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moneysense.ca, 23/10/07
Tax Cuts in the Fiscal Update?
The National Post is reporting that the federal Conservatives are planning on a “mini-budget” packed with a number of new tax cuts. Some ideas being considered are:
- A further 1% reduction in the GST.
- A broad-based tax cut that will “save the average middle-class family around $700 a year”, which sounds like a 1% cut in the lowest tax bracket from 15.5% to 14.5%.
- Moving forward the already planned cut to corporate taxes from 21% to 19%.
Apart from the political considerations of cornering the federal liberals, the tax cuts may be aimed at fending off criticism over the mounting federal surplus. Just weeks after announcing that the government posted a surplus of $13.8 billion in 2006-07, we find that the surplus in just the first quarter of this fiscal year came in at $6.4 billion.
A friend of mine likes to say that tax cuts are just smoke and mirrors because what the government gives with one hand, it takes away with the other. Sure enough, it was widely reported that Toronto has succeeded in imposing punitive new taxes under new taxation powers granted to the city by the provincial government. Starting next year, Toronto residents will pay $60 extra to renew their license plates and face a significant new land transfer tax, ranging from 0.5% to 2%, when buying a home. Now, other municipalities in Ontario will be clamouring for similar taxation powers. There goes the tax savings we don’t even have yet!
moneysense.ca, 23/10/07
I’m extremely frustrated about this, especially being a Torontonian wanting to be a first time home buyer. What the heck does federal surplus mean when a major city has such a budget shortfall! Anyhow…just unhappy about the tax changes here despite there being all of these “federal surpluses”
First time home buyers are exempt from the Toronto portion of the land transfer tax.
Actually only the first $400, 000 is exempt for first-time buyers.
http://lfpress.ca/newsstand/CityandRegion/2007/10/23/4597785-sun.html
I’ve heard rumour that the conservatives are still considering a reduction in the capital gains tax. That’s what I’m hoping for anyways.
I like how they’re considering reducing corporate taxes as it’ll make our businesses more competitive.
On the point of reducing the tax bracket from 15.5->14.5 Weren’t the conservatives the ones who increased this tax from 14.5->15.5 after the liberals reduced it?
That is comforting a bit but still, isn’t it confusing how we can have a huge federal surplus yet severe lack of funding in a major city like Toronto? I dunno, I guess I’d hope that federal surplus money would be used where provinces and cities have shortages, but I guess it needs to be used for bigger and better things (?)
We’re looking at a 500,000 property though…I hope that we don’t have pay more tax on the place we’re putting an offer on tomorrow, as it seems this only takes effect Jan 1 2008!
FT: Yes, the Conservatives increased the tax rate on the lowest bracket from 15% to 15.5% to pay for the GST cut and a bunch of other “targeted” (read: made our taxes more complicated) tax cuts.
SJ: Ontario municipalities claim that they need taxing powers because of provincial download of services. I guess it is better that the level government that actually provides services levy taxes directly to pay for it so that it is at least accountable at election time. But, it doesn’t look like our provincial taxes are going down any time soon.
Yes, the conservatives threw around the idea of not having capital gains crystallize on any capital or real property so long as you bought something else within 6 months. This would immediately cause many people to consider electing their cottage as the principle residence since their city houses would be sold and new ones bought within 6 months – effectively you could now eliminate the cottage tax bills! The “city” houses would still be subject to a final tax bill though in this case, and I’m assuming the ACB would be documented from the get go. Since beneficiaries are probably happier selling the city house versus selling the cottage – this could cause quite a deal of estate planning (and changes).
I wonder how this would impact day-traders… Since they are supposed to claim all gains as taxable income (if day-trading is their sole way to make money) they are fully taxed on their gains and can’t apply the capital gain inclusion rate, right?
How would they close this loophole? Would they?
I have a feeling making a sweeping change to capital gains tax like the one originally proposed is not likely. Especially since the people it really benefits are those in the higher tax brackets. It seems their focus is more on the impact of taxes through the lower tax brackets…
SJ. I also hear your pain as I’m a current condo owner in TO and have been looking to upgrade to a larger condo for quite some time. I guess when it’s finally time for me to upgrade, it will probably have to be to some place in the suburban wasteland that is the 905 instead. It’s unfortunate, as I really like my neighbourhood and I’m reasonably close to the subway line…
I’m not going to hold my breath on these so-called tax cuts. I heard on BNN that they will be slowly phased in over the next 5 years, with most of the tax cuts occurring in the 5th year. That’s assuming that we don’t dump these morons in either of the next two elections for slaughtering the income trust sector.
Why don’t they lower income tax by 2% and coporate tax by 1%, instead of the other way around. Or better yet, raise the corporate rate by a percent or two.
Eric, you must be an NDP supporter…
I wonder if the exemption from the land transfer tax on the first $400,000 of a purchase by a first-time buyer will be indexed to inflation or the price of housing? Otherwise, 5 to 10 years from now, when house prices could be a lot higher, the exemption won’t mean much. It’ could be like the GST. The thresholds of $350,000 and $450,000 for the GST rebate on new housing, set over 20 years ago , are not indexed to inflation, so more and more new houses are failing to qualify for GST rebates as house prices rise ($180 to $220 million annually in GST rebates are now being denied buyers of new homes by one estimate).
It’s Toronto’s municipal government talking out of both sides of their mouth. They SAY that they want to encourage the use of public transit by reducing the number of commuters and encouraging people to move into the city. Meanwhile they’re taxing everybody right out of the 416 area code. It doesn’t make any sense whatsoever. Especially since the city of Toronto already receives the highest per capita tax revenue of all Canadian cities and they still can’t balance the budget. I am guessing that these politicians have been too busy stuffing money in their pockets to put any time into balancing the budget.
Preet: I agree with you that the capital gains exemption as originally proposed isn’t going to happen because it will be an administrative nightmare to follow the paper trail. Maybe something like a tax-prepaid savings plan (no upfront tax deduction but no tax on withdrawal) or a capital gains exemption.
Phil: I am not holding my breath on the tax cuts either. And if and when an election is called, we can expect another spending binge in an attempt to buy votes (and the opposition crying that the government is campaigning on the taxpayer dime). There is only one bunch of losers in all this: us taxpayers!
Eric: Corporations don’t exist in a vacuum. Their taxes are ultimately borne by us through higher cost for goods and services and lower returns on our investments (yes, everyone is invested in our corporate sector via CPP, RRSPs, pension plans etc.).
Larry: Do you know if the provincial LTT is indexed to inflation?
I don’t know how fair the taxes Toronto chose to implement are, but something definitely needs to be done about funding for cities. It seems that the senior levels of government, especially the feds, have more money than they need and the junior levels have too little. I would not mind seeing cities get a slice of income tax money paid by their residents and see ad hoc levies and fees reduced along with property taxes. That would reward cities that create wealth for their residents. I don’t know if that is feasible.
Ask any economist and they’ll tell you consumption taxes (GST) are the most effective, and income taxes are the least effective. All things being equal, I’d rather see a 10% GST and a massive reduction in corporate and income taxes. But GST is such a popular tax to hate, its obviously the first target. With our current surplus, I think it could be eliminated, with some cleanup of red tape.
Regarding the capital gains tax cut, why don’t they just reduce the inclusion rate again.. say to 25%?
And the revenue/expenditure sharing between governments is bad, and getting worse. Cities are getting the short end of the stick and have been for some time. Even provinces have to beg for money for their huge expenses (health care), while the feds collect the lions share of the loot.
Sorry I can’t have too much sympathy for Ontario, try living out here in Vancouver and see how much government support flows out here… When I listen east I just hear a giant sucking sound.
Agree with above: Lower personal income tax brackets, say 12%, 18%, 23% for the first 3 brackets, increase personal exemption to 10K, ower corp. taxes to 18% and increase GST to 10%, and lower Capital Gains inclusion to 25%.
Give more more on my take home pay and I’ll decide what to spend it on or invest it.
IT For Income Trusts
Remember, Remember
The 1st Of November
The Conservative’s Income Trust Treason And Plot
I Know Of No Reason
Why The Income Trust Treason
Should Ever Be Forgot
This economic mess shows that the seven western
provinces of Canada MUST SECEDE from Canada.
The Yukon, the Mackezie-Northewest, Nunavit,
British Columbia, Alberta, Sascathchawan, and Manitoba
MUST form a new FREE Federal-Democratic Confederal
Republic of Western Canada.
Leadership in this new Western Canadian Confederal-
Republic should include Mr. Douglas “Doug” Christie
of the Western Canadian Party–and the W.C.C. Party.
Ottawa is too socialistic and totalitarian.
The New Western Canadian Confederal Republic
would see a TOP Personal Income Tax Rate of 8%,
nationally, with a $15,000.00 yearly tax exemption–
and average Top Tax Rate in the seven provinces
of 7%, an average of a 4% provincial sales Tax,
a 55% reduction in the GST, and a maximum of 123%
Federal corporate Income Tax Rate.
Government Yearly Heralth Care Premiums would be a maximum–via taxation,
of $350.00, and their would be PRIVATE HEALTH C ARE
INSURANCE–with a $3,700.00 yearly Tax deduction
of Private Insurance Care Insurance Premiums.
In the NEW Confederal-Republic of Western Canada
the would be right to own Handguns, Shotguns,
and Rifles–under a new series of Constitutional
guarantees, and a popularly-elected Senate and House of
the Peoples–a house of Commons–also elected by the
direct vote of the People.
The old Canada is finished.
Long Live the new and FREE Federal-Democratic
Confederal-Republic of Western Canada.
Perhaps the American States of Idaho, Wyoming,
North Dakota,and Montana could join in CONFEDERATION
too. A Separate Nations, but in a Customs and Economic
Union–FREE TRADE!! Maybe Alaska also.
Long Live a FREE Western Canada.
I made a mistake—the $123% federal corporate rate was
instead to be 11%.
Sorry about the “typo” error.
LONG LIVE a FREE and INDEPENDENT Confederal-
Republic of Western Canada.