Federal tax cuts announced today

[Thorin]

Mr. Analog asked me today if I'd heard something about a reduction in the GST rate.

Tax Relief for All Canadians

Our Government is establishing a proud legacy of tax relief. [..] At the heart of this effort is an additional 1-percentage-point reduction in the GST, moving it from 6 per cent to 5 per cent effective January 1, 2008.

Yes, Mr. Analog, you heard that right.  I guess any of us IT guys that work with software that handles money and tax rates will be busy for the next month or so, since we had exactly 62 days from the announcement to implement that new rate.  I hope no one hardcoded it again after last year's drop from 7% to 6%.

Personal Income Tax Reductions

This motion proposes an increase in the basic personal amount to $9,600 retroactive to January 1, 2007. The basic personal amount will be increased to $10,100 on January 1, 2009. This is the total amount all Canadians can earn without paying federal income tax. [..] In addition, our Government will also move the lowest personal income tax rate to 15 per cent [..] retroactive to January 1, 2007.

The basic personal amount was $8,929 this year.  So they're sending it up $671.  The lowest personal income tax rate was 15.5% this year.  So they're dropping it 0.5%.  This is good news, but not great news.

Before they got booted out of office, the Liberals were on track to have the basic personal amount around $9,700 this year (depending on the Consumer Price Index) and had already lowered the lowest personal income tax rate to 15%.  When the Tories came in they rolled back the Liberal tax cuts by reducing the basic personal amount and increasing the lowest personal income tax rate, all so that they could fund the reduction of GST from 7% to 6%.

Still, it does translate into some savings.  I worked out mine; this year I will pay $260.60 less in taxes thanks to these cuts, or $10.86 per cheque.

Oh, and the Tories did bring in a couple of really good tax cuts for families - the $2,000 non-refundable tax credit (NRTC) per child, the increase in the NRTC spousal amount, and the $500 NRTC for sport activity fees per person will help somewhat.  That is, for those people who make enough money to pay taxes; you only reduce your taxes owing to zero with NRTC, they can't turn into a tax refund.  So if you're part of the working poor that already doesn't pay taxes, you see none of this social benefit.

[Shayne]

I was following this on CTV NewsNet last night when they were discussing the upcoming expected changes.  A lot of good savings for people here.  Like you said not great.  I'm more interested in the provincial information though, things like royalty payments, health care fees, etc.  A 1% drop in GST once again zaps millions of dollars from the national treasury and yields almost nothing for the actual consumer as prices adjusted (my Shaw bill went up 1% when the last GST drop happened, i expect the same).

I recall some stuff about revenue sharing when they the conservatives were trying to get elected any news on that?  (combined income to lower the tax bracket for those of us with spouses making less then us).

[Thorin]

No, nothing about revenue sharing (I think it has a different name, actually).

See, they figure out a whole bunch of benefits based on combined family income, so why not figure out taxes owing on combined family income?  It'd be quite easy to do compared to some other tax reforms they've made (Universal Child Care Benefit, for one, is rather complicated).

As it is, if you have a business that actually makes money so is a real and viable business, simply have your business hire your spouse as a bookkeeper for a salary that makes it so your and their income is about the same.  Of course, that does involve a lot of overhead, but an accountant can probably do all the footwork for $500 or less.  And if you save $3,000 or more, well, that might be worth it, right?  Keep in mind, though, you cannot have a business for the sole purpose of income splitting (aha, that's the term!).  They call that "tax evasion".

[Shayne]

Income splitting would be of a huge help for people like me and Druid who make double or more then our spouse.  Its one of the extremely few things that the conservatives brought up that I agreed with (though not enough for my vote).  I hope they do consider it though.

As for a business to shelter, nope, nothing like that.  We max out our RRSPs every year and thats the best we can do.

How is the national debt doing with all these cuts?  Probably not so hot, or at least wont be so hot in the future.

[Lazybones]

From what I read debt payment (not payed off) was already set aside for this budget cycle and even after these cuts they are still projecting a surplus

[Thorin]

Income Splitting isn't even that hard to do.  We're already allowed to transfer NRTCs to/from our spouses.  All they'd have to do is let us transfer part of our income to our spouse.  We'd fill in an amount in the "Income Transferred To Spouse" line, they'd fill in an amount in the "Income Transferred From Spouse" line, and all the rest of the math stays the same!

Or the federal government could look at how the provincial government does it - with a flat tax rate instead of a stepped tax rate and having the basic personal amount and spousal amount equal, it doesn't matter who makes the money.

For Example:
AB Basic Personal Amount: $15,435
AB Spousal Amount: $15,435 (reduced by spouse's income)
AB Income Tax Rate: 10%
You make $100,000 and your spouse makes $0
You pay ($100,000 - $15,435 - $15,435) x 10% = $6,913
Your spouse pays ($0 - $15,435 - $0) x 10% = $0 (can't go negative)
You make $90,000 and your spouse makes $10,000
You pay ($90,000 - $15,435 - $5,435) x 10% = $6,913
Your spouse pays ($10,000 - $15,435 - $0) x 10% = $0 (can't go negative)
You make $80,000 and your spouse makes $20,000
You pay ($80,000 - $15,435 - $0) x 10% = $6,456.50
Your spouse pays ($20,000 - $15,435 - $0) x 10% = $456.50 (can't go negative)
You make $55,000 and your spouse makes $45,000
You pay ($55,000 - $15,435 - $0) x 10% = $3,956.50
Your spouse pays ($45,000 - $15,435 - $0) x 10% = $2,956.50 (can't go negative)

See?  Income Splitting would make no difference to provincial taxes paid by your family.  Income Splitting only helps when higher income is taxed at a higher rate.  Of course, that's how federal taxes are set up.

[Shayne]

Thats just it.  The tax % i pay is more then the tax % my wife pays.  If I could split income with her to drop me into a bracket below me and keep her in the bracket she is in it could potentially save thousands.  I did a bit or reading on this last night and thats the reason why the Canadian government doesn't want to do it.  Maybe industrialized countries allow income splitting including our neighbors to the south.  http://www.cbc.ca/news/background/personalfinance/income-splitting.html

[Thorin]

The National Debt is getting an extra $10B paid off against it, beyond the normal payments.  That's on top of the $9.2B extra payment they had announced back in March.

The Tories started using the term "total government net debt" and stating that the "total government net debt" was on track to be paid off by 2021.  This is misleading, because of the definition of the term ("total government net debt" includes a bunch of things that "federal net debt" does not).  It will take a lot longer to pay off the federal gross debt (total owing) and the federal net debt (total owing minus assets).  Nevertheless, the federal net debt is declining each year and even the federal gross debt is now declining, and every time they pay off a billion they save fifty million in interest charges which they've committed to turn into even more tax cuts.

It's always difficult to figure out exactly what the federal gross and net debts are, but I managed to find some fiscal reference tables.  Federal gross debt coming into this year was $705B, while federal net debt was $523B and federal net debt minus non-financial assets was $467B.  It's that last number that normally gets bandied around as the "federal debt".  By the end of the year we should see that drop by at least $19B, so it should become $686B, $504B, and $448B.  That's still $20,000 gross debt per person in Canada.

To compare those terms, for example I have a $350,000 house with a $240,000 mortgage.  I have $240,000 in gross debt, but $0 in net debt.  I could claim that I have zero debt with the disclaimer that I mean net debt, but I'm still paying every month against my gross debt.

On an aside, October 31st 1921 the federal debt was about $2.4B.

[Thorin]

Warning!  Dry Content!  Don't Read If You Don't Like Accounting!

If you want to learn about the Debt Management Strategy for 2007, here's the Government of Canada's publication:

2007-2008: http://www.fin.gc.ca/dms/dms07_1e.html
Previous years: http://www.fin.gc.ca/purl/dms-e.html

The Government of Canada also produces a Debt Management Report.  The Strategy says what they plan to do at the beginning of the year, the Report says what actually happened at the end of the year:

2005-2006: http://www.fin.gc.ca/toce/2006/dmr06_e.html (of interest is the Composition of Federal Debt)
All years: http://www.fin.gc.ca/purl/dmr-e.html

[Thorin]

If I could split income with her

Well, you already can split some kinds of income.  Okay, only one kind right now.  You can split pension income.  You're not getting pension income yet, though, are you?

[TheDruid]

Timhorton's Large Double-Double Befor the first GST cut: $1.50
Timhorton's Large Double-Double on day after the first GST cut: $1.48
Timhorton's Large Double-Double one week after the first GST cut: $1.60

So what can we expect this time?

$1.58 for 3 days, then $1.75 the following week?

[Thorin]

Just wanna point out those Tim Horton's prices are (I think) for Alberta.  Alberta has the highest Timmies prices in the country.  Timmy raised the prices because of the cost of labour.  I'd be interested to see if the same activity happened in, say, Newfoundland or BC.

[TheDruid]

Maybe, but timming was very very poor on their part.