Canada, tax, taxbreaks, June 2007 newsletter, budgets, tax measures, federal, personal, corporate

Federal budget
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
Nova Scotia
Prince Edward Island
Newfoundland and Labrador
Yukon
Northwest Territories
Nunavut

Download a PDF version of this newsletter and a revised edition of Quick Tax Facts below. If you previously downloaded copies of these publications, you should replace them with the revised editions.

The federal government and all provinces and territories have now tabled their 2007-08 budgets. In this issue of TaxBreaks, we discuss measures applicable to individuals and businesses. The provinces’ budgets are presented geographically from west to east.

We invite our readers who wish to obtain more information on the tax measures announced by the federal government, British Columbia, Alberta, Saskatchewan, Ontario and Quebec to consult our “Highlights” of these budgets, available on the Budgets 2007 page of our web site.

Federal budget (March 19, 2007)
In his second federal budget, Finance Minister Jim Flaherty projected a $9.2-billion surplus, to be used to reduce the national debt. This budget was heavy both on spending, including hefty cash infusions into the provinces' coffers together with substantial amounts for health and social issues, and on tax cuts for both business and individuals. Also, rules governing businesses' recourse to tax havens were tightened. The following are a number of tax measures introduced or proposed:

One of the important measures that came as a complete surprise to Canadian business and tax communities was the government’s proposal to eliminate the deductibility of interest on debt incurred by corporations to finance foreign affiliates. Fortunately, the Minister of Finance has since indicated that the proposal will be restricted to situations where a Canadian taxpayer obtains a double dip (see our TaxBreaks Special Edition of May 14, 2007, for more detail). In addition, the withholding tax on interest paid between Canada and the United States will be eliminated.
The rate of capital cost allowance (CCA) for certain assets acquired on or after March 19, 2007, will be changed. For example, the rate for a non-residential building will increase from 4% to 6%, and the rate for computer equipment will increase from 45% to 55%.
The lifetime capital gains exemption realized on the disposition of qualified farm or fishing property or qualified small business corporation shares will be increased from $500,000 to $750,000. This increase will apply to dispositions of property that occur on or after March 19, 2007.
The taxation of capital gains arising from donations of publicly listed securities to private foundations made on or after March 19, 2007, will be eliminated.
The conversion age for registered pension plans and registered retirement saving plans to a registered pension fund rises from 69 to 71 years of age as of 2007.
For children: as of 2007, a new $2,000 child tax credit will provide tax relief of up to $310 for each child under the age of 18. In addition, scholarship and bursaries to attend elementary and secondary schools will be fully exempted.
The Working Income Tax Benefit, effective for 2007, will provide up to $500 for single individuals ($1,000 for families) and will be phased out at a rate of 15% of net income in excess of $9,500 ($14,500 for families).

British Columbia (February 20, 2007)
While the general corporate rate (12%) and the small business corporate rate (4.5%) remain unchanged, the budget implemented a package of training tax credits for employers and employees that were previously announced. The scientific research and experimental development tax credit, scheduled to expire in 2009, is extended to September 1, 2014.

Personal tax rates at all but the top bracket will decrease. The reductions, phased in over 2007 and 2008, will lower personal provincial income taxes by at least 10% for individuals with taxable income below $100,000. The budget also implemented the previously announced enhanced dividend tax credit at a rate of 12%, effective for 2006 and subsequent tax years.

Alberta (April 19, 2007)
The budget confirmed that the small business threshold increases to $430,000 on April 1, 2007, to $460,000 on April 1, 2008, and to $500,000 by April 1, 2009. In addition, the 2007 federal budget measures to change the CCA rates for a range of assets will be paralleled by the province.

The budget also confirmed that the dividend tax credit rate for eligible dividends will increase to 8% in 2007, 9% in 2008, and 10% in 2009 and beyond. For dividends from small business income, the dividend tax credit is decreasing to 5.5% in 2007, 4.5% in 2008, and 3.5% in 2009 and beyond. Effective for 2007, the charitable donations tax credit will be increased to 21% from 12.75% for donations above $200, and personal tax credits will be indexed by 3.6%. As well, the province will parallel the personal tax measures announced in the 2007 federal budget.

Saskatchewan (March 22, 2007)
As announced in the 2006 budget, the general corporate income tax rate falls from 14% to 13% as of July 1, 2007, and is scheduled to be further reduced to 12% as of July 1, 2008. The general corporate capital tax rate also decreases from 0.3% to 0.15% as of July 1, 2007, with planned elimination of the capital tax for corporations other than provincial Crown corporations and financial institutions in 2008.
Beginning in 2007, the budget introduced a new graduate tax exemption, under which post-secondary graduates will be eligible for a $10,000 personal income tax exemption for each of the five years following graduation. Also, the province will match the federal government’s recently announced initiative to allow income splitting for seniors.

Manitoba (April 4, 2007)
The budget confirmed the previously announced reduction of the general corporate income rate from 14% to 13% on July 1, 2008, and announced a further decrease to 12% effective July 1, 2009. The small business corporate income rate will be reduced from 3% to 2% as of January 1, 2008, and to 1% on January 1, 2009. In addition, the previously announced phase-out of the general capital tax will be accelerated: effective for fiscal years commencing after January 1, 2008, it will decrease from 0.5% to 0.4% for corporations with total paid-up capital over $21 million, and from 0.3% to 0.2% for corporations with total paid-up capital between $10 and $20 million; as of December 31, 2010, subject to budget balance requirements, the province will eliminate it altogether for all but Crown corporations. Also, the budget contained several corporate income tax measures designed to parallel changes announced in the 2007 federal budget.

Effective January 1, 2008, the income tax rate applicable to the middle income tax bracket will be reduced from 13% to 12.75%, and the rate applicable to the lowest bracket is scheduled to decrease from 10.9% to 10.8% in 2009, 10.7% in 2010, and 10.5% in 2011. The threshold for the top bracket will increase from $65,000 to $66,000 on January 1, 2008, and is scheduled to rise, gradually, to $70,000 in 2011. Both the basic personal amount and the spousal or common-law partner amount will be raised to $8,034. In addition, the province will parallel some of the personal income tax measures announced in the 2007 federal budget, such as the pension income-splitting measure and the increase of the lifetime capital gains exemption.

Ontario (March 22, 2007)
The budget confirmed that the elimination of the capital tax, originally scheduled for 2012, will be accelerated to 2010. In addition, the apprenticeship training tax credit will be extended to include eligible salaries paid before January 1, 2015, for qualifying apprentices who commence employment before January 1, 2012. As part of the harmonization of the Ontario corporate income tax base with the federal tax base, the budget proposed a new 4.5% non-refundable tax credit to replace the current Ontario deduction for scientific research and experimental development, effective for taxation years ending after 2008. Also, the carryforward period for corporate minimum tax credits and losses will be extended from 10 to 20 years.

This budget introduced the Ontario Child Benefit (OCB) for low-income families. Starting in July 2007, families with income of $20,000 or less will receive the maximum amount of $250 per child under age 18 ($600 in July 2008). The 2007 payment will be reduced by 3.4 cents for every dollar of income over the threshold of $20,000. The provincial enhanced tax credit for eligible dividends is being phased in over a five-year period, increasing from 6.5% in 2006 to 7.7% in 2010, in order to harmonize with the federal measures. Also, couples will be allowed to split certain types of pension income for Ontario income tax purposes, subject to the relevant proposals receiving Royal Assent.

Quebec (May 24, 2007)
A first budget was tabled on March 17, 2007, by Finance Minister Michel Audet. Following a provincial election, the new finance minister, Monique Jérôme-Forget, tabled her budget on May 24, 2007. Almost all of the announcements made on March 17 were confirmed and new tax cuts for individuals were announced. Also, a Ministerial Statement was tabled on June 1, 2007, to allow some new expenses and an increase in the tax rate of financial institutions and oil refining companies.

The tax on capital will be eliminated as of January 1, 2011, for all corporations including financial institutions. Until then, the rate of the tax on capital will be phased out. As of January 1, 2008, it will be reduced to 0.36% for corporations other than financial institutions, and to 0.72% for the latter.

The corporate tax rate applicable to passive income will be reduced to the tax rate applicable to active income that is ineligible for the small business deduction. The rate will be reduced from 16.25% to 9.9% as of February 21, 2007, to 11.4% as of January 1, 2008, and to 11.9% as of January 1, 2009.

The tax holiday granted to small and medium-sized manufacturing enterprises in remote resource regions will be reduced from 75% to 50% as of January 1, 2008, and to 25% as of January 1, 2009.

The income tax rate for financial institutions and oil refining companies is raised as of June 1, 2007, from 9.9% to 11.9%.
Personal income taxes will be reduced in the form of an increase in the ceilings and thresholds establishing the taxable income brackets. In 2008, the first bracket (16%) will cover the first $37,500 of taxable income, the second (20%) will cover taxable income exceeding $37,500 but not exceeding $75,000, and the third (24%) will cover taxable income exceeding $75,000. Thresholds and ceilings will be indexed each year. The amount of recognized essential needs and the complementary amount forming the basic amount will be replaced by a single amount of $10,215.

New Brunswick (March 13, 2007)
The general corporate income tax rate, previously scheduled to decrease to 12% on January 1, 2007, will remain at 13%; the small business corporate income tax rate rises to 5% effective January 1, 2007, while the income threshold eligible for the small business corporate income tax rate decreases from $475,000 to $400,000.

Effective January 1, 2007, the personal income tax rates will rise to 10.12% on the first income bracket, 15.48% on the second, 16.80% on the third, and 17.95% on the fourth. Also, the tax credit on dividends received from small business on or after January 1, 2007, increased from 3.7% to 5.3%. The budget confirmed a previous announcement supporting the federal initiative to allow pension income splitting.

Nova Scotia (March 23, 2007)
The elimination of the large corporation tax by 2012 was confirmed. As announced in the 2006 budget, it will decrease to 0.225% effective July 1, 2007, and to 0.2% effective July 1, 2008. The new digital tax credit will provide a refundable tax credit of 35% of eligible expenditures on digital media productions, similar to the one provided for film production.

In 2007, several non-refundable credits will grow by 3.46%, including the spousal amount, dependant amount, pension amount, disability amount and caregiver amount. The graduate tax credit will increase from $1,000 to $2,000 for students who graduate from eligible post-secondary programs after January 1, 2008. The budget introduced a $250 refundable tax credit for volunteer firefighters for 2007 ($375 in 2008 and $500 in 2009).

Prince Edward Island (April 10, 2007)
The budget confirmed that the small business income tax rate was lowered from 5.4% to 4.3% on April 1, 2007, consistent with the five-year plan introduced in the 2006 budget. The rate will continue to be lowered annually until reaching 1% in 2010. A new increase in the small business threshold from $300,000 to $400,000 was announced, effective for the 2007 taxation year.

The thresholds for the basic personal amount, spousal amount, age amount, and tax brackets will increase over existing levels by 2% in 2007 and by 4% in 2008. The threshold for the high income surtax amount will also be increased. Effective in 2007, the value of the personal income tax education amounts will be doubled, increasing to $400 per month for full-time students and to $120 per month for part-time students. The province will parallel the federal measures allowing pension income splitting and increasing the lifetime capital gains exemption.

Newfoundland and Labrador (April 26, 2007)
The corporate income tax small business threshold rises from $300,000 to $400,000, effective for 2007. To harmonize the province’s capital tax for financial corporation with the federal tax base, the province announced that it will immediately commence discussions with Ottawa.
Effective July 1, 2007, the personal income tax rate will be reduced from 10.57% to 8.7% on the first tax bracket, 16.16% to 13.8% on the second, and 18.02% to 16.5% on the third, while the 9% surtax imposed upon middle- and high-income earners will be eliminated. Tax brackets, most non-refundable tax credits and certain benefits will be indexed to the provincial consumer price index as of July 1, 2007. The income threshold below which single taxpayers are not required to pay provincial personal income tax will be raised from $12,000 to $13,000 effective January 1, 2007. For families, including single-parent families, the threshold will be raised from $19,000 to $21,000.

Yukon (April 19, 2007)
No tax measures were announced.

Northwest Territories (February 8, 2007)
The government indicated that it is pursuing an increase in the federal Northern Residents Deduction which is intended to help residents with the high cost of living in the North.

Nunavut (March 7, 2007)
The budget announced that legislation will be tabled to provide tax relief to single parents across the province.

Michel Ostiguy, Montreal
Marielle Domercq, Montreal

About TaxBreaks
A bi-monthly newsletter on corporate and personal tax.

Subscribe
View archives