October 2000

On October 18, 2000, the Federal Government announced what's widely anticipated to be a pre-election Economic Statement. Included in this pre-election Statement are several personal and corporate tax changes as well as other program spending initiatives. As it is expected that the government will dissolve parliament this weekend, it remains to be seen if these proposals will in fact become law. However, some proposed changes are likely to survive regardless of which party forms the next government.

Accordingly, we have highlighted a number of the more important changes:

Personal Tax Changes

The Statement proposes to lower all personal income tax rates effective January 1, 2001:

• The 17% rate will be reduced to 16%.
  
• The 24% middle tax rate - reduced from 26% in the 2000 budget - will be reduced further to 22%.
  
• The 29% top tax rate will be reduced to 26% on incomes between about $60,000 and $100,000.
  
• The top tax rate of 29% will apply to incomes in excess of $100,000.
  
• The deficit-reduction surtax will be eliminated.
  
• This Statement confirms the continuation of full indexation as announced in the February 28, 2000 budget.

With the reduction in the lowest tax rate to 16%, the rate applied to non-refundable credits will consequently decline from 17% to 16%.

The Canada Child Tax Benefit for low-income families with children was scheduled to increase by $200 per child in July 2001. The Statement proposes to add an additional $100 per child, bringing the total July 2001 increase to $300 per child.

Effective January 2001, the disability tax credit amount will be raised to $6,000 from $4,293.

Effective January 2001, credit amounts for caregivers of dependent relatives who are elderly, infirm, or disabled will be raised to $3,500 from $2,386.

Effective January 2001, the Statement proposes to double the amount on which the education credit for post-secondary students is based to $400 a month from $200 for full-time students, and to $120 from $60 for part-time students.

Providing Relief for Heating Expenses

Each individual who is eligible for the adult entitlement of the GST credit will receive, early in 2001, $125 in relief. Individuals claiming the GST credit in respect of themselves and a qualified relation or dependant will receive a total of $250. Although the GST credit is gradually phased out as income rises, all GST credit recipients will receive the full heating expense relief.

Canada Pension Plan Deduction for the Self-Employed

It is proposed that self-employed individuals be permitted, as of January 1, 2001, to deduct the portion of CPP contributions that represents the "employer's" share. The portion of their CPP contribution that represents the "employee's" share will continue to qualify for a tax credit, as it does for other taxpayers.

Capital Gains

In the 2000 budget, the Government reduced the capital gains inclusion rate from three-quarters to two-thirds. The Government now intends to further reduce the inclusion rate for capital gains to one-half, effective immediately. The one-half inclusion rate will be applicable to the sale of eligible capital property.

Rollovers of Capital Gains on Qualified Small Business Corporation Shares

The February 28, 2000 budget provided a new incentive for individuals selling of shares in Qualified Small Business Corporations allowing them to defer the taxation of the capital gain by investing the proceeds on the sale in another Qualified Small Business Corporation within certain limitations. Effective immediately, the limitations have been significantly reduced in this Economic Statement.

Corporate Income Tax Reductions

The 2000 budget proposed to reduce, within five years, the federal corporate income tax rate from 28% to 21% on business income not currently eligible for special tax treatment, with the first cut to 27% effective January 1, 2001.

This Statement sets out a clear accelerated timetable for the remaining reductions. Specifically, the Government proposes to legislate a reduction of 2 points, from 27% to 25%, effective January 1, 2002, a further reduction of 2 points effective January 1, 2003, and the remaining 2 percentage-point reduction effective January 1, 2004 (all prorated for taxation years that include those dates).

This information is based upon the Economic Statement. Actual legislation may vary when enacted. Our comments are meant to be general in nature and we will be pleased to provide you with any further specific information you may require.