Tories Opt for Targeted Tax Breaks
Arthur Drache, March 19, 2007
Once again, as he did last year, Finance Minister Jim Flaherty has chosen to give targeted breaks to selected groups of Canadians over broad-based tax cutting But at least this year he didn’t raise tax rates as the Tories did in 2006. Once again, the question of getting a tax break depends upon whether you are a member of the group the Tories are wooing.
There was nary a mention of spousal income splitting and not a word about capital gain deferral plans, beyond the increase of already existing limits for small businesses and farmers and fishers.
True, the spousal amounts are rising over several years, but this is a code for families who have one-stay at home non-earner. And if you happen to be a long-distance trucker, you get a higher write-off on your meals.
There was also, for example, an exemption from tax for student scholarships where the student was enrolled in elementary or secondary school. We have to figure that this can only be targeted at private school students.and it probably would only apply to a minuscule number of them, those who received scholarships.
The big programmes are in fact a plan for low income workers, an enhanced plan for disabled workers and a big break to families with kids under eighteen.
The working Income Tax Benefit (WIT-B.which just happens to be a town in Flaherty’s riding) was not a secret, given it was originally a Liberal proposal.
“The WITB will provide a refundable tax credit equal to 20 per cent of each dollar of earned income in excess of $3,000 to a maximum credit of $500 for single individuals without dependants (single individuals) and $1,000 for families (couples and single parents). For the purpose of computing the WITB, earned income for a taxation year means the total amount of an individual’s or family’s income for the year from employment and business, and is determined without reference to any losses arising or claimed in that year.
To target assistance to those with low income, the credit will be reduced by 15 per cent of net family income in excess of $9,500 for single individuals and $14,500 for families. Net family income will be calculated on the same basis as is currently used for the purpose of the Canada Child Tax Benefit and the goods and services tax credit-generally total income minus the Universal Child Care Benefit and any allowable deductions such as pension contributions and child care expenses.”
There will be enhancement for those with disabilities.
The big tax break goes to parents with kids. The government “proposes to introduce a new non-refundable child tax credit for parents based on an amount of $2,000 (indexed) for each child under the age of 18 years at the end of a taxation year. The tax credit will be calculated by reference to the lowest personal income tax rate for the taxation year (i.e. 15.5 per cent in 2007). This new tax credit will take effect beginning in 2007, and will provide personal income tax relief of up to $310 per child.
Where the child resides together with the child’s parents throughout the year, either of those parents may claim the credit. In other cases, the credit will be claimable in respect of a child by the parent who is eligible to claim the wholly dependent person credit for the year in respect of a child (or who would be so eligible if that child were the parent’s only child).”
While on the subject of kids, they are also bringing in new rules for RESPs which involve:
. 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 CESG (the contribution by the government) will be increased to $2,500 from $2,000, thus increasing the maximum CESG per beneficiary for 2007 and subsequent years to $500 from $400. The maximum CESG for a year will increase to $1,000 from $800 if there is unused grant room because of contributions of less than the maximum CESG-eligible contributions for previous years. The $7,200 lifetime CESG limit will be unaffected by this change.
RRSP Break for Those approaching retirement:
One hugely welcome break for those who are approaching age 69 is the decision to revert to the age 71 limit for maintaining an RRSP. This increase from age 69 will benefit individuals who turn 69 years of age in 2007 or in a subsequent year. The measure will also benefit individuals who turn 70 or 71 years of age in 2007. If contribution room is available, RRSP contributions will be permitted to be made in 2007 and 2008 for the former, and in 2007 for the latter. In addition, the requirement that a specified minimum amount be withdrawn from a RRIF each year after the RRIF is established will be waived for 2007 and 2008 in the case of RRIF annuitants who turn 70 years of age in 2007, and for 2007 in the case of RRIF annuitants who turn 71 years of age in 2007. A RRIF annuitant who is 71 years of age or younger at the end of 2007 will be able to reconvert the RRIF to an RRSP, so long as the re-established RRSP is converted to a RRIF before the end of the taxation year in which the individual turns 71 years of age.
As always there are a host of smaller and more technical items, dealing with such things are electronic transit passes and more generous rules for exemption in making quarterly tax payments. For short term travelers to the U.S., the tax-free exemption for a 48 hours trip has been doubled to $200.
As is always the case, a more leisurely reading of the documents will likely generate more comment is the weeks ahead.
But for all the hype about tax cutting and so forth before the Budget, we have been disappointed. Targeted cuts are all very well as an pre-election ploy but they do not make good tax policy. But nobody can really attack the WIT-B and we suppose that some of the more lunatic promises made before the last election seem to be remaining on the back burner.
We’d be surprised if this Budget were to bring down the government.but rest assured, one side of the floor or the other will find an excuse in due course.