The Frugal Canadian

A frugal spender seeks to find new ways to save money and increase her net worth.

Monday, March 19, 2007

2007 Federal Budget

Here's a quick highlight on the 2007 Federal Budget relating to personal income tax matters. Other than the new child tax credit, there are not many significant changes. See here for full details. While there are many corporate tax measures, I've limited my summary to individual taxpayers.

  • Working Tax Benefit - A 20% refundable tax on income over $3000 to a maximum credit of $500/individual or $1,000/family as an incentive to get into the workforce and get off welfare
  • New Child Tax Credit - $2000 tax credit per child under the age of 18. Amounts to a $310 tax savings per child.
  • RESP limit upped to $50,000 lifetime with the Federal Grant raising to $500 from $400 per year. Keeping the grant rate at 20% this means you'll need an annual contribution of $2,500 to maximize your federal grant. In addition, part-time will be eligible provided that 12 hours a month are spent on studies.
  • Personal credits - The 2007 basic exemption is $8,929 with an increase to the spousal credit to match the basic exemption. 2008 basic exemption will be indexed plus a $200 increase and 2009 will be indexed with a $600 increase.
  • Increasing the age limit to 71 for RRSP and RPPs. Currently the age limit is 69 before it requires to be transferred to a RRIF to be withdrawn as an annuity.
  • The age credit is increasing by $1000. Low to mid income level seniors will save $155 per year. In addition, pension income splitting will allow for lower taxes for seniors.
  • Registered Disability Savings Plan - It will be based on the RESP structure where contributions are eligible for a federal grant and earnings are tax deferred. To me this one doesn't make a lot of sense. The feds are recognizing the financial hardship that many families are faced with when dealing with a disability. Most of these families don't have the savings to participate in such a program in the first place.
  • Transit Passes - Weekly passes will be eligible for the credit
  • Lifetime Capital Gains Exemption - increase to $750,000. Unfortunately this does not apply for publicly listed shares. This applies to qualified small business corp. shares.


At 6:44 PM, Anonymous Anonymous said...

Good summary, Thank you!
Just one little comment. "Pension income splitting will allow for lower taxes for seniors." Government Stats consistently show that single seniors, who live alone, are at the lowest end of the income rung. Yet, it is their richer coupled peers who will receive the income splitting tax break. Uncoupled seniors have no one to split income with. So for seniors--one can say that--- the richest will get richer, while the poorest stay where they are. I guess coupled seniors are taken care of first because they are a significantly larger voting block than single, but poorer, seniors.

At 11:24 AM, Blogger LindsayDayton said...

I thought you'd appreciate this page that my friend just posted--his ideas about personal tax earmarking for the federal budget.

What is Personal Tax Earmarking?


At 10:33 AM, Anonymous Anonymous said...

Just to let people know. If you are planning on setting up an RESP don't wait too long. The government changed the starting age so you must have $2,000 saved prior to your child's 15th birthday year in order to qualify for any incentives. I found out the hard way. It was different in the past.


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