Tax Breaks for Families in Canada’s New Budget
Canada’s new minority government presented its first federal budget last week with tax breaks for families that include a universal child care allowance and a reduction in the goods and services tax (GST) from 7 percent to 6 percent. “The overall impact is savings of some extent, but not major savings,” said Jack Mintz, professor of accounting at the University of Toronto, according to CANOEMoney.com.
With the universal child care allowance provision, Stephen Harper, the new Conservative Prime Minister, made good on a campaign promise to pay Canadian families $100 per month for each child under the age of 6, leaving it up to the family to decide how to spend the money, the Associated Press reports. This is considered a boon to families with one wage earner. The program will replace an existing $4.5 billion child care program put in place by the Liberals.
The Canadian Institute of Chartered Accountants calculates that the child care benefit would generate $836 in savings for two-income families with $30,000 in income and $5,000 in child care expenses, the Toronto Star reports. Two income families spending $5,000 on child care, with combined income of $60,000, would save $706 and two-income families earning $100,000 would save $594. A one income, two-parent family with no child care expense would save $771. A single-parent family making $40,000 would save $642.
The government said that the new child care payments would not affect credits based on income, such as the child tax benefit or the GST credit, CANOEMoney.com says.
The proposed reduction in the GST should cut the anticipated increase in the cost of living by .06 percent, economists Douglas Porter and David Watts of BMO Nesbitt Burns told CANOEMoney.com. “There is likely to be a significant lull in retail sales in the next two months, before the rate is cut, but a major pop in sales in July,” they said.
The budget raises the lowest income-tax rate by half a point, to 15.5 percent, effective July. 1
Other provisions in the budget offer a little something to nearly everybody, CANOEMoney.com says. Commuters who buy annual passes for buses, subways, trains or ferries are eligible for a tax credit of $80 per month. A new tax credit of $500 for textbook costs could yield a full-time student $80 a year, the Finance Department estimates. The conservatives also confirmed existing dividend tax reductions and announced the elimination of capital gains on securities donated to charity.
The new budget proposes raising the threshold for small business income eligible for a reduced federal rate from $300,000 to $400,000, ancasternews.com says. The reduced rate will be cut to 11 percent by 2009.
The Conservatives’ budget must still be approved by the House of Commons.