GST not the only Canada Day tax change

Although most of the attention has been focused on Ottawa’s decision to reduce the GST by a single percentage point, there are several other tax alternations taking effect July 1 that could have an impact on your clients. And not all of them are positive.

Investors Group tax specialist Myron Knodel points out that the Tories are increasing the personal income tax rate on Canadians earning up to around $36,400 to 15.5%, up from 15% applied last year and in the first half of 2006.

“For someone earning $36,000 a year, that is going to increase their tax costs, on a monthly basis, by $15.16. Another thing that’s happening is the basic personal exemption is being reduced, and the impact of that on a monthly basis is going to be another $5.17.”

However, the new Canada Employment Credit, which effectively removes the tax on the first $500 on employment income, will reduce taxes on a monthly basis by $6.35, Knodel adds. “So you take all that together and you look at the impact that’s going to have on a worker that earns $36,000 in a year you’re looking at around $13 more tax per month, beginning July 1.”

“But if you want to compare that with the reduction in the GST, you’d have to determine how much you spend in a month in taxable supplies. If you pay more than $1,300 per month on taxable good and services, you’re going to better off.”

A new 15.5% federal tax credit on the purchase of long-term public transit passes is also available starting July 1. “If you are making these purchases, make sure you save your documentation in order to claim the credit on your 2006 tax return,” Knodel suggests.

The Universal Child Care Benefit also begins Canada Day, giving parents $100 per month per child under the age of six.

Of course, the GST cut will be top of mind for most Canadians, and if you or your clients have been putting off major purchases, such as a new car or a major appliance, there’s no need to wait.

Still, in many cases, consumers won’t notice the change at all, since for most minor purchases, the GST is already embedded in the price.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com