Alberta Budget
The Alberta budget was tabled on March 22, 2006. The government announced that the provincial basic amount, spouse and common-law partner amount and amount for an eligible dependant would be increased to $14,899 for 2006. That is $100 more than the amounts were scheduled to increase by as a result of indexation. For a single taxpayer, it therefore represents a personal tax saving of $10. For a taxpayer supporting a dependent spouse or common-law partner with no income or a single taxpayer supporting a dependant, it represents a tax saving of $20.
Corporations fare somewhat better. The general corporate tax rate will be reduced from 11.5% to 10% effective April 1, 2006. This represents a decrease of over 50% from its high of 15.5% from 1993 to 2001.
The budget does provide some assistance to lower-income taxpayers in the form of increased health care premium assistance. Full premium subsidies are currently available to all seniors regardless of income and to non-senior individuals making less than $12,450, couples earning less than $21,200 and families earning less than $27,210. Effective April 1, 2006, these income thresholds will be increased by $5,000. Partial subsidies will be available to taxpayers whose income exceeds these thresholds but is less than $20,970 in the case of individuals, $33,240 in the case of couples and $39,250 in the case of families.
As previously announced, the Alberta Family Employment Tax Credit will be indexed to inflation beginning in July 2006. Payments will therefore increase by 1.9% to $560 for the first child, $510 for the second, $306 for the third and $102 for the fourth. The income level at which the payments begin to be phased out will increase to $25,475.
The government also announced that it is reviewing the impact on provincial revenues resulting from the increasing number of corporations reorganizing as income trusts. Income earned by income trusts is taxed in the hands of the investor instead of in the hands of the corporation and takes place in the jurisdiction where the investor resides as opposed to where the corporation resides. Since Alberta has over 60% of Canada's market capitalization for income trusts, but less than 10% of the country's population, a substantial loss of revenue has resulted.
The government announced that it will not commit to a parallel restructuring of the dividend tax credit as proposed by the federal government until more details have been released. However, it did state that, "in principle, any change that removes distortionary tax treatment is good".
British Columbia Budget
The British Columbia budget was tabled on February 22, 2006. It contained the following income tax measures:
- The province will introduce an enhanced dividend tax credit for dividends from large corporations that will match the proposed new federal credit. However, the precise details of how it will work will not be known until the federal credit is made official.
- The BC Mining Flow-through Share Tax Credit will be extended for three years to December 31, 2008. The credit provides an incentive for mineral exploration in BC.
- Technical amendments will be made to the provincial Income Tax Act so that time extensions will not allowed in respect of the following tax credits:
- BC Mining Flow-through Share tax credit (for which the deadline is one year after the individual's filing due date),
- The British Columbia Scientific Research and Experimental Development tax credit (for which the deadline is 18 months after the corporation's year end),
- The British Columbia Manufacturing and Processing tax credit (for which the deadline is 18 months after the corporation's year end,
- The Book Publishing tax credit (for which the deadline is 18 months after the corporation's year end,
- The Mining Exploration tax credit (for which the deadline is 36 months after the taxpayer's year end), and
- The Film and Television and Production Services tax credits (for which the deadline is 36 months after the Corporation's year end).
- The enhanced corporate tax credit rates for film and video productions will be extended to 2008. A decision as to continue the tax credits beyond 2008 will be made in 2007 after the programs have been reviewed.
The government also announced that money would be set aside over the next three years for a new program of tax credits to encourage employers to provide training and skills development for their employees. The new program will be designed in consultation with industry representatives.
Manitoba Budget
The Manitoba budget was tabled on March 7, 2006. As expected, the government announced that the Education Support Levy will be eliminated for residential properties beginning in 2006.
The following income tax measures may also be of interest:
- The middle tax rate will be reduced to 13% effective January 1, 2007. The rate, which was 14% for 2005, had already been reduced to 13.5% for 2006 in last year's budget.
- The basic personal amount will be increased by $100 to $7,834 effective January 1, 2007. It had already been increased to $7,734 for 2006 as the result of last year's budget. Since the Manitoba tax system is no longer indexed to inflation, this represents the only increase to the provincial personal amounts.
- Beginning with the 2006 taxation year, Manitoba will provide an adoption expense tax credit that will match the federal tax credit introduced in 2005. The credit will be limited to a maximum of $10,000 of eligible expenditures per adoption (unlike the federal credit, which will be increased to $10,220 for 2006).
- Manitoba will introduce a new dividend tax credit for dividends received from Canadian-controlled private corporations. The changes to the tax credit mechanism will be announced once details of the federal changes are confirmed.
- Manitoba will introduce a new children's physical activity tax credit for the parents of children who are enrolled in sports and physical activity programs. This will parallel the new federal credit promised by the Conservatives during the last election. Details will only be available once the federal credit has been officially announced.
- The age at which taxpayers are eligible for the Personal Tax Credit will be increased from 18 to 19 effective for the 2006 taxation year. According to the budget papers, this change was made in order to align the credit with the federal GST/HST tax credit and similar credits offered in other provinces.
- The Co-operative Education Tax Credit (CETC) currently provides a 10% credit of up to $1,000 against Corporate Income Tax for each student hired for a work placement as part of a recognized post-secondary co-operative education program. Effective for placements starting on or after March 7, 2006, a parallel incentive is available for unincorporated employers.
A new Co-op Graduates Hiring Incentive (COGHI) is also introduced. To encourage employers to hire students who graduate after March 6, 2006 from a recognized post-secondary co-operative education program in a field of study related to the employment. The benefit will equal 5% of wages and salaries paid to the graduate in each of the first two full years of employment, to a maximum of $2,500 for each year.
Corporate Tax Changes
The following reductions to the corporate tax rates were announced:
- The small business tax rate will be reduced to 3% effective January 1, 2007;
- The general corporate tax rate will be reduced to 14% effective July 2007 and to 13% effective July 2008;
- The general corporate capital tax will be phased out, starting with a 20% reduction on July 1, 2008; and
- The refundable portion of the manufacturing investment tax credit has been increased to 35% from 20%.
New Brunswick Budget
The New Brunswick budget was tabled on March 28, 2006. The government announced that the provincial tax brackets and personal amounts would continue to be indexed to inflation. It also announced that, effective for 2007, indexation would be extended to the Low-income Tax Reduction. This will have the effect of eliminating provincial income tax for single taxpayers with income less than $13,750 and families with income less than $22,000.
Corporate Tax Reductions
As was announced in last year's budget, the provincial small business corporate income tax rate will be reduced to 1.5% effective July 1, 2006 and the income threshold will be raised to $475,000. Effective July 1, 2007, the rate will be reduced to 1% and the income threshold will be raised to $500,000.
The general corporate tax rate will be lowered from 13% to 12% effective January 1, 2007.
HST Rebate on Home Energy Costs
Effective July 1, 2006, residential consumers will be able to claim a rebate on the 8% provincial portion of their HST on home energy costs. This will include all types of home energy, including heating oil, electricity, natural gas, propane, wood and kerosene.
Details of the rebate application process will be released sometime soon.
Newfoundland Budget
The Newfoundland budget was tabled on March 30, 2006. No new tax measures were announced.
Newfoundland and Labrador Prescription Drug Program
The Newfoundland and Labrador Prescription Drug Program provides assistance towards the purchase of pharmaceuticals and related medical supplies. Eligibility is currently restricted to taxpayers receiving income supports and senior citizens who receive the Guaranteed Income Supplement. Beginning early in 2007, it will be extended to families with children with net income less than $30,000, couples with net income less than $21,000 and single taxpayers with net income less than $19,000. However, taxpayers who are within these thresholds will be subject to a co-payment rate ranging from 20% to 70% as shown in the chart below:
| Singles | Families - with No Children | Families - with Children | |||
|---|---|---|---|---|---|
| Family Income | Co-Pay Amount | Family Income | Co-Pay Amount | Family Income | Co-Pay Amount |
| Under 13,000 | 20.0% | Under 15,000 | 20.0% | Under 21,000 | 20.0% |
| 14,000 | 28.3% | 16,000 | 28.3% | 22,000 | 25.6% |
| 15,000 | 36.7% | 17,000 | 36.7% | 23,000 | 31.1% |
| 16,000 | 45.0% | 18,000 | 45.0% | 24,000 | 36.7% |
| 17,000 | 53.3% | 19,000 | 53.3% | 25,000 | 42.2% |
| 18,000 | 61.7% | 20,000 | 61.7% | 26,000 | 47.8% |
| 19,000 | 70.0% | 21,000 | 70.0% | 27,000 | 53.3% |
| 28,000 | 58.9% | ||||
| 29,000 | 64.4% | ||||
| 30,000 | 70.0% | ||||
Taxpayers who are currently eligible under the program will not be subject to the co-payment.
Northwest Territories Budget
The Northwest Territories budget was tabled on February 2, 2006. It contained no personal income tax measures. However, the corporate tax rate on large corporations will be reduced from 14% to 11.5% effective July 1, 2006.
Nova Scotia Budget
The Nova Scotia budget was tabled on May 9, 2006. A number of new tax measures were announced.
Increase in Personal Amounts
Beginning with the 2007 taxation year, the basic personal amount will be increased by $250 per year over a four-year period. By 2010, it will therefore be $8,231, an increase of 13.8%.
The following amounts will also be increased by 13.8% over the same period:
- The spouse or common-law partner amount;
- The amount for an eligible dependant;
- The pension income amount;
- The disability amount;
- The caregiver amount;
- The age amount; and
- The amount for infirm dependants age 18 or older.
Beginning in 2011, the above amounts will be indexed to inflation, but only to the extent inflation exceeds 2%.
Child Care Benefit Tax Credit
Effective for 2006, a new non-refundable tax credit will be introduced for the parents or guardians of children under six. The amount will be equal to the new federal Universal Child Care Benefit (UCCB), introduced in the May 2 budget.
Beginning in July 2006, taxpayers will receive a federal UCCB of $100 per month for children under the age of six. The provincial credit for a child under the age of six for the full six months will therefore be $52.74 (calculated as $600 x 8.79%).
Graduate Tax Credit
Effective for 2006, students who live and work in Nova Scotia after graduating from an eligible post-secondary program will qualify for a non-refundable tax credit of up to $1,000. They will have three years in which to apply the credit against their provincial tax payable.
Healthy Living Tax Credit
Effective for 2005, a new Healthy Living Tax Credit was introduced for parents who enrolled their children in sports and other recreational programs. The amount on which the non-refundable tax credit could be claimed was limited to $150 of registration costs per eligible child.
For 2006 and subsequent years, the maximum amount will be increased to $500.
Dividend Tax Credit
The government responded to the proposed federal changes to the dividend tax credit, announced in the May 2 budget, by announcing that the provincial mechanism would be adjusted to ensure that individuals continue to pay substantially the same amount of provincial tax on dividends as they do now.
Corporate Income Tax
As the result of proposals contained in last year's budget, the income threshold at which the 5% small business tax rate applies was increased from $300,000 to $400,000, effective April 1, 2006.
Nunavut Budget
The Nunavut budget was tabled on February 22, 2006. No income tax measures were announced.
Ontario Budget
The Ontario budget was tabled on March 23, 2006. No changes were announced to the personal income tax rates. However, the following provisions may be of interest:
- For 2005, the family net income threshold for the purpose of the Ontario Property and Sales Tax Credits was increased to $22,250 for taxpayers 65 or older who were residing with a spouse or common-law partner at the end of the year. The purpose of this increase was to ensure that senior couples who receive the Guaranteed Income Supplement were not subject to a reduction in their credits. For the same reason, the threshold will be increased again for 2006. The government will announce the exact amount of the increase after the OAS and GIS rates for 2006 have been finalized. This will not be until later in the year.
- The government announced that certain federal measures that have been proposed recently will be adopted provincially. Specifically mentioned was the federal proposal, announced in the November 14, 2005 mini-budget, to increase the carry forward period for non-capital losses from 10 to 20 years. However, with respect to the proposed federal enhancement of the dividend tax credit, announced on November 23, the government only said that it will make an announcement after the details have been released.
Corporate Tax Changes
The government announced that it plans to enter into a corporate income tax collection agreement with the federal government. This would eliminate the necessity of filing a separate provincial corporate tax return. The agreement would also provide for an integration of federal and provincial tax audits.
The government also proposed enhancements to the Ontario Interactive Digital Media Tax Credit and the Ontario Production Services Tax Credit so as to further encourage film and television production in the province.
The phase-out of the capital tax will also be accelerated so that it will be eliminated by 2010.
Prince Edward Island Budget
The Prince Edward Island budget was tabled on March 30, 2006. No changes were announced to the personal tax rates.
Effective April 1, 2006, the small business tax rate will be reduced from 6.5% to 5.4%. This is part of a five-year plan to reduce the rate to 1% by 2010 as shown in the table below:
| Fiscal Year | 2006 - 2007 | 2007 - 2008 | 2008 - 2009 | 2009 - 2010 | 2010 - 2011 |
|---|---|---|---|---|---|
| Small Business Tax Rate | 5.4% | 4.3% | 3.2% | 2.1% | 1% |
No other tax measures were announced.
Quebec Budget
The Quebec budget was tabled on March 23, 2006. No changes to the provincial personal tax rates were announced. However, a number of enhancements were proposed to the provincial tax system that may be of interest.
Increase in the Deduction for Workers
In last year's budget, a new deduction was announced for work-related expenses that will come into effect for the 2006 taxation year. The deduction will be equal to 6% of the taxpayer's eligible earned income to a maximum of $500. In this year's budget, the government announced that the maximum deduction will increase to $1,000 for 2007.
Increase in the refundable tax credit for home support for elderly persons
The following modifications have been proposed to the tax credit for home support for elderly persons:
- The rate will be increased from 23% to 25%.
- The annual limit on eligible expenses will be increased from $12,000 to $15,000. However, the first $300 of expenses will no longer be eligible for the credit.
- At present, eligible expenses must be paid for by means of the Service Employment Paycheque. Beginning in 2007, you will instead claim the expenses directly on your tax return, which means that you will have to keep your receipts. You will be able to request advance payments of the credit if you are at least 70 years old and agree to have the payments directly deposited in an account at a financial institution in Quebec.
- Nursing services will now be recognized as a home support service. The services must be provided by a member of the Ordre professionnel des infirmières et des infirmiers du Québec or the Ordre professionnel des infirmières et des infirmiers auxiliaires du Québec.
- The following modifications will be made to the definition of existing home support services:
- A meal preparation service will be extended to include home delivery services provided by non-profit community organizations such as Meals on Wheels.
- Clothing care services will be extended to include household linens as long as the service is provided in the taxpayer's home by someone whose principal business is dry cleaning, laundering, pressing and related services.
- Eligible services will now include minor maintenance work of a seasonal nature performed outside of a dwelling such as the installation and removal of seasonal shelters. This includes maintenance performed on indoor facilities such as a pool, which, by reason of their nature or intended use, could have been located outside.
- New rules will be introduced for determining eligible expenses included in charges resulting from co-ownership.
The modifications will take effect January 1, 2007.
Deduction for Employer-provided Transit Passes
Employers are currently allowed to deduct the cost of any assistance they provide to their employees to get to work. In order to encourage the use of public transit, the budget proposes to provide an additional deduction where the assistance is in the form of public transit passes. The deduction will apply to assistance provided after March 23, 2006.
The assistance will not constitute a taxable benefit to the employee to whom it is provided.
Enhancements to the Charitable Donation Tax Credit
The following enhancements have been proposed to the charitable donations tax credit:
- Effective for the 2006 taxation year, the donation threshold above which the 24% rate applies will be lowered from $2,000 to $200.
- The carry forward period for unused donations will be extended to 20 years for corporations. For individuals, the carry forward period will remain at five years.
- In order to encourage the donation of musical instruments to institutions offering musical training, an exemption will be provided for capital gains resulting from the donation of such property to eligible institutions.
- Technical changes have been made to allow for gifts to the Musée national des beaux-arts du Québec, the Musée d'art contemporain de Montréal, the Musée de la civilisation and the Montreal Museum of Fine Arts to qualify for the special rules for gifts of cultural property.
Refundable Tax Credit for Child Care Expenses
At present, taxpayers may not claim the child care expense credit in respect of the $7 per-day fee for day care where the child uses these services regularly on school days or uses them on pedagogical days.
Effective for the 2006 - 2007 school year, parents will be given the option of paying a $14 fee during the spring break that will qualify for the credit provided the usual requirements are met.
Effective for 2005, the maximum amount that may be claimed for the refundable tax credit for medical expenses will also be increased to $750. Beginning in 2006, it will be indexed to inflation.
Enhanced Dividend Tax Credit
The Québec legislation will be harmonized with the federal legislation to incorporate the proposed changes to the federal dividend tax credit for dividends from large corporations announced on November 23, 2005. Dividends from large corporations paid after March 25, 2006 will be eligible for the new credit. However, the provisions will not be implemented until the proposed federal measures are officially adopted.Changes affecting employers in the restaurant and hotel industry
In order to counter tax evasion in the hospitality sector, restaurant operators will now be required to remit an invoice to all customers to whom they supply goods and services. They will also be required to keep a copy of the invoice as a supporting document for the information contained in their registers. The effective date of this requirement will be announced in a future regulation.
Technical changes are also proposed to the refundable tax credit for the reporting of tips. This is a credit for employers in the hospitality sector to compensate them for part of the additional charges they bear in regard to tips reported by their employees. The credit is equal to 75% of "qualified expenditures," which comprise the portion of employer contributions to government programs such as the QPP and EI attributable to tips. Effective for amounts paid after Budget Day, qualified expenditures will now include the portion of indemnities for statutory general holidays and days off for family or parental matters that is attributable to tips.
Changes affecting aboriginal taxpayers
The following provisions were proposed regarding the taxation of Status Indians:
- The definition of an "Indian," for Quebec tax purposes, presently includes persons of Indian ancestry as well as to Indians registered under the federal Indian Act. The original purpose of this inclusion back in the 1980s was to ensure that Indian women who lost their status under the federal act by marrying a non-Indian did not also lose their tax exemption. However, since the discriminatory provisions of the federal act have since been rectified, the inclusion is no longer necessary. As a result, an "Indian" for Quebec tax purposes will be restricted, as is the case federally, to someone who is registered under the Indian Act.
- For income tax purposes, this change will come into effect for 2007. For QST purposes, it will come into effect on March 24, 2006.
- Effective for the 2006 taxation year, Status Indians with tax-exempt income will be able to opt into the Quebec Pension Plan in the same way as Status Indians in other provinces can opt into the Canada Pension Plan. An election will be available to employers so as to allow them to provide QPP coverage. Taxpayers whose employers do not make this election will be able to contribute at the rate for self-employed individuals.
- Legislation will be introduced that will allow the government to negotiate agreements with band councils enabling them to impose consumption taxes on their reserves. The consumption taxes will be required to be harmonized with existing government taxes such as the Quebec Sales Tax.
Other Provisions
- Provided certain conditions are met, foreign farm workers may now qualify for a deduction of up to 50% of wages earned in Quebec while employed under a recognized federal program such as the Mexican or Caribbean Seasonal Agricultural Workers Programs.
- In order to allow artists to average a portion of their taxable income, they are allowed to deduct an amount paid for an income-averaging annuity contract to the extent that it does not exceed $50,000 plus any deduction respecting copyright income or similar royalties to which they are entitled for the year. The budget proposes to reduce the $50,000 figure to $25,000.
- The rate used to calculate the tax credit respecting the acquisition of Capital régional et coopératif Desjardins shares will be reduced from 50% to 35% for shares acquired after March 24, 2006. The maximum credit will therefore be reduced from $1,250 to $875. The moratorium on the issue of new shares, announced on February 26, 2006 will be lifted with this announcement.
- Technical changes have been made to the tax credit for adoption expenses so as to make it simpler for taxpayers to claim the credit in respect of expenses incurred in adopting children domiciled in the People's Republic of China.
- Effective for the 2006 taxation year, the refundable tax credit for graduates working in remote resource regions will be converted into a new non-refundable tax credit designed to encourage graduates to settle in these regions for a longer period of time. In order to be eligible for the credit, the graduate must reside continuously in a remote resource region and work in a job related to his or her field of specialization. It will be calculated as the lesser of the following amounts:
- The individual's tax otherwise payable for the year;
- 40% of the taxpayer's salary or wages from an eligible job for the year;
- $3 000; and
- The amount by which $8,000 exceeds the total of amounts claimed in prior years (both for the old refundable credit and the new non-refundable tax credit).
- The definition of "earned income," for the purpose of the deduction for workers, the refundable tax credit for medical expenses and the refundable tax credit respecting a work premium will be modified so as to exclude the value of benefits from an office or employment performed in previous years. For the purpose of the tax credit respecting the work premium, "earned income" will also be redefined to restrict business income to active business income. These measures will be effective for the 2006 taxation year.
Business Measures
Effective March 24, 2006, the tax rate for small business corporations will be reduced from 8.5% to 8%. The rate will continue to be applied on the first $400,000 of business income.
A number of new tax credits, and enhancements to existing credits, were also proposed in order to support targeted sectors.
Saskatchewan Budget
The Saskatchewan budget was tabled on April 6, 2006. No changes were announced to the personal tax rates. However, the tax bracket thresholds and personal amounts will increase by 2.2% in 2006 as the result of indexation of the personal tax system to inflation.
New Tool Tax Credit
Are you required to purchase your own tools for employment purposes? If so, you may benefit from a new non-refundable Tool Tax Credit that will help defray the cost of tools purchased as a condition of employment. However, it will only come into effect for the 2006 taxation year.
The new credit will consist of the following two components:
- A one-time trade entry tool amount, to take into account the initial cost of tools as employees enter their trade; and
- An annual maintenance amount that recognizes the ongoing cost of maintaining tools.
The credit will be calculated as 11% of the specified credit for each of the trade groups shown in the following table reproduced from the budget papers:
| Trade Groups | One-Time Entry | Annual Maintenance | |||
|---|---|---|---|---|---|
| Amount | Credit | Amount | Credit | ||
| Group 1 | Hairstylist, bricklayer, drywaller, roofer, insulator, glazier, painter, floor covering installer | $1,350 | $148 | $300 | $33 |
| Group 2 | Plumber, pipe fitter, gas fitter, carpenter, electrician, sheet metal worker, boiler maker, iron worker, auto body repairer | $5,000 | $550 | $1,000 | $110 |
| Group 3 | Vehicle mechanics | $9,000 | $990 | $1,500 | $165 |
| Group 4 | Heavy duty mechanics | $12,500 | $1,375 | $2,500 | $275 |
In order to claim the one-time entry credit, the actual cost of the tools purchased in the year employment commences must exceed the gross credit amount for that trade group. This component of the credit is only available once in a lifetime. It must be claimed in which you commence employment in a particular trade. However, any unused portion may be carried forward and claimed for up to an additional two years.
The annual maintenance amount must be claimed in the current year, with no carry forward of unused amounts. It may only be claimed if the tools were purchased as a condition of employment and the employment represents your primary source of income.
There will be a new form, similar to the federal T220 Conditions of Employment that employers will have to complete in order to certify your eligibility for the credit.
Post-secondary Graduate Tax Credit
The Post-secondary Graduate Tax Credit will increase to $850 for 2006 and $1,000 in 2007, as previously announced.
Corporate Tax Cuts
The income threshold to which the 5% small business tax rate applies will be increased from $300,000 to $400,000 effective July 1, 2006. It will be further increased to $450,000 effective July 1, 2007 and to $500,000 effective July 1, 2008.
The general corporate tax rate will be reduced from 17% to 14% on July 1, 2006, 13% on July 1, 2007 and 12% on July 1, 2008.
The existing non-refundable Investment Tax Credit for manufacturing and processing capital acquisitions has been converted into a refundable tax credit for eligible acquisitions made after April 6, 2006. Unclaimed ITC balances earned prior to budget day will have their carry forward period extended from seven to ten years.
Yukon Budget
The Yukon budget was tabled on March 30, 2006. No changes were announced to the personal or corporate tax rates.
The government announced that the Mineral Exploration Tax Credit will be extended to March 31, 2007. The amount a company may receive in respect of eligible expenditures will be capped at $300,000.
