Finance Minister Jim Flaherty presented the Tory government’s first budget today. Here are the highlights of the budget from a personal finance perspective:
- A 1% cut to the GST that will be effective Canada Day, July 1st, 2006. The amount you will save depends on how much you spend on goods and services that are subject to the GST. If you are planning to buy a new home or a new car or other big-ticket items, you will save a significant amount of tax.
- Parents with young children are also big winners in this budget. Starting July 1st, the Universal Child Care Benefit will give all families $100 per month for each child under age 6. More significantly, the benefit will be taxed in the hands of the spouse with the lower income and will not reduce other childcare benefits for lower income families.
- Unfortunately, there is an income tax hike in the budget. The current 15% tax rate on income up to $36,400 will be increased to 15.5%. At least, it is not going all the way back up to 16%!
- The increase in the basic personal amount is also being reduced from $700 ($500 for 2005 plus a further $200 for 2006) to $300. Similarly, the increase in the spousal amount is being reduced from $595 to $255 when the GST cut goes into effect. It appears as if the Tories are keeping slightly less than half of the income tax cuts enacted by the previous government.
- Employees will be getting a new tax break in the form of a Canada Employment Credit. The tax credit is worth $250 for this year and $1000 for 2007 and indexed to inflation thereafter. This means tax savings of $38.75 for 2006 and a more significant $155 for next year.
- There are miscellaneous tax cuts like the Children’s Fitness Tax Credit (up to $500), Tradespeoples’ Tool tax deduction (up to $500), Textbook Tax Credit ($65 per month for full-time and $20 per month for part-time students), Tax Credit for Public Transit Passes etc.
- The new government intends to maintain the dividend tax cuts enacted by the previous government.
- There are also corporate and small business tax cuts in the budget.
The bottom line is the budget contains roughly the same amount of personal income tax cuts (for employees) introduced by the Liberals in addition to the cut to the GST. For the tax year 2007, the income tax cuts currently in the books work out to roughly $350 for a taxpayer earning about $37,000. The new budget keeps roughly half the previous cuts and employees pay another $155 less in taxes, which works out to about $330. On top of that there is the 1% cut in the GST. If you are eligible for some of the other tax cuts, you are even farther ahead.
Other reactions:
