Ottawa adjusts personal tax brackets to account for inflation

(November 13, 2002) The federal government is adjusting personal income tax rates by 1.6% next year as part of its annual effort to account for inflation.

Since 2000, Ottawa has changed personal tax rates on January 1 each year in an attempt to avoid automatic tax increases that occur when income rises with inflation, also known as bracket creep.

The adjustment also applies to tax credits, such as the child tax benefit and GST credits.

The ministry of finance estimates that next year’s indexation will save $135 for a one-earner family of four with a $40,000 annual salary.

“Indexing the basic personal amount preserves the real value of the amount that all Canadians can earn without paying tax,” the ministry of finance said in a statement.

According to Statistics Canada, the annual inflation rate in September was 2.3%. This year’s tax inflation adjustment was 1.4%, while last year’s was 2.5%.

Earlier this month, the Canada Customs and Revenue Agency announced that the maximum pensionable earnings under the Canada Pension Plan for 2003 would be raised to $39,900, from $39,100 this year. Earnings above the $39,900 ceiling are not subject to the CPP charge.

The employee and employer contribution rates for 2003 will increase to 4.95% from 4.7%, and the self-employed contribution rate will rise to 9.9% from 9.4%. The maximum employer and employee contribution to the plan will be $1,801.80 and the maximum self-employed contribution will be $3,603.60. The maximums in 2002 were $1,673.20 and $3,346.40.

CCRA said the increases reflect the growth in Canadian wages and salaries.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca.

(11/13/02)