Tax savings in 2007 - Families with young children win big

The Canadian Taxpayers Federation (CTF) released projected income and payroll tax changes kicking in on Jan. 1st.

"All taxpayers will pay less tax in the new year," said CTF federal director John Williamson. "The new employment tax credit will increase to $1,000 for the 2007 tax year, up from $250

in 2006. This fourfold increase permits the finance minister to truthfully assert taxes are going down even though Canadians will pay more payroll taxes next year and the lowest personal income tax rate will rise a quarter-point to 15.5% from 15.25%."

Effective Jan. 1st, Employment Insurance (EI) premium

rates will drop by seven cents to $1.80 for employees (per $100 of insurable earnings) from the current rate of $1.87. The corresponding employer rate will drop by 10 cents to $2.52 from the current rate of $2.62. However, the maximum insurable earnings will rise from $39,000 to $40,000. The previous EI threshold increase was in 1995.

Canada Pension Plan (CPP) premium rates (per $100 of insurable earnings) will remain unchanged at 4.95% paid by employees and 4.95% paid by employers. The threshold will increase to $43,700 in 2007 from today's $42,100 level.

“Without a doubt the biggest winners are families with young children. They will rocket ahead thanks mostly to the monthly $100 payment for each child under age 6,” stated Williamson.

“Low-income individuals, earning less than $25,000 annually, benefit the most from Ottawa’s new employment tax credit. Also noteworthy are that the larger tax savings for individuals earning $80,000 is due to indexation and how unevenly families with similar income levels are taxed,” said Williamson.

Williamson says Canada still has the highest taxes in the G-7 nations which Finance Minister Jim Flaherty agrees with.

"Within the first 100 days of taking office, our government moved swiftly to lower taxes in order to create the right conditions and opportunities for families and businesses to be successful," said Flaherty. "While we have made great strides, Canadians still pay too much tax, and our government will continue to look at new ways to ease the tax burden and create a real Canadian tax advantage."

Budget 2006 set the tone for tax relief by proposing 29 personal and business tax reductions. Personal tax relief alone amounts to almost $20 billion over two years, more than the four previous federal budgets combined.

These measures include:

- A 1% reduction in the goods and services tax (GST) beginning on July 1, 2006.

- Increasing the basic personal amount-the amount that an individual can earn without paying federal personal income tax-so that it grows each and every year and remains above previously legislated levels in 2006 and 2007. The basic personal amount will be $8,929 in 2007 and will continue to increase.

- Permanently reducing the lowest personal income tax rate from 16% to 15.5% effective July 1, 2006.

- Providing all Canadians a break on work-related expenses under the new Canada Employment Credit. This measure took effect July 1, 2006, and recognizes the cost of work-related expenditures such as home computers, uniforms and supplies.

- Creating a Children's Fitness Tax Credit to cover eligible fees up to $500 for enrolment in a physical activity program, effective Jan. 1, 2007.

- Providing students with a new textbook tax credit, effective Jan. 1, 2006, to provide better tax recognition for the cost of textbooks for students.

Canada's Tax Fairness Plan, announced on October 31, 2006, built on the tax cuts announced in the budget by proposing significant positive measures to help Canadian seniors by:

- Increasing the age credit amount by $1,000 retroactive to Jan. 1, 2006.

- Introducing income splitting for pensioners to increase the rewards from retirement saving effective as of the 2007 taxation year.

The federal government has also promised a Tax Back Guarantee by dedicating all interest savings from reducing the federal debt to personal income tax reductions.

These savings are substantial. Debt reduction in 2005-06 will result in ongoing interest savings of $660 million per year and, combined with interest savings from planned $3-billion annual debt reduction, will climb to $800 million in 07- 08 and $1.4 billion per year by 2011-12, resulting in significant personal income tax reductions.

"As debt reduction continues and interest savings accumulate, so too will the tax reductions for Canadian families and taxpayers-less debt means less interest means less taxes," said Flaherty.

All personal income tax amounts will be adjusted by 2.2%, effective Jan. 1, 2007, to ensure that inflation does not cause people to pay more income tax. Adjustments to the Canada Child Tax Benefit (including the National Child Benefit supplement and the Child Disability Benefit) and the GST credit will take effect as of July 1, 2007, to coincide with the beginning of the "program year" for these benefits.