The government of Canada has announed a broad-based tax relief for every Canadian individual and business as proposed in the Economic Statement of 2007. Due to this, taxes will fall by some CDN$190 billion over this and the next five fiscal years to their lowest level since the early 1960s.
As proposed, a reduction of an additional percentage point will reduce GST to 5 per cent, which was initially reduced from 7 to 6 per cent in Budget 2006. This reduction will be effective from January 1, 2008. The reduction of 2 percentage point in GST will amount to approximately CDN$12 billion total savings for consumers next year. The GST credit will be maintained at its current level, translating into more than CDN$1.1 billion in benefits annually for low- and modest-income Canadians.
Among other measures, the Government is proposing additional tax relief for individuals and families by (a) increasing the basic personal amount to $9,600 retroactive to January 1, 2007, with a further increase to $10,100 on January 1, 2009; (b) reducing the lowest personal income tax rate to 15 per cent from 15.5 per cent, retroactive to January 1, 2007; (c) introducing a new Working Income Tax Benefit; (d) eliminating income tax on elementary and secondary school scholarships; (e) enhancing the children's fitness tax credit; and (f) expanding the scope of the public transit tax credit.
To help Canadian businesses, government proposes to (a) reduce the general corporate income tax rate to 15 per cent by 2012, starting with a 1 percentage point reduction in the rate in 2008 beyond the already legislated reductions; (b) reduce the small business income tax rate to 11 per cent in 2008, one year earlier than scheduled; (c) increase the lifetime capital gains exemption for small business owners, farmers and fishers to $750,000; (d) increase the deductible percentage of meal expenses for long-haul truck drivers; (e) extend the mineral exploration tax credit; and (f) ease tax remittance and filing requirements for small business.
Due to this decline in business taxation will not only strengthen the economy but also encourage job creation. It is also expected that by 2012, Canada’s corporate income tax rate will be the lowest among the major industrialized economies.
The legislation also proposes to eliminate withholding tax on arm's length outbound interest payments to residents of all countries effective January 1, 2008. Based on the proposal in Budget 2007 and building on the Protocol to the Canada-U.S. Tax Treaty signed September 21, 2007, this major step forward in Canada's international tax policy will increase access to foreign capital markets and reduce costs for Canadians and Canadian businesses that borrow from foreign lenders.
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