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Please note that the proposals contained in the Federal Budget of March 19, 2007 have now become law. In particular, the enhanced personal credits and RESP contribution rules are now law, along with changes to the rules governing the transition of RRSP to RRIF.
Personal Tax Rates
- The lowest personal tax rate for taxable incomes up to $37,178 are 15.50%
Basic Personal Amount
- The Basic Personal Amount for individuals is now $8,929 up from $8,839 in 2006
Spousal and Other Amounts
Effective for 2007, the spousal or common-law partner and wholly dependent relative tax credits will be increased by $1,424 to match the level of the basic personal amount credit. There will be a corresponding elimination of the threshold above which the dependant's net income must be taken into account. This will provide individuals with up to $209 in additional income tax relief. For 2008 and subsequent tax years, these credits will be increased by the same amounts as the basic personal amount.
Working Income Tax Benefit
Effective for the 2007 taxation year, the Working Income Tax Benefit (WITB) will provide a refundable tax credit equal to 20% of each dollar earned in excess of $3,000 to a maximum credit of $500 for individuals and to a maximum credit of $1,000 for families. The credit will be reduced by 15% of net family income in excess of $9,500 for individuals and $14,500 for families.
WITB for Persons with Disabilities
WITB for Persons with Disabilities will include an additional disability supplement for each individual who is eligible for the disability tax credit. The supplement will equate to 20% of each dollar in excess of $1,750 of earned income up to a maximum credit of $250. The supplement will be reduced by 15% of net family income in excess of $12,833 for individuals and $21,167 for families.
Tax Measures for Persons with Disabilities
- Registered Disability Savings Plan
An RDSP will be introduced sometime in 2008. Persons eligible for the Disability Tax Credit and resident in Canada (or their parent or legal representative) will be eligible to establish an RDSP. Contributions will be permitted until the end of the year in which the beneficiary attains 59 years of age and will be limited to a lifetime maximum of $200,000, with no annual limit. Contributions will not be deductible but the income earned on amounts inside the plan will accrue tax-free. Income earned in the plan will be included in the beneficiary's income for tax purposes when paid out of the RDSP.
- Canada Disability Savings Grants
CDSGs will be paid as matching amounts to RDSP contributions made in the year as follows: On family net income up to $74,357: 300% on the first $500 in RDSP contributions and 200% on the next $1,000; On family income over $74,357, 100% on the first $1,000 in RDSP contributions.
- Canada Disability Savings Bonds
Canada Disability Savings Bonds of up to $1,000 will be paid annually to an RDSP where family net income does not exceed $20,833. There will be a lifetime limit of $20,000 on CDSBs paid in respect of an RDSP beneficiary.
Charitable Donations to Private Foundations
Effective for gifts made on or after March 19, 2007, the budget proposes to eliminate the taxation of capital gains arising from donations of publicly listed securities. It also proposes to eliminate from tax, the employment benefit associated with employee stock options when those publicly listed securities are donated to the private foundation within 30 days of exercise.
Registered Education Savings Plans
The $4,000 annual limit will be eliminated and the lifetime contribution limit will be increased to $50,000. The maximum annual amount qualifying for the 20% Canada Education Savings Grant will be increased to $2,500 (from $2,000), increasing the maximum CESG to $500. The maximum CESG for the year will increase to $1,000 (from $800). Part-time students will now also be eligible for RESP assistance.
Elementary and Secondary School Scholarships
Elementary and Secondary School Scholarships will be fully exempt from tax for 2007 and subsequent taxation years.
New Child Tax Credit
Effective for 2007, there will be a new non-refundable child tax credit for parents of $2,000 for each child under 18 years of age at the end of the taxation year. The credit will be indexed and calculated by reference to the lowest personal tax rate for the taxation year. For 2007, the lowest personal tax rate is 15.5%. The credit will provide income tax relief of up to $310 per child.
Public Transit Tax Credit
The public transit tax credit will be expanded to include cost-per-trip electronic payment cards issued after 2006. The credit will apply to cards where the cost relates to the use of public transit for at least 32 one-way trips during an uninterrupted period not exceeding 31 days. The public transit tax credit is also being expanded to include weekly transit passes that are valid for use after 2006 where an individual purchases at least four consecutive weekly passes.
Changes in Retirement Planning
- Phased Retirement
The 2007 budget now offers more flexibility to employers to offer phased retirement programs for its older workers. In effect, it allows an employer to offer an employee a partial pension of up to 60% of the employee's accrued “Defined” pension benefits while at the same time allowing the employee to accrue benefits in respect of post-pension commencement employment. This is regardless of whether the employee is working full-time or part-time.
Qualifying employees will be limited to individuals who are at least 55 years of age and who are otherwise eligible to receive a pension without the plan imposing an early retirement reduction. The 60% limit will be the amount of pension benefit that would be paid from the plan if the employee were fully retired.
- Age Limit for Maturing RPPs and RRSPs
Currently, taxpayers are required to stop contributing to their RRSPs at the end of the year in which they turn age 69 and then start a withdrawal program (RRIF). The 2007 budget proposes to extend this conversion to when the taxpayer reaches the age of 71. Individuals who turn 69 years of age in 2007 immediately benefit from the proposed change.
This measure will also benefit individuals who turn 70 or 71 years of age in 2007, in that if RRSP contribution room is available, an RRSP contribution can be made in 2007 and 2008 for the 70-year-old and in 2008 for the 71-year-old.
- RRSP Qualified Investments
Eligible investments have been expanded to include:
- Any debt or obligation that has an investment grade rating and that is part of a minimum $25 million issuance.
- Any security that is listed on a designated stock exchange.
“Green” Levy on Fuel-Inefficient Vehicles
The 2007 budget introduces a vehicle efficiency incentive designed to promote the purchase of fuel-efficient vehicles in Canada. The Green Levy will apply to new automobiles designed to primarily carry passengers, including station wagons, vans, and sport utility vehicles (but not pick-up trucks) in accordance with the vehicle's fuel efficiency rating.
This rating will be calculated on the basis of weighted average fuel consumption. The Green Levy will apply to new vehicles delivered or imported after March 19, 2007.
Small Business
- Lifetime Capital Gains Exemption
Effective for dispositions that occur on or after March 19, 2007, the lifetime capital gains exemption (LCGE) for qualified small business shares and qualified farm or fishing properties will be increased to $750,000. For dispositions of qualified property in 2007, the exemption will be adjusted to recognize both the current and proposed new exemption limits.
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