CTF Releases Annual New Year Tax Change Calculations

Edmonton/Winnipeg: The Canadian Taxpayers Federation (CTF) today released projected income and payroll tax changes kicking in on January 1st, 2009.

“Many taxpayers will benefit from lower taxes in 2009,” stated CTF-director, Scott Hennig. “However, those tax cuts would be much larger if it were not for higher payroll taxes.”

Traditionally, CPP contribution limits have been raised each year while EI premiums have been lowered, making the overall increase to payroll taxes very small. In 2009, however, both EI premiums and CPP contribution limits increase. At the maximum (incomes over $42,800), Canadians will pay an additional $188 in payroll taxes in 2009. This is the largest single hike in payroll taxes since 2002.

“How can the government justify increasing EI rates with the massive, multi-year, multi-billion dollar surpluses in the EI fund?” continued Hennig. “EI rates should be falling, not rising.”

A chart detailing changes in payroll tax rates from 1994 to 2009 can be found HERE (pdf, 106kb). A graph detailing the same can be found HERE (pdf, 102kb).
 
Higher basic exemption
 
The federal basic and spousal exemptions rise in 2009 to $10,100.  This is a $260 increase above the automatic annual indexation adjustment. This tax cut will save most taxpayers roughly $39 in 2009.
 
“This small tax cut is welcomed, but taxpayers are looking for real tax reform and a less complex tax code,” said Hennig. “Hopefully Budget 2009 will include a shift to a lower, simpler and flatter tax system.”

To see the income and payroll tax changes from 2008 to 2009 for various income levels, households and for all 10 provinces click HERE (pdf, 112kb).

Tax-Free Savings Accounts

Arguably, the largest change in 2009 comes with the introduction of Tax-Free Savings Accounts (TFSA). TFSAs will allow Canadians 18 years and older to save up to $5,000 of after-tax dollars each year in an investment account. Earnings in the TFSA will not be subject to income or capital gains taxes. However, unlike an RRSP, the money invested in the TFSA is not tax deductible.

“Some economists slammed the reduction in the GST as being a ‘bad tax cut’ because it did not encourage Canadians to save and invest. TFSAs will do just that,” added Hennig. “Of course, Canadians will need to have the money before they can invest it, and a significant tax reduction and reform of our tax code would go a long way towards allowing Canadians to benefit fully from the TFSA change.”

Manitoba

Taxpayers will benefit from a reduction to the lowest tax rate from 10.9% to 10.8%.  However some of that benefit will be eroded by not increasing tax brackets with the rate the inflation.

For example, the provincial government’s basic personal exemption (the amount a taxpayer can earn before paying income taxes) will increase from $8,034 to $8,134 on January 1st, 2009.  However, had the exemption increased with the rate of inflation, taxpayers would be able to earn over $8,200 before paying income tax.

“As Manitoba ’s income tax system is not adjusted for inflation, the government can appear to give with one hand while secretly taking with the other,” said Colin Craig, CTF-Manitoba director.  “We need to join the long list of provinces that index their tax brackets to inflation.  In the long run, it will save taxpayers hundreds of millions of dollars.”

Other Provincial Winners and Losers

Albertans are clear winners in 2009, with the elimination of the Alberta Health Care Insurance Premium. The premium taxed individuals $528 and families $1,056 per year.  

“The CTF campaigned hard for six years in Alberta for the elimination of the health care premium tax, and on January 1st, we will achieve a very significant victory, both for the organization and for Albertans,” said Hennig.

Low-to-middle income families will benefit the most from this tax cut, as health care premiums represented a significant portion of their income, compared to very low and higher-income families.

Even those Albertans whose employers paid their premium in part or in full will benefit from lower taxes in 2009. Any payment made on an employee's behalf was considered a taxable benefit, subject to federal and provincial income taxes. An employee whose full family premium was paid for them, will still save $338 in 2009.

Saskatchewan residents were also big winners in 2008 with significant retroactive tax cuts that were announced in October. B.C. also saw its two lowest tax rates retroactively drop last fall, unfortunately they were off-set by the introduction of a provincial carbon tax. Newfoundland and Labrador lowered all of their tax rates effective last summer. This reduction moved the province from having some of the highest income tax rates in Canada to middle of the pack – a significant improvement.

Manitoba, Prince Edward Island and Nova Scotia continue to be the only provinces in Canada who do not automatically index their exemptions and tax brackets each year.  

Overall, 2009 is a mixed bag for most Canadian taxpayers. The small gains from increasing the basic and spousal exemptions are off-set by payroll tax increases. The only major benefit that all Canadians will enjoy is the Tax-Free Savings Account.

“We will be watching Budget 2009 very closely to see what, if any, tax relief Canadians can expect in 2010,” concluded Hennig.