budget. Please contact your Tax Professional for a more indepth explanation.