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Annex 2
A Strong Record of Tax Relief

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.

Table A2.1
Tax Relief Proposed in Budget 2009
  (millions of dollars)
Personal Income Tax              
Personal amounts
  and income tax brackets
470 1,885 1,950 2,055 2,180 2,320 10,860
Enhanced Canada Child
  Tax Benefit/National Child
  Benefit supplement
230 310 320 325 325 1,510
Increase Working
  Income Tax Benefit
145 580 580 585 585 585 3,060
Increase Age Credit 80 325 340 360 380 405 1,890
Introduce Home
  Renovation Tax Credit
500 2,500 3,000
Introduce First-Time
  Home Buyers’ Tax Credit
30 175 180 185 185 190 945
Increase Home Buyers’
  Plan limit
15 15 15 15 15 75
Extend Mineral Exploration
  Tax Credit
70 -15 55
RRSP/RRIF losses after
30 30
Sub-total1 1,255 5,550 3,050 3,200 3,345 3,515 19,915
Business Income Tax              
Increase small business limit 45 80 80 90 100 395
Extend temporary
  50-per-cent straight-line
  capital cost allowance rate
  for M&P machinery
  & equipment
320 530 140 990
Introduce temporary
100-per-cent capital cost
  allowance rate
  for computers
340 355 -125 -160 -105 305
Interest deductibility 80 105 185
Sub-total 0 385 435 275 540 240 1,875
Total1 1,255 5,935 3,485 3,475 3,885 3,755 21,790
Note: Totals may not add due to rounding.
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.

Table A2.2
Tax Relief Provided Since 2006, Including Measures Proposed in Budget 2009
  (billions of dollars)   (per
GST 11.6 11.5 12.2 13.1 13.8 14.6 76.8 35
Personal tax 12.0 15.3 13.1 13.6 14.2 14.9 83.1 38
Business tax 5.3 7.1 8.6 10.4 13.8 14.9 60.2 27
Total 28.9 33.9 33.9 37.1 41.8 44.4 220.0 100
Notes: Totals may not add due to rounding. Numbers have been revised based on Budget 2009 forecasts.

Tax Relief for Individuals
and Families in 2009 

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.

Table A2.3
Tax Relief1 for Individuals by Family Income Group, 2009
  Average Tax Relief in 2009  
  GST Personal Income Tax Total  

Total Family
  To Date Budget 2009   Tax Relief as a Share
of Net Tax Paid2
  (dollars) (per cent)
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
Over 150,000 1,640 1,241 887 3,768 7
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

  • Provide relief to taxpayers by increasing the basic personal amount by 7.5 per cent over its 2008 level to $10,320.
  • Provide an estimated $1.5 billion in additional support through enhancements to the Canada Child Tax Benefit and the National Child Benefit supplement.
  • Make work more rewarding for about 1.5 million low-income Canadians by enhancing the Working Income Tax Benefit (WITB), which was introduced in Budget 2007.
  • Increase the Age Credit amount by $1,000 to provide tax savings to about 2.2 million seniors. This is in addition to a $1,000 increase in the amount as part of the 2006 Tax Fairness Plan.

Other Actions Since 2006

  • Reduced the GST to 5 per cent from 7 per cent, which delivers tax relief to all Canadians, even those who do not earn enough to pay personal income tax.
  • Maintained the GST credit level while reducing the GST by two percentage points, which translates into more than $1.1 billion in benefits annually for low- and modest-income Canadians.
  • Introduced a new Child Tax Credit, which provides relief of up to $313 per child for 2009.
  • Increased the spousal and other related amounts to equal the basic personal amount so that single-earner families, including single parents, receive the same tax treatment as that already provided by the basic personal amount to two-earner families.
  • Introduced the Canada Employment Credit, which recognizes work-related expenditures such as home computers, uniforms and supplies.
  • Promoted physical fitness among children through the Children’s Fitness Tax Credit, which recognizes up to $500 in eligible fees for enrolment in a physical activity program.
  • Introduced the Public Transit Tax Credit for the purchase of eligible transit passes to encourage individuals to make a sustained commitment to public transit use.
  • Doubled the amount of pension income eligible for the Pension Income Credit, which benefits nearly 3.3 million pensioners.
  • Ensured that income from a Tax-Free Savings Account does not affect eligibility for income-tested benefits, such as the Guaranteed Income Supplement.
  • Introduced a Textbook Tax Credit on amounts of up to $65 per month to provide better tax recognition for the cost of textbooks for students.
  • Exempted scholarship and bursary income from tax.
  • Created the Registered Disability Savings Plan, which helps parents and others save to ensure the long-term financial security of a child with a severe disability.
  • Addressed outstanding policy recommendations of the Technical Advisory Committee on Tax Measures for Persons with Disabilities by extending eligibility for the Disability Tax Credit, and increasing the Child Disability Benefit and the maximum amount of the Refundable Medical Expense Supplement.

Tax Relief for Individuals and Families Prior to Budget 2009

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:

  • Making work pay for the many low- and modest-income individuals who face obstacles to joining or staying in the workforce.
  • Making Canada a better place for our highly skilled workers to live and work, and making it more rewarding for all Canadians to invest in the knowledge and skills that will lead to a more productive economy.
  • Helping Canadians save for their futures, whether to finance their retirement or the education of their children.

The Government’s commitment is paying off in the form of greater opportunity and choice for people. For example:

  • All Canadians—even those who do not earn enough to pay personal income tax—are benefiting from the 2-percentage-point reduction in the GST rate. Maintaining the GST credit level while reducing the GST by two percentage points translates into more than $1.1 billion in benefits annually for low- and modest-income Canadians.
  • All taxpayers are benefiting from personal income tax relief, which includes reducing the lowest personal income tax rate to 15 per cent from 16 per cent and increasing the basic amount that all Canadians can earn without paying federal income tax.
  • The Working Income Tax Benefit is strengthening work incentives for low-income Canadians already in the workforce, and encouraging low-income Canadians to enter the workforce.
  • The new Tax-Free Savings Account is improving incentives to save through a flexible, registered general-purpose account that allows Canadians to earn tax-free investment income.

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:

  • The Registered Disability Savings Plan, which will contribute to the financial security and well-being of children with severe disabilities.
  • A Child Tax Credit that is based on an amount of more than $2,000 for each child under 18.
  • A tax credit for transit passes.

A Business Tax Advantage for Long-Term Prosperity

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 Strong Record of Tax Relief for Canadian Businesses

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:

  • Substantial, broad-based tax reductions that will reduce the general corporate income tax rate from 22.12 per cent (including the corporate surtax) in 2007 to 15 per cent by 2012. The Government is committed to moving ahead with these tax reductions. The schedule of rate reductions, which includes a reduction to 19 per cent in 2009 from 19.5 per cent in 2008, is as follows:
Table A2.4
General Federal Corporate Income Tax Rate
  2007 2008 2009 2010 2011 2012
  (per cent)
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.
  • A significant increase in the amount of small business income eligible for the reduced federal tax rate to $400,000 from $300,000 as of January 1, 2007, and a reduction of the federal tax rate applying to qualifying small business income to 11 per cent in 2008 from 12 per cent in 2007. Budget 2009 proposes to increase the amount of small business income eligible for the reduced federal tax rate to $500,000 effective January 1, 2009.
  • A temporary 50-per-cent straight-line accelerated capital cost allowance (CCA) rate for investment in manufacturing or processing machinery and equipment undertaken before 2010. Budget 2009 proposes to extend the 50-per-cent straight-line accelerated CCA rate to investments in manufacturing or processing machinery and equipment undertaken in 2010 and 2011.
  • The alignment of CCA rates for a number of assets, including non-residential buildings, computers, railway locomotives, carbon dioxide pipelines, natural gas distribution pipelines, and liquefied natural gas facilities, to better reflect their useful life—this both reduces the tax burden on investment and ensures neutral tax treatment of CCA, encouraging investment to flow to its most productive uses.
  • Budget 2009 also proposes a temporary two-year measure that allows businesses to fully expense their investment in computers in the first year that CCA deductions are available.

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).

Table A2.5
Statutory General Corporate Income Tax Rates in G7 Countries
  2007 2012
  (per cent)
Japan 39.5 39.5
United States 39.3 39.3
France 34.4 34.4
Italy 37.3 31.4
Germany 38.9 30.2
United Kingdom 30.0 28.0
Canada1 34.1 27.2
  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.

Federal-Provincial-Territorial Collaboration

Provinces and territories have a crucial role to play in securing a business tax advantage for Canada.

Provincial Sales Tax Modernization

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.

A 25-Per-Cent Combined Federal-Provincial-Territorial Statutory Tax Rate

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.

Chart 2.1 - Canada's Tax Advantage

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.

Elimination of General Capital Taxes

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).

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