INDEPTH: CANADIAN GOVERNMENT
Canada Day Tax Tweaks
CBC News Online | Updated July 4, 2006
Canada Day 2006 rang in with a burst of Conservative government tax changes.
The following tax credits and changes came into effect July 1, 2006:
- A one-per-cent reduction in the Goods and Services Tax/Harmonized Sales Tax.
- Tax credits for public transit.
- Universal child-care benefits.
- Personal tax measures changes.
- Excise tax on beer and wine changes.
Goods and Services Tax/ Harmonized Sales Tax
The historically controversial GST has been reduced from seven per cent to six per cent. This tax applies to most goods and services in Canada. The Conservatives promised it would be further cut to five per cent, within five years.
The HST, however, only applies to supplies made in or imported into Nova Scotia, New Brunswick and Newfoundland and Labrador. It dropped to 14 per cent from 15 per cent.
It is estimated it will cost the government $3.5 billion in 2006-07 and $5.17 billion in 2007-08.
The switch will not be without hiccups, as business owners have scrambled to change over their cash registers in time. In preparation, Revenue Canada has produced a .pdf info sheet for GST/HST-related price adjustments, overcharging, and returning goods.
However, the savings will mainly be felt by those making big-ticket purchases, such as cars or new houses from a builder.
Buyers of newly constructed homes can take advantage of this one per cent savings if ownership and possession are transferred after June 30, 2006.
But if you bought a new house before May 3 this year, don't fret — you may still be eligible for the tax savings.
Say, for example, you signed the agreement before May 3 (the day after the budget was introduced), and paid the full original GST. If you didn't get ownership and possession of the house until after June 30, you might be able to get a GST/HST transitional rebate. If you got either ownership or possession before July 1, you are still required to pay seven per cent GST or 15 per cent HST, where required.
For a full breakdown on how the GST/HST cuts affect house purchases, Revenue Canada has an information sheet in .pdf form.
Revenue Canada also has information sheets on applying GST/HST cuts to funeral and cemetery arrangements and allowances and reimbursements.
Personal tax measures
The lowest personal tax rate — the rate applied to the first $36,378 of income — rose by half a percentage point to 15.5 per cent on July 1. The 15 per cent rate introduced by the Liberals in November 2005 will apply on income earned from Jan. 1, 2005 to June 30, 2006.
And there will be a new Canada employment credit for employable income up to $500. It's designed to help cover the costs of things such as home computers, uniforms and supplies required for work. Because it is effective midway through the year, the credit will be worth $250 for 2006. But it is expected to increase to $1,000 in 2007.
Middle- and high-income families are now eligible for the child disability benefit of up to $2,044 per year.
And the basic personal exemption — the amount Canadians can earn before paying income tax — has been cut. It rose from $8,648 in 2005 to $9,039 for the first six months of 2006. After July 1, it is cut by $400 to make for a one-year average of $8,839.
Transit Tax Credit
Anyone who purchases monthly or longer-term public transit passes for use after June 30 may get a non-refundable tax credit of 15.25 per cent. This applies to buses, streetcars, subways, commuter trains and ferries, or any combination of those. The credit is calculated by multiplying the amount spent on transit by 15.25 per cent (the lowest personal income tax rate of the year). You can claim the tax credit on your 2006 income tax return and the credit is deducted from your amount of taxes payable.
But you must have proof that you purchased the transit passes. Revenue Canada requires that you at least keep your expired monthly passes used after June 30, 2006.
That is enough to validate your tax credit claim if the pass itself indicates:
- It is a monthly or longer-term pass.
- The date or period for which the pass is valid.
- The name of the transit authority or organization that issued the pass.
- The amount paid for the pass.
- The identity of the rider.
If the pass does not provide ALL of this information, to claim the credit, the following should be kept with the pass:
- Dated receipts.
- Cancelled cheques or credit card statements.
All of these items do not need to be sent with your personal income tax return, but should be available if Revenue Canada asks to verify your transit tax credit claim.
Universal Child-Care Benefit
Parents with children under six years old will now get $1,200 annually per child from the Canadian government, called the Universal Child Care Benefit. It will cost the Canadian government $3.7 billion over two years.
This controversial first phase of the Tories' child-care program gives 12 monthly instalments of $100 for each preschool-age child in every family, regardless of income, to spend as they wish. It will be taxable at the rate applied to whichever spouse earns the lower income. Cheques are expected to be sent out after July 1.
Anyone already receiving the Canada Child Tax Benefit is automatically enrolled for the Universal Child Care Benefit. If you are not getting the CCTB, and are eligible to receive the UCCB, you will need to apply. Applications and are available on the Canada Revenue Agency website or by calling them at 1-800-959-2221.
The Conservatives also plan on offering $250 million in annual tax credits as incentives to create 25,000 additional child-care spaces per year.
Taxes and Excise Duty on Beer and Wine
Taxes on alcohol have risen to offset the impact of the GST/HST cut. Overall, the alcohol duty is designed to be revenue-neutral.
For example, on a typical 24-pack of 341-ml bottles of beer, the increase amounts to 26 cents. For a typical 750-ml bottle of wine, the increase amounts to about 8 cents.
According to the 2006 budget, the tax hikes on alcohol are as follows:
| Alcohol | Increase | Duty rates as of July 1, 2006 |
|---|
| Spirits with greater than 7 per cent alcohol by volume | 0.63 cents per litre of absolute ethyl alcohol | $11.696 per litre of absolute ethyl alcohol |
| Wine with greater than 7 per cent alcohol by volume | 0.1078 cents per litre | $0.62 per litre |
| Spirits with 0.5 per cent to 7 per cent alcohol by volume; and wine with 1.2 per cent to 7 per cent alcohol by volume | 0.0491 cents per litre | $0.295 per litre |
| Beer with greater than 2.5 per cent alcohol by volume | 0.03235 cents per litre | $0.3122 per litre |
| Beer with 1.2 per cent to 2.5 per cent alcohol by volume | 0.0162 cents per litre | $0.1561 per litre |
But excise duty on beer produced by small- and mid-sized Canadian brewers has been reduced as of July 1. Canadian brewers who produce no more than 300,000 hectolitres per year would save 90 per cent of the duty to be paid for the first 2,000 hectolitres, declining in stages to 15 per cent. For example, all Canadian brewers will save $2.30 on a 24-pack of 341-ml bottles on their first 2,000 hectolitres per year.
And Canadian wine-makers will also save. Makers of wine made from 100 per cent Canadian-grown farm products are exempt from duty for the first 500,000 litres as of July 1. For a typical 750-ml bottle of 100 per cent Canadian wine, producers will save 46.5 cents.
These changes are thought to give Canadian brewers and wine-makers a competitive advantage.
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