As announced in February, the Canadian federal government set out a five-year tax plan to deliver cumulative tax reductions of at least $58 billion. From July 2000, the following budget measures have begun to be reflected in the paycheques and benefits that Canadians receive.
Restoring Full Protection Against Inflation in the Tax System
The Government has restored full indexation to the personal income tax system to protect taxpayers against automatic tax increases caused by inflation. In addition to ending "bracket creep," this measure ensures that the value of payments that Canadians receive under the Canada Child Tax Benefit and the goods and services tax credit is not eroded by inflation. Indexation took effect as of January 1, 2000, but July is the month in which it will begin to be reflected in the paycheques and benefits Canadians receive.
Reducing the Middle Tax Rate
The middle tax rate will drop to 24% from 26%. For individual taxpayers, this represents federal income tax savings of up to $600 per year.
Under the Five-Year Tax Reduction Plan announced in the 2000 budget, the middle rate will fall to 23% by 2004 at the latest.
Reducing the 5% Surtax
The 5% deficit reduction surtax will be eliminated for incomes of up to about $85,000 and reduced for all others.
Under the Five-Year Tax Reduction Plan, the surtax rate will fall to 4% from 5% in January 2001, and it will be completely eliminated by no later than 2004.
Increasing the Canada Child Tax Benefit
Starting in July, maximum annual payments under the Canada Child Tax Benefit (CCTB) will rise by about $250 per child as a result of measures announced in the last two budgets. For a first child, the maximum total benefit under the CCTB will rise from $1,805 annually to $2,056. To provide families with the value of indexation for January to June 2000, an additional amount of $25 will be added, bringing the maximum payment for a first child to $2,081.
Under the Five-Year Tax Reduction Plan, the maximum total benefit will rise to $2,400 for a first child by 2004 at the latest.
More Cuts to Come
The Finance Minister, Paul Martin, recently stated that starting in the 2001 federal budget, the government intends to accelerate the remaining measures in the tax reduction plan so that Canadians can benefit sooner. "This is the least, not the most we will do," said Minister Martin. "This tax reduction plan will be updated – each and every year – so that we can keep taxes falling for all Canadians."
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