In the May 2006 Canadian federal budget, Stephen Harper and the Conservatives followed through with many of their election promises from the 2006 federal election. The government spread $20 billion of tax breaks around to give a little bit of tax relief to a lot of Canadians. Here's a brief summary of many of the personal tax changes included in the 2006 federal budget.
Sales Taxes Reduced
- Reduction in Goods and Services Tax by One Percent - The 2006 federal budget will reduce the GST rate from 7 to 6 percent, beginning July 1, 2006. The federal budget also will keep the GST credit at current levels for low- and modest-income Canadians, and maintain existing GST rebate rates for new housing.
Personal Income Tax Rates and Personal Amounts
- Lowest Personal Income Tax Rate Raised - To partially offset the cost of the reduction in GST, the lowest personal income tax rate (for taxable incomes of up to $35,595) will be raised to 15.5 percent July 1 2006, in effect making it 15.25 percent for 2006 and 15.5 percent for 2007 on. For 2006 the rate will apply to taxable incomes up to $36,378.
- Basic Personal Amount - The basic personal amount, the amount an individual can earn without paying federal personal income tax, has been adjusted a bit, but the changes will be hardly noticeable.
Tax Breaks for Canadians at Work
- Canada Employment Credit - The 2006 federal budget provides for a new tax credit to help employees with the cost of home computers, uniforms and supplies. It takes effect July 1, 2006 and could mean up to $155 in tax savings per individual in 2007.
- Tradespeople's Tools Expenses Deduction - The cost of new tools over $1000 a year for an employed tradesperson could be deductible up to a maximum of $500 for that year. Employers will have to certify that the employee needs the tools as a condition of, and for use in, employment.
Tax Breaks for Students
- Textbook Tax Credit - Post-secondary students will be eligible for a tax credit for textbooks if they qualify for the education tax credit. Unused textbook tax credit amounts will be added to unused tuition and education tax credit amounts to carry forward to a future year. Unused amounts will also be able to be transferred to a spouse or common-law partner, parent, or grandparent.
- Scholarship and Bursary Income Exemption - The 2006 federal budget proposes making scholarship, fellowship or bursary income fully exempt from tax. At budget time only the first $3,000 of scholarship, fellowship or bursary income is not included in income for tax purposes.
Tax Breaks for Families
- Universal Child Care Benefit - One of the Conservatives' hot promises from the 2006 election campaign, the Universal Child Care Benefit is a taxable payment of $100 a month for each child under the age of six. The benefit will be taxable for the lower-income spouse or common-law partner. It is scheduled to start in July 2006.
- Children’s Fitness Tax Credit - The 2006 federal budget proposes a non-refundable tax credit to let parents claim up to $500 in eligible fees for enroling a child under 16 in an eligible physical activity program. It would begin in 2007.
Tax Break for Seniors
- Pension Income Credit - The maximum amount of eligible pension income that can be used in calculating the pension income credit will be raised to $2,000 from $1,000 beginning in 2006.
Health and Medical Tax Breaks
- Child Disability Benefit - The 2006 federal budget would increase the maximum annual Child Disability Benefit to $2,300 from $2,044, starting in July 2006, and index the benefit for inflation after that. The benefit would also be extended to more families by reducing the rates at which it is reduced when family income goes up.
- Refundable Medical Expense Supplement - The maximum amount of the Refundable Medical Expense Supplement would be raised to $1,000 from $767 for the 2006 taxation year, and be indexed after that. The income threshold at which this supplement starts would also be reduced.
Tax Break for the Environment
- Tax Credit for Public Transit Passes - This is a new non-refundable tax credit which would allow individuals to claim the cost of monthly (or longer) public transit passes for local bus, streetcar, subway, commuter train, commuter bus and local ferry. It is scheduled for July 1, 2006.
