Since coming to office, the Government has implemented an ambitious agenda of tax relief aimed at creating a tax system that rewards Canadians for realizing their full potential, improves standards of living, fuels job creation and growth in the economy, and encourages investment in Canada. The tax relief proposed in this budget totals more than $20 billion over 2008–09 and the following five fiscal years.
|(millions of dollars)|
|Personal Income Tax|
and income tax brackets
|Enhanced Canada Child
Tax Benefit/National Child
Income Tax Benefit
|Increase Age Credit||80||325||340||360||380||405||1,890|
Renovation Tax Credit
Home Buyers’ Tax Credit
|Increase Home Buyers’
|RRSP/RRIF losses after
|Business Income Tax|
|Increase small business limit||–||45||80||80||90||100||395|
capital cost allowance rate
for M&P machinery
100-per-cent capital cost
|Note: Totals may not add due to
1 Enhanced CCTB/NCBs is an expenditure, and so is not included in the calculation of total tax relief.
Actions taken by the Government of Canada since 2006, including those proposed in Budget 2009, will reduce taxes on individuals, families and businesses by an estimated $220 billion over 2008–09 and the following five fiscal years.
As a result of these actions, Canada is better positioned than most countries to withstand the effects of today’s global economic challenges. At the same time, Canada is building a solid foundation for future economic growth and higher living standards for Canadians.
|(billions of dollars)||(per
|Notes: Totals may not add due to rounding. Numbers have been revised based on Budget 2009 forecasts.|
As shown in Table A2.3, tax reductions introduced since 2006, including measures proposed in Budget 2009, are providing substantial tax savings for individuals and families. Canadians at all income levels are benefiting from this tax relief, with proportionately greater savings for those with lower incomes. For example, for those families with incomes of $15,000 to $30,000, tax relief in 2009 will average $649—a reduction of 53 per cent—while families with income in the $80,000 to $100,000 range will receive, on average, a tax reduction of $2,287, or 17 per cent.
|Average Tax Relief in 2009|
|GST||Personal Income Tax||Total|
|To Date||Budget 2009||Tax Relief as a Share
of Net Tax Paid2
|Less than 15,000||130||95||147||372||100|
|15,000 – 30,000||280||201||168||649||53|
|30,000 – 45,000||400||444||247||1,092||31|
|45,000 – 60,000||510||629||356||1,494||23|
|60,000 – 80,000||630||787||473||1,890||20|
|80,000 – 100,000||770||903||614||2,287||17|
|100,000 – 150,000||960||1,036||717||2,714||14|
|1 In Budgets 2006, 2007,
2008, and 2009, the 2006 Tax Fairness Plan, the 2007 Economic
Statement and the 2008 Economic and Fiscal Statement.
2 Net tax paid equals federal personal income tax plus GST minus federal refundable tax credits (mainly the GST credit) payable for 2009 in the absence of tax relief provided since 2006. The maximum percentage presented for tax relief as a share of net tax paid is 100%.
Tax Relief for Low- and Modest-Income Canadians
Low- and modest-income Canadians are the main beneficiaries of many of the tax reductions introduced by the Government since 2006. Examples of such actions are below.
Proposed in Budget 2009
Other Actions Since 2006
Advantage Canada, the Government’s long-term economic plan, made a commitment to make Canada’s tax system fairer, focusing on initiatives that contribute the most to economic growth, including:
The Government’s commitment is paying off in the form of greater opportunity and choice for people. For example:
In addition to tax relief, the Government has introduced measures targeted to help families, students, seniors and pensioners, workers, persons with disabilities, and communities. Examples of such measures include:
Since 2006, the Government has introduced significant tax relief to position Canadian businesses for success—in 2009–10 alone, total tax relief for Canadian businesses, including the measures proposed in Budget 2009, will total more than $7 billion. In 2008-09 and the following five fiscal years, business tax relief will total more than $60 billion.
A competitive business tax system that is responsive to changes in the economic environment is important to encourage new investment, growth and job creation in Canada. The Government is committed to helping Canadian businesses in the current economic circumstances to emerge even stronger and better equipped to compete globally as the economy recovers.
Key initiatives, which are providing important tax relief, include:
|Rate reduction schedule||22.121||19.5||19.0||18.0||16.5||15.0|
|1 Includes the 1.12-per-cent corporate surtax, which was eliminated January 1, 2008.|
These and other tax relief measures are now providing fiscal stimulus and helping Canadian businesses boost productivity and cope with difficult economic circumstances.
Moreover, as a result of corporate income tax reductions introduced by the Government since 2006, Canada will have the lowest statutory tax rate in the G7 by 2012. Canada will also have a statutory tax rate advantage over the U.S. of more than 12 percentage points (Table A2.5).
|Federal statutory rate1||22.1||15.0|
|Average provincial-territorial statutory rate||12.0||12.2|
|1 The 2007 statutory tax
rate includes the 1.12-per-cent corporate surtax, which was
eliminated January 1, 2008.
Sources: Department of Finance; OECD Tax Database.
As well, Canada will reach the goal of the lowest overall tax rate on new business investment (marginal effective tax rate1 (METR)) in the G7 by 2010, and the METR advantage for Canada over the U.S. will be more than 10 percentage points by 2012.
The competitiveness of our business tax system will encourage and attract new investment in Canada, including foreign direct investment from abroad.
The significant corporate tax relief being provided by the Government is in addition to existing provisions of the tax system that assist businesses, such as those that help to smooth the impact of business cycles by allowing businesses to use current year operating losses to reduce their tax liability in preceding and future taxation years. Similarly, unused investment tax credits (ITCs) can be carried over to other years to preserve the incentive effect of the credits for businesses that are not currently profitable. Under Canada’s generous carry-over regime, businesses may carry their operating losses and unused ITCs back up to 3 years and forward up to 20 years.
Provinces and territories have a crucial role to play in securing a business tax advantage for Canada.
Provincial retail sales taxes (RSTs) are outdated and inefficient. They impose a significant tax burden on new business investment and increase the day-to-day operating costs of Canadian businesses. Unlike the Goods and Services Tax (GST), under which businesses receive a credit for the sales tax they pay on their inputs, these costs are subsequently embedded in the prices consumers pay for goods and services. Ultimately, this makes our businesses less competitive, reduces employment and lowers the standard of living for Canadians. Modernizing these harmful taxes by implementing a value-added tax structure harmonized with the GST is the single most important step that provinces with RSTs could take to stimulate new business investment, create jobs and improve Canada’s overall tax competitiveness.
The RSTs in effect in the provinces of British Columbia, Saskatchewan, Manitoba, Ontario and Prince Edward Island are significantly increasing their respective METRs on new business investment. If all five provinces currently imposing an RST were to adopt harmonized value-added taxes, the METR for Canada on new business investment would be reduced by more than 7 percentage points. The benefits to businesses investing and operating in these provinces would be much greater on both new capital and other inputs used in the production of goods and services as a result of the elimination of sales tax.
The Government remains committed to working with provinces that still have RSTs to identify and evaluate potential areas where changes to the current framework for federal-provincial harmonization could facilitate provincial movement towards the creation of a fully modernized and efficient consumption tax system in Canada.
In Canada, the combined federal-provincial-territorial corporate income tax rate has been trending downward since 1980. Between 1980 and 2012, the federal corporate income tax rate will have declined substantially from 37.8 per cent to 15 per cent. However, over the same period, there will be virtually no change in the average provincial corporate income tax rate (Chart A2.1).
To strengthen Canada’s business tax advantage and help Canadian businesses succeed in a period of global economic turmoil, the Government is calling on provinces and territories to join Alberta and British Columbia by reducing their corporate income tax rates to 10 per cent and move Canada towards the goal of a 25-per-cent combined federal-provincial statutory tax rate by 2012—Alberta already has a 10-per-cent corporate income tax rate and British Columbia is reducing its corporate income tax rate to 10 per cent by 2011.
Provincial sales tax harmonization, together with a 25-per-cent combined federal-provincial-territorial statutory tax rate by 2012, would bring the METR for Canada to 14.7 per cent, well below the average METRs for Organisation for Economic Co-operation and Development and small developed countries—21.2 per cent and 19.5 per cent respectively.
Capital taxes are particularly damaging for business investment because they must be paid regardless of whether a corporation is profitable. These profit-insensitive taxes add to the difficulties businesses face during downturns in the business cycle. To increase the competitiveness of Canadian businesses, the Government eliminated the federal capital tax in 2006.
In addition, the Government introduced in Budget 2007 a temporary financial incentive to encourage provinces to eliminate their general capital taxes as quickly as possible, and to eliminate or replace their capital taxes on financial institutions with a minimum tax. The progress made to date by provinces is encouraging—all general provincial capital taxes will be eliminated by 2012.
1 The marginal effective tax rate (METR) on new business investment takes into account federal and provincial statutory corporate income tax rates, deductions and credits available in the corporate tax system and other taxes paid by corporations, including provincial capital taxes and retail sales taxes on business inputs. The methodology for calculating METRs is described in the 2005 edition of Tax Expenditures and Evaluations (Department of Finance).Table of Contents - Previous - Next