FEDERAL TAX RELIEF IS RETROACTIVE

Last year's October 31 Halloween surprise was nasty with the shutting down of income trusts, but this year on October 30, rather than a trick, Finance Minister Jim Flaherty delivered a treat: broad based personal tax relief to be administered retroactively in 2007, a reduction in the GST starting in 2008 and significant corporate tax reductions for both large and small businesses. Here are some of the details:

Retroactive Personal Tax Changes:

• 15.5% basic rate reduced to 15.0%. For taxpayers with taxable income over $37,000, this change results in a tax reduction of $185. Lower-income taxpayers save less. However, remember that this tax change affects personal tax credits too. This means that the new amount for dependent children was worth $310 before the rate cut ($2000 x 15.5%). Now that same amount has a value of $300 ($2000 x 15%). The same calculations would apply to those claiming the pension income amount.
   
• Basic Exemption and Spousal Amount both increase from $8,939 to $9,600. The savings for each single taxpayer looks like an increase of $100 [($9,600 - $8,939) x 15%] and double that for those with dependent spouses. However with the rate change, much of that increase is lost. The value of $8,929 at 15.5% is $1,384. The value of $9,600 at 15.0% is $1,440 so the real savings is only $56.

Taken together, an individual taxpayer making over $37,000 could expect combined tax savings of a couple of hundred dollars. If everyone in a household of four adults has similar incomes, the family savings are $800. In addition, the minister announced that by 2009, the basic personal amount would be $10,100, surpassing the previously announced target of $10,000.

Reduction of 1% In The GST. Effective January 1, 2008, the GST will fall to 5% making total reductions over the two years the current government has been in power 2%. A Notice of Ways and Means Motion was tabled to explain the effect of this reduction on various rebates and other measures in the Excise Tax Act.

Corporate Tax Rate Changes. Canada took a big step towards increasing its global competitiveness with the following corporate tax cuts, as reproduced from the Economic Statement released on October 30:

Small business deduction rate: For 2008 and subsequent taxation years, the small business deduction rate will be the total of:

(a) that proportion of 16% that the number of days in the taxation year that are before 2008 is of the number of days in the taxation year, and

(b) that proportion of 17% that the number of days in the taxation year that are after 2007 is of the number of days in the taxation year.

NEW DISABILITY TAX CREDIT FORM IS RELEASED

One of the most lucrative provisions on the 2007 tax return will again be the Disability Tax Credit, particularly because DTC-eligibility is required in order to invest funds in the new Registered Disability Savings Plan, starting in 2008. The new form has just been posted on the internet and can be found by clicking here...

Now is a good time to have your clients take this new form to their medical practitioner (that is a medical doctor, optometrist, audiologist, occupational therapist, physiotherapist, psychologist or speech-language pathologist, as appropriate) if any of the following conditions are new in their lives in 2007 or that of a family member:

Is there a new medical impairment -- physical or mental -- that is expected to last for a continuous period of at least 12 months?

• Is the patient blind?
• Is the patient receiving life-sustaining therapy at least 3 times a week for an average of at least 14 hours a week, including regular dosage of medication that requires daily adjustment?
• Is her or she markedly restricted (90% of the time or more) in speaking, hearing, walking, elimination, feeding, dressing, mental functions like thinking, perceiving, remembering?

This credit is lucrative. . .as the chart below shows:

Remember that people with disabilities may qualify for a host of other tax preferences on the return. Make sure you check these off as tax savings possibilities in your year end tax planning interviews:

• Child care expenses
• Disability supports deductions
• Amount for eligible dependant
• Amount for infirm dependant age 18 or older
• Caregiver amount
• Disability Amount for self or dependant
• Tuition, education, textbook amounts
• Amounts transferred from Spouse
• Medical Expenses for self, spouse or minor children
• Allowable medical expenses of other dependants
• Refundable medical expense supplement