Understanding the 2006 Federal Budget

Q. The 2006 federal budget contained a number of proposed changes to personal income tax. What are they? – Terry S.

A. Many changes affecting your taxes were proposed in last Tuesday’s Federal budget. Two specific changes to note are the proposed cuts to the GST and personal income tax. These will impact your personal finances the most. Provided the budget is approved, effective July 1, 2006, the GST rate will be reduced from 7% to 6% and the change in the lowest personal income tax rate for taxable incomes moves from 15% in 2005, to 15.25% in 2006 and 15.5% in 2007. The15.25% rate for 2006 applies to taxable incomes below $36,378.

There are also a number of proposed changes to the basic personal amount, credits and other deductions. Some highlights include: an increase in the basic personal amount to $9,039 for the first half of 2006 and then, on July 1, 2006 when the GST is reduced by 1%, the basic personal amount will be reduced by $400 to $8,639. Effective July 1, 2006, a new Canada Employment Credit will be introduced that will give a tax break to Canadian employees, recognizing expenses for such things as home computers, uniforms and supplies. As well, there is a new Universal Child Care Benefit, and non-refundable tax credit for the cost of monthly public transit passes. Under the current tax system, individuals age 65 and over are entitled to claim a $1,000 pension income credit for eligible pension income. The budget proposes to double the Pension Income Credit to $2,000.

Proposed for 2007 are a Child Fitness Credit and new student initiatives, new deductions for employed trades people, a new lifetime capital gains exemptions, and changes to donations of securities. To encourage the donation of publicly traded securities to charitable organizations, the budget proposes to completely eliminate any capital gains payable on the donation of these securities to charities by reducing the capital gains inclusion rate for such donations to zero.

Stay tuned to see if the proposed changes come to fruition…

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member CIPF.

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.