Trick-or-treating may have originated in Wales, but Canada is the undisputed home of government Halloween surprises.
Last Tuesday, Finance Minister Jim Flaherty delivered his 2007 Economic Statement. Citing the need to strengthen Canada’s global competitiveness, Flaherty announced plans to reduce Canada’s overall tax burden with broad-based tax reductions between 2008 and 2012.
Few Canadians have forgotten the minister’s infamous Halloween ‘trick’ last year, which called for the punitive taxation of income trusts. Could last week’s announcement be yet another ghastly ruse, in preparation for a potential federal election? Or could it be a ‘treat,’ in light of the proposals’ generous corporate tax cuts?
Initial reaction to the 2007 mini-budget has been positive, particularly from the business sector. Nonetheless, the acute observer will note some interesting finds in this mini-budget:
- The previous Liberal government had already lowered the lowest personal rate to 15 per cent in their last budget, only to have the then newly minted Finance Minister raise it back up to 15.5 per cent in his first budget; hence, the 0.5-per-cent reduction announced this week is simply a return to status quo;
- The increases in the basic personal amount are mere continuations of the general step-up trend; and
- The same can be said about the Employment Insurance (EI) contribution reductions.
As a result, it appears that the validity of the cuts to the corporate income and GST rates will make or break this mini-budget. If the proposed measures relating to corporate income tax and GST cuts falter, this may indeed qualify as a Halloween trick; if they are for real, this would be a very sweet Halloween treat.
Economic Statement highlights
The 2007 mini-budget proposes corporate tax cuts that are unprecedented in magnitude. By 2012, corporate active business income in excess of the $400,000 small business limit will be taxed at the federal level at 15 per cent, down from 22.1 per cent. The federal government has also cited its intention to collaborate with the provinces to reach a 25-per-cent combined corporate income tax rate by 2012. However, this would require Ontario to slash its current tax rate to 10 per cent, down from 14 per cent, which may be overly ambitious.
Furthermore, the tax rate for active business income qualifying for the small business deduction is currently scheduled to be reduced to 11 per cent in 2009. The minister has proposed accelerating the reduction to January 1, 2008.
Other tax measures proposed in the 2007 mini-budget include:
- Reducing the GST to 5 per cent from 6 per cent effective Jan. 1, 2008;
- Reducing the lowest personal income tax rate to 15 per cent from 15.5 per cent, retroactive to Jan. 1, 2007;
- Increasing the basic personal amount that can be earned without paying federal taxes to $9,600 for 2007 and 2008, and to $10,100 for 2009; and
- Reducing the EI contributions in 2008 by 10 cents per $100 of insurable earnings for employers and by 7 cents per $100 of insurable earnings for employees.