Finance
April 26, 2007

BACKGROUNDER
Tax Changes

Personal Income Tax

Effective July 1, 2007, the Provincial Government will be reducing the statutory tax rates from 10.57% to 8.7%, 16.16% to 13.8% and 18.02% to 16.5% for the first, second and third brackets. These changes will make rates the lowest in the Atlantic region for all brackets once the changes are fully annualized in 2008, addressing tax competitiveness concerns for our province.

The Personal Income Tax surtax will also be eliminated effective July 1, 2007. This tax on tax was initially imposed on middle and high income individuals to deal with fiscal deficits that no longer challenge this province.

The Personal Income Tax system will also be indexed to the provincial Consumer Price Index (CPI) effective July 1, 2007. In order to protect taxpayers from inflation, indexation will be applied to tax brackets, most non-refundable credits and certain benefits such as the low income tax reduction. Indexation in the income tax system will address concerns that some individuals move into higher tax brackets, not because of greater real income, but simply due to normal inflationary pressures that raise salaries over time. Without indexation, some lower income individuals would see their tax rates rise simply because income tax parameters would be otherwise static and not keeping pace with economic conditions. The indexation mechanism will be based on the provincial CPI from the previous taxation year in the same manner as federal indexation.

The Low Income Tax Reduction (LITR) thresholds will be adjusted from $12,000 to $13,000 for individuals and from $19,000 to $21,000 for families, effective January 1, 2007. This measure is taken to ensure that low income individuals also benefit from tax reductions at this time. In 2008, approximately 31,100 individuals will receive the Low Income Tax Reduction compared to 25,900, under the old system, an increase of 5,200 beneficiaries of which 4,000 will not pay provincial income tax.

Seniors� Benefit

The Newfoundland and Labrador Seniors� Benefit income thresholds for senior couples will be increased from a family income range of $15,032 � $21,482 to a family income range of $25,000 � $31,587, effective for 2007. This corrects an anomaly in the Seniors� Benefit program whereby senior couples have not been able to avail of the full value of the benefit because their income under federal programs such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS) moved them towards the upper end of the income phase-out range. Government feels that it is proper and fair to address the problem by changing the income test for married seniors.

In 2008, approximately 7,000 senior couples will receive the Seniors� Benefit compared to 1,100 before the increase in the threshold, an increase of 5,900 couples. The following table shows the impact for married seniors:

Seniors� Benefit

  Seniors� Benefit
Family Net Income Pre-Budget 2007
22,000 0 768
23,000 0 768
24,000 0 768
25,000 0 768
26,000 0 651
27,000 0 535
28,000 0 418
29,000 0 302
30,000 0 185
31,000 0 68
32,000 0 0

Corporate Income Tax

The Corporate Income Tax small business threshold will be increased from $300,000 to $400,000, effective for 2007. The Newfoundland and Labrador corporate tax rate of 14% is applied to the same tax base used for federal corporate income tax.

Prior to 2007, the lower rate of 5% was available for active business income up to $300,000. By adjusting this threshold to $400,000, this will parallel the Federal Government�s threshold, and also help keep Newfoundland and Labrador competitive with other provinces.

Retail Sales Tax On Private Sales of Vehicles

The Retail Sales Tax rate on the private sale of used vehicles will be reduced from 15% to 14%, effective April 27, 2007.

Financial Corporations Capital Tax

The province will immediately commence discussions with the Federal Government to harmonize the provincial Financial Corporations Capital Tax with the federal capital tax base. Newfoundland and Labrador imposes a capital tax on banks, loans and trust companies with permanent establishments in the province; however there is no general capital tax on other businesses. A rate of 4% is applied on taxable paid-up capital allocated to Newfoundland and Labrador and includes paid-up capital stock, contributed surplus, retained earnings, and reserves.

Harmonization with the federal tax base would alleviate compliance burden and costs for taxpayers, while achieving administrative efficiencies for government.

Personal Income Tax Savings

2008 Taxation Year
 

 Annual Personal Income Tax Savings

(Dollars)

 

  $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $75,000 $100,000 $150,000
Single 238 233 320 430 567 678 793 911 1,655 2,441 4,012
One Earner Couple Not Taxed 262 223 333 469 581 696 814 1,500 2,286 3,857
Single Parent Not Taxed 262 223 333 469 581 696 814 1,500 2,286 3,857
Single Senior 179 180 274 412 569 701 833 951 1,704 2,489 4,060

Notes: To calculate tax savings for a two income family, view each earner as a single income earner.

Annual Personal Income Tax Savings

(Per cent)
 

  $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $75,000 $100,000 $150,000
Single 33.3% 19.3% 18.8% 19.4% 19.0% 18.0% 17.4% 17.0% 16.7% 16.4% 16.3%
One Earner Couple Not Taxed 100.0% 21.0% 21.1% 20.0% 18.6% 17.8% 17.2% 16.3% 16.2% 16.1%
Single Parent Not Taxed 100.0% 21.0% 21.1% 20.0% 18.6% 17.8% 17.2% 16.3% 16.2% 16.1%
Single Senior 54.4% 21.0% 19.8% 20.6% 19.7% 18.6% 17.9% 17.2% 16.8% 16.6% 16.3%


Savings are calculated for the 2008 taxation year assuming annual average provincial Consumer Price Index increase of 2% as of September 2007. Savings for the 2007 taxation year will be approximately one half of the amount shown for 2008.

2007 2008
Tax Year Tax Year
(� Year (Full
Current Implementation) Implementation)
 
Income Tax Rates
   First Rate 10.57% 9.64% 8.7%
   Second Rate 16.16% 14.98% 13.8%
   Third Rate 18.02% 17.26% 16.5%
   Surtax Rate 9.00% 4.50% 0.0%
 
Income Tax Brackets
   Second Bracket $29,590 $29,886 $30,484
   Third Bracket 59,180 59,772 60,967
   Surtax Threshold 7,032 7,102 -
 
Non-refundable Tax Credit Amounts
   Personal Amount 7,410 7,484 7,634
   Spousal/Equivalent 6,055 6,116 6,238
       Income Threshold 6,661 6,728 6,863
  Age 3,482 3,517 3,587
       Income Threshold 25,921 26,180 26,704
       Upper Threshold 49,134 49,627 50,617
   Disability 5,000 5,050 5,151
   Disability Supplement 2,353 2,377 2,425
   Caregiver 2,353 2,377 2,425
       Income Threshold 11,500 11,615 11,847
   Infirm Dependent 2,353 2,377 2,425
       Income Threshold 5,057 5,108 5,210
   Medical Expense Threshold 1,614 1,630 1,663
 
Benefits
   Low Income Tax Reduction
       Single Threshold 12,000 13,000 13,260
       Couple Threshold 19,000 21,000 21,420
   Seniors� Benefit
       Single Threshold 15,032 15,333 15,640
       Couple Threshold 15,032 25,000 25,500

Notes: Most announced changes are effective July 1, 2007. However, personal income tax is based upon annual income from January 1 to December 31. Rates and bracket shown above reflect the effective annual tax rate for the full calendar year, resulting from implementation on July 1.
 
  The Low Income Tax Reduction is increased as of January 1, 2007, and is indexed thereafter. The Seniors Benefit is paid in October of each year. The changes made to the thresholds for married seniors will be included in the October payment.
 
  Indexed amounts for the 2008 tax year assume annual average provincial Consumer Price Index increase of 2% as of September 2007.
 
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