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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