H&R Block Insight

[Budget 2009: Personal Tax Cuts and Credits for Canadian Taxpayers]

The Federal government unveiled its much anticipated budget on January 27. With many of the major spending details provided days prior, personal tax cuts was one of the few remaining secrets. Canadian taxpayers were not disappointed when all the details were finally revealed.

All Canadians will benefit from the increase to the basic personal amount from $9,600 to $10,320 in 2009. The basic personal amount is the income you can earn before paying taxes. It will mean $108 in federal tax savings. This increase also extends to the spousal amount and amount for eligible dependents.

The amount of tax you pay depends on your income bracket. As your income increases, the tax you pay increases at different income amounts. The income threshold on the first tax bracket will increase to $40,726 from $37,885. This means you can earn up to $40,726 and pay 15 per cent tax on this income. It will mean a federal tax savings of about $198.

The second tax bracket was also increased from $75,769 to $81,452. So if you earn $81,452, you will be taxed for the first $40,726 at 15 per cent and the rest of your income at 22 per cent. This translates into a federal tax savings of $227.

These tax savings will be handled through payroll deductions through employers. The income thresholds should be updated by Spring 2009 so check your pay stub for the difference. The good news is taxpayers will not have to wait until they file their 2009 tax return to enjoy the additional money from the tax cuts.

The budget also had some specific tax credits for different groups of Canadian taxpayers. Starting July 2009, low-income families with two children will see and an increase to the National Child Benefit of up to $436. Seniors will see an increase to the age amount of $1,000, providing a tax savings of $150.

Homes and home ownership also had a prominent place. First, the existing Home Buyer's Plan (HBP) has been enhanced to allow a non-taxable withdrawal of $25,000 towards the purchase of a home - up from $20,000. First time home buyers can also claim a new tax credit of up to $5,000 for closing costs which will mean about $750 in tax savings.

For existing homeowners, the Home Renovation Tax Credit will provide a 15 per cent tax credit on eligible home renovations in excess of $1,000 and up to $10,000. The credit only applies to certain renovations such as bathroom or kitchen as well as some regular maintenance like furnace or roof replacement.

Overall, the budget could be seen as good news for Canadian taxpayers. The increase to the personal amount and raising the income threshold should mean a few more dollars every paycheque for the rest of 2009. And if you were planning any major renovations or a new home purchase, you can expect a little credit when you file your 2009 tax return.