Flaherty Announces Broad-Based Tax Relief For Canada

by Mike Godfrey, Tax-News.com, Washington

04 May 2006

Canadian Finance Minister, Jim Flaherty claimed on Tuesday that the Conservative government's first budget since winning the election earlier this year will create a more competitive and prosperous economy by cutting personal and corporate taxes by C$20 billion over the next two years.

Key tax measures contained in the budget include the long-promised 1% cut in Goods and Services Tax to 6%, effective from July 1, alongside "broad-based" and targeted tax relief for both corporate and personal taxpayers.

On the business front, the government claims that a healthy environment for jobs and growth, through a more competitive tax system, will be created by:

• Increasing the amount of small business income eligible for the 12-per-cent tax rate to $400,000 from $300,000 as of January 1, 2007.
• Reducing this tax rate to 11.5 per cent in 2008 and to 11 per cent in 2009.
• Reducing the general corporate income tax rate to 19 per cent from 21 per cent by January 1, 2010.
• Eliminating the corporate surtax for all corporations as of January 1, 2008.
• Eliminating the federal capital tax as of January 1, 2006, two years ahead of schedule.

According to the government, Budget 2006 also delivers more tax relief measures to individuals than the last four federal budgets combined, and will remove 655,000 low-income Canadians from the tax rolls altogether.

These measures include:

• A new Canada Employment Credit — a tax credit on employment income up to $500 effective July 1, 2006. The credit amount will double to $1,000, effective January 1, 2007.
• A permanent reduction in the lowest tax rate to 15.5 per cent from 16 per cent as of July 1, 2006.
• Increases in the basic personal amount — the amount all Canadians can earn without paying federal income tax — so that it grows each year and remains above currently legislated levels for 2005, 2006 and 2007.

In addition, the maximum amount of eligible pension income that can be claimed under the pension income credit will be increased to $2,000, effective for the 2006 and subsequent taxation years. This increase, the first since 1975, will benefit nearly 2.7 million taxpayers receiving qualifying pension income, and remove 85,000 pensioners from the tax rolls.

The government also says that it intends to strengthen private defined benefit pension plans by proposing four temporary measures to help re-establish full funding of federally regulated defined benefit pension plans in an orderly fashion, with safeguards for promised pension benefits.

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