The 2000 Budget: Real and Lasting Tax Relief

Budget 2000 proposes a Five-Year Tax Reduction Plan that will introduce: The most important structural changes to the federal tax system in more than decade; will benefit all Canadians - in particular families with children; and, promote innovation and keep Canadian businesses internationally competitive.

This is responsible, fair and permanent tax relief, based on the fundamental tax relief principles we have followed in each of our budgets:

• While tax reduction must ultimately benefit all Canadians, it must primarily benefit those who deserve it most - middle and low-income earners, especially families with children; 
• Broad-based tax reductions should focus initially on personal income taxes; 
• The business tax system must be internationally competitive; and, 
• Broad-based tax reductions should not be financed with borrowed money.

Historic Structural Change

Retroactive to January 1^st 2000, we are restoring full indexation to the personal income tax system to protect all taxpayers from so-called "bracket creep" or automatic tax increases caused by inflation. This will be of particular benefit to low-income Canadians.

We will reduce the middle income tax rate to 23% from 26%, starting with a two-point reduction to 24% as of July 2000. The middle rate reduction will cut taxes for 9 million Canadians.

Overall by 2004, our Plan will deliver at least $58 billion in tax relief - $54 billion in personal income tax and Employment Insurance premium reductions. Fully $43 billion of this amount is legislated in Budget 2000.

Our Plan will reduce personal income taxes by an average of at least 15% annually for all tax payers - by an average of at least 18% annually for low and middle -income Canadians - and by an average at least of 21% annually for families with children.

The combination of tax relief measures in our last three budgets and the Five-Year Plan will reduce personal income tax for all Canadians by an average of at least 22% annually by 2004 - and by more for families with children.

Additional Key Personal Tax Measures in The Five-Year Tax Reduction Plan

The amount that Canadians can earn tax-free will be increased to at least $8,000. Further increases to this limit will be key priority in future budgets.

The amounts at which the middle and top tax rates kick in will be increased to at least $35,000 and $70,000 respectively.

The Canada Child Tax Benefit will be enriched by $2.5 billion by 2004 - to more than $9 billion annually. Maximum benefits will reach $2,400 for a family's first child and $2,200 for each additional child.

As of July 1^st, 2000 the 5% deficit reduction surtax on middle-income Canadians with incomes up to $85,000 will be eliminated. It will be completely eliminated by 2004.

The Foreign Content Limit for Registered Pension Plans and Registered Retirement Savings Plans will be raised to 25% from 2000 and 30% from 2001.

Promoting Innovation and Keeping Canadian Businesses Internationally Competitive

Budget 2000 lowers the tax rate on the high tech service sector from 28% to 21% over the next five years - with an initial one point drop to 27% as of as January 1^st 2001.

This reduction will be immediately implemented as of January 1^st 2001 for small businesses on income between $200,000 and $300,000.

Budget 2000 also proposes targeted measures designed to spur investment and encourage entrepreneurship by:

• Lowering the capital gains tax by reducing the amount of capital gains included in income for tax purposes from three-quarters to two-thirds;
• Postponing taxation on stock options to when the shares are sold, rather than when the options are exercised; and,
• Increasing the amount that investors can put into new ventures by allowing a $500,000 tax-free roll over for qualifying investments.

   

• The 2000 Budget