Tax Relief 2007 – Halloween Treats from the Government

The government announced tax reductions in a press release on October 30, 2007. Some of the Halloween treats include:

• GST reduction from 6% to 5% effective January 1, 2008 (GST credit for low and modest-income Canadians will be maintained at its current level).
  
  
• Personal income tax reductions retroactive to January 1, 2007: basic personal amount, spousal amount, and equivalent to spouse amount increased from $8,939 to $9,600 for 2007 and 2008, and to $10,100 for 2009.
  
  
• 15.5% basic rate reduced to 15.0%. For taxpayers with taxable income over $37,000, this change results in a tax reduction of $185. Lower-income taxpayers save less.
  
  
• The tax change affects personal tax credits too. This means that the new amount for dependent children under 18 ($2000) now has a “tax value” of $300 ($2000 x 15%).
  Don’t forget about Canada Employment Credit, which helps to pay for work-related expenses that occur when an individual joins the workforce. This credit on employment income rose to $1,000 on January 1, 2007. Essentially this means that Canadian employees will not pay federal income tax on the first $10,600 earned. Taken together, an employee making over $37,000 could expect combined tax savings of approximately $390.
  
  
• Working income tax benefit (WITB) refundable tax credit, beginning in 2007:

Up to $500 for single individuals with earnings greater than $3,000 and net income less than $12,833.  The full $500 will be received by single individuals with earnings of $5,500 or more and net income less than $9,500.

Up to $1,000 for couples and single parents with family earnings of $3,000 or more and net income less than $21,167.  The full $1,000 will be received when earnings are $8,000 or more and net family income is less than $14,500.

Additional amount of up to $250 for those eligible for the disability tax credit.

• Age limit for conversion of RRSPs to RRIF increased from 69 to 71, and RRSP contributions can be made up to and including the year in which the contributor turns 71.
  
  

Earlier in the year the Government introduced the Children’s Fitness Tax Credit
(CFTC). Commencing in 2007, a CFTC will allow parents to claim a maximum of $500 per year for eligible fees paid for each child who is under 16 at any time during the year. For 2007, the CFTC is based on the lowest marginal tax rate of 15% ($75/child) and is claimed in the year the fees are paid, not when the activity takes place.

Also earlier in the year the $4,000 annual Registered Education Savings Plan (RESP) contribution limit was eliminated and a lifetime RESP contribution limit increased to $50,000 from $42,000.

The maximum annual RESP contribution qualifying for the 20% Canada Education Savings Grant (CESG) was increased to $2,500 from $2,000. These changes apply to contributions made after 2006. Some implications include:

• Instead of putting $2,000 per child into the RESP each year to get the 20% ($400) CESG, you may now want to increase your annual contribution to $2,500 per year to capture the $500 per year CESG. The total CESG available remains unchanged at $7,200.
  
  
• Alternatively, a person could put as much as $50,000 immediately into an RESP to let this money grow tax free. However, this would cost $6,700 ($7,200 - $500) in lost CESG money that would otherwise be available through contributions on an annual basis.
  
  
• Another approach is to make $3,333 RESP contributions each year for fifteen years to a maximum of $50,000 to obtain the full $7,200 CESG.
  
  
• Another option is to put $15,000 in the RESP in the first year and then make annual contributions of $2,500 per year for the next fourteen years to obtain the $7,200 CESG.

For full details and calculations see the Globe and Mail (March 24, 2007, Page B9).

Most important tax changes relating to businesses include:
Increased capital cost allowance (CCA) rates for purchases on or after March 19, 2007:

• computer equipment increased from 45% to 55%;



• buildings used for manufacturing or processing increased from 4% to 10%;



• other non-residential buildings increased from 4% to 6%;



• accelerated CCA for manufacturing and processing equipment purchased before 2009 will results in CCA of 25% in year of purchase, 50% in year 2, and remaining 25% in year 3.

Last but not least - this whole Certification Program could be FREE. Please check if you qualify.