CPI Adjustment to Income Tax Brackets and Non-Refundable
Tax Credits
The taxable income thresholds in all four federal tax brackets were increased
by 2.2 per cent in 2007 to mirror changes in the Consumer Price Index (CPI).
Furthermore, all indexed non-refundable tax credits also increased by 2.2 per
cent in 2007 in order to reflect the CPI adjustment. Please see the chapter
on federal and provincial/territorial non-refundable tax credits, as well as
Appendix III,
for further details.
New Tax Rate for First Bracket
The tax rate for the first bracket in 2007 was 15 per cent. This rate was
announced in the October mini-budget and is retroactive to January 1, 2007.
Canada Employment Credit
The Canada Employment Credit, which was introduced in the 2006 federal budget,
doubled in value from $500 to $1,000 in 2007.
Increase in Threshold Limits for Spousal/Equivalent
to Spouse Tax Credit
The federal budget increased the earnings threshold at which the income of
the taxpayer’s spouse, common-law spouse, or dependent relative will totally
eliminate the spousal or equivalent to spouse non-refundable tax credit. As
a result of further changes announced in the October mini-budget, they may now
earn up to the same level as the basic personal credit amount—$9,600 in 2007—before
this credit is entirely clawed back.
New Child Tax Credit
The federal budget introduced a new annual non-refundable child tax credit,
effective January 1, 2007, that will pay parents $2,000 for each child under
18 at the end of that taxation year. Any unused portion of this credit, which
will be indexed for inflation in future years, is transferable between spousal
or common-law partners.
Working Income Tax Benefit
The 2007 federal budget introduced a refundable Working Income Tax Benefit
(WITB) that provides up to $500 for individual taxpayers 19 or over without
dependants, whose earned income exceeds $3,000, reduced by 15 per cent of net
family income in excess of $9,500. The WITB is $1,000 for families, including
couples or single parents 19 or over, with earned income in excess of $3,000,
reduced by 15 per cent of net family income in excess of $14,500.
The WITB is calculated at the rate of 20 per cent of each dollar of earned
income in excess of $3,000, therefore reaching a maximum benefit at $5,500 of
earned income for individuals and $8,000 of earned income for families.
Individuals who are not classified as dependants; who are eligible for the
disability tax credit (DTC); and have at least $1,750 in earned income, will
also receive an additional disability supplement up to a maximum credit of $250.
This disability supplement is reduced by 15 per cent of net family income in
excess of $12,833 for single individuals and $21,167 for families.
The benefit levels and thresholds associated with this WITB credit will be
indexed in future years.
Pension Income Splitting
Beginning in 2007, senior-citizen taxpayers with a spouse or common-law partner
will be allowed to split pension income with their spouse or partner. The first
$2,000 of pension income is eligible for the pension credit.
Effective January 1, 2007, the age limit at which registered retirement savings
plans (RRSP) and registered pension plans (RPP) must be terminated has been
raised to 71 from 69. This means taxpayers born in 1936 and 1937 will be eligible
to contribute to an RRSP in 2007, even though they had to terminate their RRSP
under the old rules when they turned 69 in 2005 and 2006, respectively.
Taxpayers 70 and 71 in 2007 will be able to reconvert proceeds transferred
to a registered retirement income fund (RRIF) after their RRSP was terminated
under the old rules, back into an RRSP if they wish. In any event, there will
be no mandatory minimum withdrawal for 70 and 71-year old taxpayers holding
an RRIF. Moreover amendments will be permitted to existing registered annuity
plans to reflect the new conversion age.
Increase in RRSP Annual Contribution Limit
The annual registered retirement savings plan (RRSP) contribution ceiling
was raised to $19,000 in 2007, from $18,000 in 2006. It is scheduled to rise
to at least $20,000 in 2008; $21,000 in 2009, and $22,000 in 2010, after which
the annual maximum contribution rates will be indexed to reflect increases in
average wage growth.
Increase in RPP Annual Contribution Limit
Money-purchase plan registered-pension plan (RPP) contribution limits increased
in 2007 to $20,000, from $19,000 in 2006; they will increase again to at least
$21,000 in 2008; and $22,000 in 2009, after which they will be indexed annually
to account for the average wage growth.
The maximum annual contribution limit for defined-benefit RPPs also increased
in 2007 to $2,222 per year of service, up from $2,111; they will increase again
to at least $2,333 in 2008; and $2,444 in 2009, after which they will be indexed
on an annual basis to reflect increases in average wage growth.
Increase in RESP Lifetime Contribution Limit
As a result of the 2007 federal budget, the lifetime contribution limit to
registered education savings plans (RESP) was increased to $50,000, up from
$42,000. The maximum annual Canada Education Savings Grant (CESG) was also increased
to $500, (representing 20 per cent of a $2,500 contribution) from $400 (20 per
cent of a $2,000 contribution). The annual contribution limit of $4,000 was
eliminated.
The 2007 federal budget introduced a new registered disability savings plan
(RDSP), which is designed to assist parents and others save for the long-term
financial security of a child with a disability.
Anyone can contribute to an RDSP, for which contributions are limited to a
lifetime maximum of $200,000 with no annual limit. Contributions will be permitted
until the end of the year in which the beneficiary reaches 59. Payments from
an RDSP will be required to commence by the end of the year in which the beneficiary
turns 49.
To augment funds in the RDSP the government will contribute, in the form of
Canada Disability Savings Grants (CDSG), funds equivalent to 100 per cent to
300 per cent of RDSP contributions, to a maximum of $3,500 depending on the
net income of the beneficiary’s family. The federal government will also contribute
up to $1,000 annually in Canada Disability Savings Bonds (CDSB), to a maximum
of $20,000, depending on the net income of the beneficiary’s family.
This plan, which is to be based on the registered education savings plan (RESP)
design, will be available commencing in 2008.
Canada Child Tax Benefit Payments (CCTB)
Beginning July 2007, CCTB National Child Benefit supplement (NCB) payments
to Canadians rose to $1,988 for the first child (from $1,945), $1,758 for the
second child (from $1,720) and $1,673 for each subsequent child (from $1,637).
As a result, the maximum annual benefit under the combined CCTB and NCB supplement
increased to $3,271 (from $3,200) for the first child; to $3,041 (from $2,975)
for the second child; and $3,046 (from $2,980) for each subsequent child. The
maximum indexed Child Disability Benefit (CDB) supplement for parents in low
and modest-income families with children who have disabilities and a net family
income of less than $37,178 (from $36,378 in 2006), increased to $2,351 (from
$2,300) in 2007.
Increase in Lifetime Capital Gains Exemption
The lifetime capital gains exemption for small business owners, farmers and
fishers has been increased by 50 per cent to $750,000, from $500,000, effective
for transactions that occur on or after March 19, 2007.
Decrease in Goods and Services (GST) Tax Rate
The federal government has proposed that the goods and services (GST) tax
rate be reduced by one percentage point, from six per cent, down to five per
cent, effective January 1, 2008.
Increased Threshold for All Income Tax Brackets
The taxable income thresholds in all three Ontario provincial tax brackets
were increased by 2.1 per cent in 2007, reflecting changes to Canada’s consumer
price index (CPI) in Ontario. All indexed non-refundable tax credits also increased
by 2.1 per cent.
Please see the chapter on federal and provincial/territorial
non-refundable tax credits, as well as Appendices III
and Appendices V, for further details.
Introduction of Ontario Child Benefit
The 2007 provincial budget introduced a new Ontario Child Benefit (OCB), effective
July 1, 2007, for each child under 18. The OCB is designed to begin replacing
the Ontario Child Care Supplement for Working Families (OCCS) benefit as well
as certain child-related social assistance benefits.
The initial OCB payment for 2007 is $250 (in addition to social assistance
or OCCS payments), reduced by 3.4 per cent of adjusted family net income over
$20,000. That amount will be increased to $600 on July 1, 2008, reduced by 8
per cent of adjusted family net income in excess of $20,000. Most child-related
social assistance payments, as well as the OCCS, are scheduled to be consolidated
with the OCB beginning in 2008.
The OCB is scheduled to be fully implemented, with annual increases, by July
2011 at a value of up to $1,100 per child.
Various Parallel Measures to Federal Initiatives
As indicated throughout this booklet, various measures were instituted in
the 2007 provincial budget that mirror existing federal initiatives, such as
the extension of the carry-forward period for non-capital losses from 10 to
20 years; and accelerated capital-cost allowance (CCA) schedules for certain
environmental-related incentives.
The Ontario government also announced that it would parallel the initiative
established by the federal government to allow taxpayers to split up to 50 per
cent of their eligible pension income with their spouses or common-law partners.
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