There were numerous income tax changes proposed by the previous federal government in last year’s economic and fiscal update. However, it is important to note that with the defeat of the minority Liberal government these proposals were not enacted into law. Moreover, the Conservative party specifically campaigned against some of the proposals included in these documents. It is unclear with the current political situation to what extent these proposals will be enacted.Liberals:
Among the more significant proposed changes of the previous government were the following:
- Effective Jan. 1, 2005, the lowest personal income tax rate will drop from 16 to 15 per cent and the basic personal amount for individuals will increase by $500, from $8,149 to $8,649.
- Effective Jan. 1, 2010, the tax rate of 22 per cent for the second personal income tax bracket will fall to 21 per cent, the tax rate of 26 per cent for the third personal income tax bracket will fall to 25 per cent, and the taxable income threshold at which the top 29 per cent rate begins to apply will be increased to $200,000.
- The maximum annual child disability benefit will increase from $2,044 to $2,300 in July 2006.
- The maximum amount for the refundable medical expense supplement will increase from $750 to $1,000 for the 2006 and subsequent taxation years.
- The medical expense tax credit for a dependant other than a child under the age of 18 will be doubled to $10,000 for the 2005 taxation year.
- Dividends paid after 2005 will be taxed at lower rates over the coming taxation years. The proposal improves the dividend gross up and tax credit on eligible dividends paid to individuals. Eligible dividends are generally dividends paid by public companies.
- The 2006 maximum annual employment insurance contribution will decrease from $761 to $729 and to $597 for Quebec employees because of the new Quebec Parental Insurance Plan (QPIP). Beginning on Jan. 1, 2006 employers, employees and self-employed individuals in Quebec will be required to contribute to the QPIP up to a maximum amount of $237. The maximum amount of insurable earnings or business income subject to the contribution for 2006 is $57,000.
- The maximum annual employer and employee Canada Pension Plan contributions for 2006 will increase from $1,861 to $1,910. The increase will be the same for the Quebec Pension Plan.
- 2006 Automobile Deduction Limit: The limit on tax-exempt allowances paid by employers to employees will increase by five cents to $0.50/km for first 5,000 kilometres driven and $0.44/km for each additional kilometre (45 cents on the first 5,000 kilometres driven and 39 cents for each additional kilometre for 2005). Additional amounts apply to designated northern areas, such as the Yukon, Nunavut and the Northwest Territories.
- The carryforward period for non-capital losses has been extended to 20 years, for losses incurred in taxation years after 2005.
- Investment tax credits earned after 2005 on scientific research and experimental development can be carried forward 20 years.
- RRSP contribution limits will continue to increase at their previously stated rates. The maximum RRSP contribution is $16,500 for 2005, $18,000 for 2006, $19,000 for 2007, $20,000 for 2008, $21,000 for 2009 and $22,000 for 2010. The current plan is to index the maximum RRSP limit for years after 2010.
Some of the proposals documented in the Conservative party platform are as follows:
The latest edition of CAUT’s Income Tax Guide, covering changes through 2005, is now available electronically in the publications section of the web site at www.caut.ca/en/publications/incometax or order your free guide from Louise D'Anjou.
- The seven per cent goods and services tax will be lowered by one percentage point immediately and by another point in the following four years — ultimately bringing the GST down to five per cent.
- The general business tax rate will be reduced from 21 to 19 per cent in 2010.
- The small business tax rate will be reduced from 12 to 11 per cent over five years.
- The threshold for the small business tax rate will increase from $300,000 to $400,000.
- The capital gains tax will be eliminated for individuals on the sale of assets if the proceeds from the sale of the asset are reinvested within six months of the sale.
- The capital gains tax for individuals will be removed when listed stocks are donated to charities.
- All families will receive an annual $1,200 child care allowance for each child under the age of six. This amount will be taxed in the hands of the lower income spouse starting in 2006.
- Parents of children under the age of 16 who register their children in programs that promote physical fitness may claim a federal tax credit on spending up to $500 per year per child for registration fees and memberships.
- The first $10,000 of student scholarship or bursary income would be exempt from taxation.
CAUT’s 2005 tax guide was edited by Roy Williams, senior partner of Rheaume Williams Kalbfleisch in Ottawa. Although CAUT cannot pay for individual tax counselling or tax advice, individual members with such questions can contact Williams at 613-236-4500 (online www.windfall.on.ca) and take advantage of CAUT-negotiated rates.