Canadian income taxes
The Department of Finance in Canada is on a major exercise of revamping the tax structure to attract new investments in the country to improve productivity, generate fresh employment and prosperity. Unnerved by the fall in the tax revenue due to sluggish growth in the real estate sector, the Government is envisaging new ways to overcome the trends of depression through fiscal measures like:
A gradual reduction in general federal income tax rate from 22% in the current year to 15% by 2012 which is at present considered to be the least overall tax rate applicable in comparison to the other G7 countries and would be the least statutory tax rate by 2012, if no other country follows suit. The decision has been taken to widen the tax base and to depict Canada as an attractive place for huge investments not only by the citizens but also by foreign nationals.
A decision of reducing the current tax on specially qualified income from private Canadian controlled business, which is presently charged at 12%, is to be reduced by 0.5% in the 2008 and again by 0.5% in 2009. However, as small businesses provide the most wanted job creation facilities in the economy, the measure has been accelerated to reduce the tax rate by 1% i.e. to 11% in 2008 itself. This is a vital step towards extending a helping hand to the small business establishments to make more profits and as such disburse better emoluments to their working staff.
In terms of Capital investment, the Canadian Government has already taken steps to eliminate the Federal capital tax in 2006 itself. Further, the corporate surtax would also be eliminated in 2008. The Government is taking all pains in not only leading the way but also ensuring that the provinces also follow the suit. For this sake, it has announced certain financial incentives to the provinces which do away with the capital taxes and Ontario and Quebec have already registered themselves in the race. Manitoba is also trying to do so gradually, keeping in view the budget balances.
The advantage on tax rates is estimated to pull Canada nearer to its targets of advantage Canada. It is also estimated that these measures will put Canada in a better competitive tax rate position in comparison to not only to the US but also to the other G7 countries that it would be the second least country in terms of tax rates from the present position of third highest.
Further, the employment insurance rates which act as a cursor for employment generation are set to decline by 10 cents per $100 of insurable earnings and $7 cents for employees. This measure is estimated to enhance the employment insurance cover for low-middle income group people who are otherwise not covered owing to the premium payments from their pockets.
While the above measures have been designed to foster investments and businesses for employment generation, the Government has also envisaged plans to reward the ordinary Canadians directly by reducing their personal income taxes etc. by over $90 billion in this and next five fiscal years.
Accordingly, special benefits have been extended to families with children, seniors, and persons with disabilities who qualify for such exemptions. They are given a helping hand through facilities such as special GST rate reductions, transit pass, Childrens fitness credits, the Canada employment credit etc. A $1 billion tax relief has been provided annually for seniors and pensioners so that they can think of further retirement security solutions.
Lower-income group people have been extended the tax relief of $45 billion or so for this and next five fiscal years. If statistics would be taken from 2006, the relief would amount to $140 billion or so. These measures have been devised in a twofold way so as to ensure that more and more individuals and families get benefitted through them.
1. The first measure is to reduce the lowest personal income tax rate from 15.5% to 15% for individuals earning lesser than $37,178 annually which stands effective from 1st January, 2007 itself.
2. The second measure is to raise the basic personal amount limit for non-payment of taxes from $9,600 to $10,100 by 2009. Through this measure, it is estimated that some 3,85,000 low-income Canadians would be benefitted as their names would be removed from the tax payers rolls this year.
These measures are estimated to benefit the lower-middle income group people, earning lesser than $80,000 per annum with 2 earners and having a family of four people to save around $400 or so. A family with single worker and whose earnings are less than $40,000 per annum stand to gain around $225 or so.
In percentage terms, families with incomes less than $37,922 stand to gain up to 30% of the taxes previously paid by them. Similarly, families with incomes between the range of $37,922 and $75,844 stand to gain up to 47% of the taxes previously paid by them.
For those people whose incomes have never been taxed, the Government is trying to help them by reduction in the General Sales Tax so that they can enjoy the items they wish to buy at lower prices.
In this way, the Economic Statement, 2007 of Canada has been designed to pass on the privilege of reduced income taxes and improved employment generation measures, so that the investment flows through in this economy without a hitch, thereby fostering economic development for the ordinary man to prosper.
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