Federal Budget 2006

The federal budget was announced today and since the personal tax season has just wrapped up, I thought I'd give a highlight of some of the bigger items announced concerning personal taxes. It will be interesting to see this budget actually passes.

- GST was cut was cut by 1%. I spend on average $2300 a month. This includes gst-exempt items such as rent and insurance. After removing these items, my expenses run about $900 a month. So on the year, I'll save at most $108. Clearly nothing to get excited about. For the rich that spend about $40,000 on taxable items, they'll save $400.

- Rise in basic federal income tax rate from 15% to 15.5%. Additional taxes for me to pay $375 :(

- The new Canadian employment credit. $250 @ 15.5% = a whopping $38.75 savings for employees this year.

- Basic tax exemption an average of $8,839 on the year. Up from 2005 at $8,648 but a reversal of the Liberals exemption of $9,039. This means I'll save about $30 from 2005 but it's costing me $60 from the Liberals plan

Other items not affecting me personally but interesting developments:

- Pension income credit increased by $1000 to $2000. I'm quite happy to see this for the elderly, tranlating into a $155 savings/year. Given that I see a lot of elderly managing on only OAS and CPP this is a big savings for them.

- $1200 child care benefit to children under the age of six, taxable to the lower spouse income if you make more than $10,000 a year.

- New 15.5% tax credit on annual or monthly transit passes. It will be interesting to see how this will work. I'm assuming it will be another attachment to the tax return such as donation receipts or medical receipts which will inevitably make my life a little more miserable next tax season but good news for transit users especially here in Toronto. I hope it encourages more transit use and puts the 905-ers on the GO Trains, make a modest impact on our clogged streets and highways.

- Kids fitness programs will get a tax credit of $500. I find this one interesting because over the past couple of years, I've seen more and more accountants put hockey costs as a child care expense on tax returns. The argument used is that it's the equivalent to after-school day care which is deductible. Interestingly enough, for those that have been audited, 60% of the time the hockey costs have been allowed. The income tax act clearly has stated that they are not eligible, but the auditors have been lenient in the past couple of years.

- Students will now get a $500 credit for textbooks and this is a big one: All scholarship, fellowship and bursary money will now be income-tax exempt, compared to the current exemption limit of $3,000 a year! This will have a huge effect on PHD students that have their primary source of income in the form of scholarship and fellowships. While their tuition costs mostly will wipe out most of the taxes owing, the big benefit is that without this income being taxable is that the tuition can be carried forward to years when there is employment income resulting in future tax savings.