2006 TAX RATES – For tax planning purposes

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It should be noted that included below are tax changes announced which, if enacted by the applicable legislature as proposed, would be effective retroactively to January 1, 2006. At the time of publishing, these proposed changes had not been legislated.

Federal tax rates and income thresholds

In the Economic Statement and Fiscal Update of November 14, 2005, the tax rate for the lowest tax bracket is reduced retroactively from 16% to 15% for taxable income up to $35,595 for the 2005 tax year.

This reduced rate of 15% will also be used for the 2006 tax year and will be used to calculate the federal non-refundable tax credit.

Effective January 1, 2006, the federal tax rates and income thresholds are changed as follows:

* 15% (formerly 16%) on income less than or equal to $36,378 (formerly $35,595);
* 22% on income greater than $36,378, but less than or equal to $72,756 (formerly $71,190);
* 26% on income greater than $72,756, but less than or equal to $118,285 (formerly $115,739); and
* 29% on income greater than $118,285 (formerly $115,739).

The lowest tax rate used to calculate the federal non-refundable tax credits is reduced to 15% (formerly 16%).

Income range
* $ 0 – $ 36,378 (Rate = 0.15)
* $36,378 – $72,756 (Rate = 0.22)
* $72,756 – $118,285 (Rate = 0.26)
* $118,285 – and over (Rate = 0.29)

Federal personal amounts for 2006

In the Economic Statement and Fiscal Update of November 14, 2005, the basic personal amount for 2005 of $8,148 increases retroactively by $500 to $8,648 and will be increased $200 for the 2006 tax year. These increases to the federal personal amount will be in addition to increases that take effect due to indexation of the tax system.

The federal spouse or common-law partner amount and the amount for an eligible dependent for 2005 of $6,919 increases retroactively by $425 to $7,344 and will be increased $170 for the 2006 tax year. These increases to the federal personal amount will be in addition to increases that take effect due to indexation of the tax system. For 2006, some federal personal amounts are increased due to federal indexing.

The 2006 federal indexing factor is 2.2%. Review the federal Form TD1 for complete information on all personal amounts for 2006.

Basic personal amount………………………………………………$9,039
Age amount……………………………………………………………… 4,066
Pension income amount……………………………………………. 1,000
Education amount for each month (full-time)……………….. 400
Education amount for each month (part-time) ……………… 120
Disability amount………………………………………………….. 6,741
Spouse or common-law partner amount……………………. 7,675
Amount for an eligible dependant ……………………………. 7,675
Caregiver amount………………………………………………….. 3,933
Amount for an infirm dependant age 18 or older ………… 3,933

For additional information, see the section called “Personal tax credits return (TD1 forms)” on page 16.

Federal labour-sponsored funds tax credit for 2006

The federal labour-sponsored funds tax credit (factor LCF) for 2006 remains the lesser of $750 and 15% of the approved shares purchase.

Federal surtax for income not earned in a province or territory

The federal surtax rate for income, which is considered to be earned in Canada but not considered to be earned in a province or territory, remains at 48%. This federal surtax applies to deemed residents of Canada such as members of the Canadian Armed Forces who reside outside Canada, Canadian residents with income from a permanent establishment in a foreign country, and non-residents who have employment income taxable in Canada.

Tax relief for Canadian Forces and police

There is tax relief in the calculation of taxable income for certain members of the Canadian Forces and police serving in high- and moderate-risk areas. This tax relief applies only to military and police personnel. Since this change involves only governmental employers, the details have not been included in this publication.

For 2006, the Canada Pension Plan maximum pensionable earnings are $42,100, and the basic exemption for the year is $3,500. The contribution rate for employees is 4.95%. An employee’s maximum contribution for the year is $1,910.70. The employer’s contribution is an amount equal to the total of the employee’s contribution. For insurance companies that need the year’s maximum pensionable earnings before rounding, the amount for this year is $42,102.31.

For 2006, the maximum annual insurable earnings are $39,000 and the premium rate is 1.87% for a maximum annual premium of $729.30 for the country except for Quebec and 1.53% for a maximum annual premium of $596.70 for Quebec.

1. Newfoundland and Labrador

The provincial tax rates and income thresholds for Newfoundland and Labrador remain as follows:

¦ 10.57% on income less than or equal to $29,590;
¦ 16.16% on income greater than $29,590, but less than or equal to $59,180; and
¦ 18.02% on income greater than $59,180.

Listed below are some of the non-refundable personal tax credits amounts for the province of Newfoundland and Labrador. Refer to Form TD1NL for complete information on personal amounts.

¦ The basic personal amount remains at $7,410.
¦ The spouse or common-law partner amount remains at $6,055.

Personal amounts will be multiplied by the province’s lowest non-zero tax rate of 10.57%.

The provincial surtax payable for Newfoundland and Labrador remains as follows:

¦ Where the basic provincial tax payable is less than or equal to $7,032, the surtax payable (V1) is $0.
¦ Where the basic provincial tax payable is greater than $7,032, the surtax payable (V1) is 9% of the basic provincial tax payable in excess of $7,032.

The provincial labour-sponsored funds tax credit (factor LCP) for Newfoundland and Labrador is revised to the lesser of $750 and 15% of the approved shares purchase.

2. Nova Scotia

The provincial tax rates and income thresholds for Nova Scotia remain as follows:

¦ 8.79% on income less than or equal to $29,590;
¦ 14.95% on income greater than $29,590, but less than or equal to $59,180;
¦ 16.67% on income greater than $59,180, but less than or equal to $93,000; and
¦ 17.50% on income greater than $93,000.

Listed below are some of the non-refundable personal tax credits amounts for the province of Nova Scotia. Refer to Form TD1NS for complete information on personal amounts.

¦ The basic personal amount remains at $7,231.
¦ The spouse or common-law partner amount remains at $6,140.

Personal amounts will be multiplied by the province’s lowest non-zero tax rate of 8.79%. The provincial surtax payable for Nova Scotia remains as follows:

¦ Where the basic provincial tax payable is less than or equal to $10,000, the surtax payable (V1) is $0.
¦ Where the basic provincial tax payable is greater than $10,000, the surtax payable (V1) is 10% of the basic provincial tax payable in excess of $10,000.

The provincial labour-sponsored funds tax credit (factor LCP) for Nova Scotia remains the lesser of $1000 and 20% of the approved shares purchase.

3. Prince Edward Island

The provincial tax rates and income thresholds for Prince Edward Island remain as follows:

¦ 9.8% on income less than or equal to $30,754;
¦ 13.8% on income greater than $30,754, but less than or equal to $61,509; and
¦ 16.7% on income greater than $61,509.

Listed below are some of the non-refundable personal tax credits amounts for the province of Prince Edward Island. Refer to Form TD1PE for complete information on personal amounts.

¦ The basic personal amount remains at $7,412.
¦ The spouse or common-law partner amount remains at $6,294.

Personal amounts will be multiplied by the province’s lowest non-zero tax rate of 9.8%. The provincial surtax payable for Prince Edward Island remains as follows:

¦ Where the basic provincial tax payable is less than or equal to $5,200, the surtax payable (V1) is $0.
¦ Where the basic provincial tax payable is greater than $5,200, the surtax payable (V1) is 10% of the basic provincial tax payable in excess of $5,200.

4. New Brunswick

Effective January 1, 2006, the provincial tax rates for New Brunswick are not changed.

The income thresholds and personal amounts have been indexed. The provincial indexing factor for 2006 is 2.2%. To calculate the indexed amounts, multiply the provincial income thresholds and appropriate personal amounts by 1.022. For more information on indexing, see page 16.

The income thresholds are revised as follows:

¦ 9.68% on income less than or equal to $33,450 (formerly $32,730);
¦ 14.82% on income greater than $33,450, but less than or equal to $66,902 (formerly $65,462);
¦ 16.52% on income greater than $66,902, but less than or equal to $108,768 (formerly $106,427); and
¦ 17.84% on income greater than $108,768.

Listed below are some of the non-refundable personal tax credits amounts for the province of New Brunswick. Refer to Form TD1NB for complete information on personal amounts.
¦ The basic personal amount is revised to $8,061 (formerly $7,888).
¦ The spouse or common-law partner amount is revised to $6,845 (formerly $6,698).

Personal amounts will be multiplied by the province’s lowest non-zero tax rate of 9.68%. The provincial labour-sponsored funds tax credit (factor LCP) for New Brunswick remains the lesser of $750 and 15% of the approved shares purchase.

5. Quebec

There is no change to the 16.5% Quebec Tax Abatement rate for 2006.

6. Ontario

Effective January 1, 2006, the provincial tax rates for Ontario are not changed. The income thresholds and personal amounts have been indexed. The provincial indexing factor for 2006 is 2.2%. To calculate the indexed amounts, multiply the provincial income thresholds and appropriate personal amounts by 1.022. For more information on indexing, see page 16.

The income thresholds are revised as follows:

¦ 6.05% on income less than or equal to $34,758 (formerly $34,010);
¦ 9.15% on income greater than $34,758, but less than or equal to $69,517 (formerly $68,020) and
¦ 11.16% on income greater than $69,517.

Listed below are some of the revised non-refundable personal tax credits amounts for the province of Ontario. Refer to Form TD1ON for complete information on personal amounts.

¦ The basic personal amount is revised to $8,377 (formerly $8,196).
¦ The spouse or common-law partner amount is revised to $7,113 (formerly $6,960). Personal amounts will be multiplied by the province’s lowest non-zero tax rate of 6.05%.

As a result of indexing, the Ontario provincial surtax thresholds for 2006 are revised as follows:

¦ Where the basic provincial tax payable (T4) is less than or equal to $4,016 (formerly $3,929), the surtax payable (V1) is $0.
¦ Where the basic provincial tax payable (T4) is greater than $4,016 and less than or equal to $5,065 (formerly $4,957), the surtax payable (V1) is 20% of the basic provincial tax payable in excess of $4,016.
¦ Where the basic provincial tax payable (T4) is greater than $5,065, the surtax payable (V1) is the total of 20% of the basic provincial tax payable in excess of $4,016 and 36% of the basic provincial tax payable in excess of $5,065.

The provincial labour-sponsored funds tax credit (factor LCP) for Ontario remains the lesser of $750 and 15% of the approved shares purchase. The Ontario Health Premium (OHP) is payable on annual taxable income in excess of $20,000.

It is designated by factor, V2. The OHP remains as follows:

¦ Where taxable income is less than or equal to $20,000, the premium is $0;
¦ Where taxable income is greater than $20,000 and less than or equal to $36,000, the premium is equal to the lesser of (i) $300, and (ii) 6% of taxable income greater than $20,000;
¦ Where taxable income is greater than $36,000 and less than or equal to $48,000, the premium is equal to the lesser of (i) $450, and (ii) $300 plus 6% of taxable income greater than $36,000;
¦ Where taxable income is greater than $48,000 and less than or equal to $72,000, the premium is equal to the lesser of (i) $600, and (ii) $450 plus 25% of taxable income greater than $48,000;
¦ Where taxable income is greater than $72,000 and less than or equal to $200,000, the premium is equal to the lesser of (i) $750, and (ii) $600 plus 25% of taxable income greater than $72,000; and
¦ Where taxable income is greater than $200,000, the premium is equal to the lesser of (i) $900, and (ii) $750 plus 25% of taxable income greater than $200,000.

The Ontario Health Premium is not reduced by the Ontario tax reduction (factor S). The Ontario Health Premium is not related to the Employer Health Tax for Ontario. You include the Ontario Health Premium in the total federal and provincial tax deducted on T4 Slips.

Provincial tax reduction for Ontario

The provincial tax reduction for Ontario has changed due to provincial indexing. When possible, the employer or payer should implement the Y factor based on the total of the applicable amounts shown on the employee’s or pensioner’s TD1ON form. If the Y factor is not used, any over deduction of tax will be adjusted when the individual files an income tax return.

The revised provincial tax reduction amounts for 2006 are as follows:
¦ $194 (formerly $190) for the basic personal amount;
¦ $357 (formerly $350) for each dependant under age 18*, and
¦ $357 (formerly $350) for each dependant with a disability that the employee or pensioner has claimed on Form TD1ON.

* Since the tax reduction for dependants under age 18 is not shown on the TD1ON, the employee or pensioner will have to provide the employer or payer with a written request to include such amounts.

The reduction remains equal to twice the individual’s personal amounts minus the Ontario income tax. The reduction cannot exceed the Ontario income tax otherwise payable and the reduction is nil when the Ontario income tax exceeds twice the personal amounts.

7. Manitoba

Effective January 1, 2006, the income thresholds for Manitoba are not changed. The provincial tax rates for Manitoba are revised as follows:

¦ 10.9% on income less than or equal to $30,544;
¦ 13.5% (formerly 14.0%) on income greater than $30,544, but less than or equal to $65,000; and
¦ 17.4% on income greater than $65,000.

Listed below are some of the non-refundable personal tax credits amounts for the province of Manitoba. Refer to Form TD1MB for complete information on personal amounts.

¦ The basic personal amount is revised to $7,734 (formerly $7,634).
¦ The spouse or common-law partner amount remains at $6,482.

Personal amounts will be multiplied by the province’s lowest non-zero tax rate of 10.9%.

The provincial labour-sponsored funds tax credit (factor LCP) for Manitoba remains the lesser
of $750 and 15% of the approved shares purchase.

Provincial tax reduction for Manitoba

The amounts used in the tax reduction calculation do not change for January 1, 2006. When possible, the employer or payer should implement the Y factor based on the total of the applicable amounts shown on the employee’s or pensioner’s TD1MB form. If the Y factor is not used, any over deduction of tax will be adjusted when the individual files an income tax return.

The tax reduction amounts for Manitoba remain as follows:

¦ the basic provincial tax reduction amount is $225;
¦ the spouse or common-law partner amount is $225;
¦ the amount for age 65 or over is $225 for the employee or pensioner and $225 for a dependant spouse age 65 or over;
¦ the amount for each dependant under age 18 is $300;
¦ the amount for an employee or pensioner with a disability is $300; and
¦ the amount in respect of a dependant with a disability is $300.

The total of the above amounts that apply is reduced by 1% of net income, and the reduction cannot exceed the Manitoba income tax otherwise payable. The reduction is nil when 1% of net income exceeds the reduction amounts.

8. Saskatchewan

Effective January 1, 2006, the provincial tax rates for Saskatchewan are not changed. The income thresholds and personal amounts for Saskatchewan are indexed. The indexing factor for 2006 is 2.2%. To calculate the indexed amounts, multiply the provincial income thresholds and appropriate personal amounts by 1.022. For more information on indexing, see page 16.

The income thresholds are revised as follows:

¦ 11% on income less than or equal to $37,579 (formerly $36,770);
¦ 13% on income greater than $37,579, but less than or equal to $107,367 (formerly $105,056); and
¦ 15% on income greater than $107,367.

Listed below are some of the non-refundable personal tax credits amounts for the province of Saskatchewan. Refer to Form TD1SK for complete information on personal amounts.

¦ The basic personal amount is revised to $8,589 (formerly $8,404).
¦ The spouse or common-law partner amount is revised to $8,589 (formerly $8,404).
¦ The senior supplementary amount is revised to $1,074 (formerly $1,051).
¦ The child amount is revised to $2,684 (formerly $2,626).

Personal amounts will be multiplied by the province’s lowest non-zero tax rate of 11%. There is no change to the provincial labour-sponsored funds tax credit (factor LCP) for Saskatchewan. For investments in venture capital corporations that are registered in Saskatchewan, the tax credit is the lesser of $1,000 or 20% of the approved shares purchase.

For investments in venture capital corporations that are registered federally, the tax credit is the lesser of $525 or 15% of the approved shares purchase. The total of the two tax credits cannot exceed $1,000. Note that the federal factor (LCF) is not affected by where a corporation is registered.

9. Alberta

The provincial tax rate applicable to all taxable income for Alberta for January 1, 2006, remains at 10%.

Personal amounts have been indexed. The provincial indexing factor for 2006 is 1.9%. To calculate the indexed amounts, multiply the appropriate personal amounts by 1.019. For more information on indexing, see page 16. Listed below are some of the revised non-refundable personal tax credits amounts for the province of Alberta. Refer to Form TD1AB for complete information on personal amounts.

¦ The basic personal amount is revised to $14,799 (formerly $14,523).
¦ The spouse or common-law partner amount is revised to $14,799 (formerly $14,523).

Personal amounts will be multiplied by the province’s tax rate of 10%.

10. British Columbia

Effective January 1, 2006, the provincial tax rates for British Columbia are not changed. The income thresholds, personal amounts and tax reduction values are indexed. The provincial indexing factor for 2006 is 2.1%. To calculate the indexed amounts, multiply the provincial income thresholds, appropriate personal amounts and tax reduction values by 1.021. For more information on indexing, see page 16.

The income thresholds are revised as follows:

¦ 6.05% on income less than or equal to $33,755 (formerly $33,061);
¦ 9.15% on income greater than $33,755, but less than or equal to $67,511 (formerly $66,123);
¦ 11.7% on income greater than $67,511, but less than or equal to $77,511 (formerly $75,917);
¦ 13.7% on income greater than $77,511, but less than or equal to $94,121 (formerly $92,185); and
¦ 14.7% on income greater than $94,121.

Listed below are some of the revised non-refundable personal tax credits amounts for the province of British Columbia. Refer to Form TD1BC for complete information on personal amounts.

¦ The basic personal amount is revised to $8,858 (formerly $8,676).
¦ The spouse or common-law partner amount is revised to $7,585 (formerly $7,429).

Personal amounts will be multiplied by the province’s lowest non-zero tax rate of 6.05%.

The provincial labour-sponsored funds tax credit (factor LCP) for British Columbia remains the lesser of $2,000 and 15% of the approved shares purchase.

Provincial tax reduction for British Columbia

The provincial tax reduction for British Columbia is indexed and is calculated as follows:

¦ Where net income is less than or equal to $16,336 (formerly $16,000), the reduction is equal to the lesser of (i) basic provincial tax, and (ii) $368 (formerly $360);
¦ Where net income is greater than $16,336 and less than or equal to $26,558.22 (formerly $26,000), the reduction is equal to the lesser of (i) basic provincial tax, and (ii) $368 – [(Annual net income – $16,336) × 3.6%];
¦ Where net income is greater than $26,558.22, the reduction is equal to $0.

11. Yukon

Effective January 1, 2006, the territorial tax rates for Yukon are not changed.

The income thresholds and personal amounts are indexed. The indexing factor for 2006 is 2.2%.

To calculate the indexed amounts, multiply the territorial income thresholds and appropriate personal amounts by 1.022. For more information on indexing, see page 16.

The income thresholds are revised as follows:

¦ 7.04% on income less than or equal to $36,378 (formerly $35,595);
¦ 9.68% on income greater than $36,378, but less than or equal to $72,756 (formerly $71,190);
¦ 11.44% on income greater than $72,756, but less than or equal to $118,285 (formerly $115,739); and
¦ 12.76% on income greater than $118,285.

Listed below are some of the revised non-refundable personal tax credits amounts for Yukon. Yukon will no longer be harmonized with the federal basic personal amount or the federal spouse or common law amount. Refer to Form TD1YT for complete information on personal amounts.

¦ The basic personal amount is revised to $8,328 (formerly $8,148).
¦ The spouse or common-law partner amount is revised to $7,071 (formerly $6,919).

Personal amounts will be multiplied by the territory’s lowest non-zero tax rate of 7.04%. The surtax payable for Yukon remains as follows:

¦ Where the basic territorial tax payable is less than or equal to $6,000, the surtax payable (V1) is $0.
¦ Where the basic territorial tax payable is greater than $6,000, the surtax payable is 5% of the basic territorial tax payable in excess of $6,000.

The territorial labour-sponsored funds tax credit (factor LCP) for Yukon remains the lesser of $1,250 and 25% of the approved shares purchase.

12. Northwest Territories

Effective January 1, 2006, the territorial tax rates for Northwest Territories are not changed. The income thresholds and personal amounts are indexed. The indexing factor for 2006 is 2.2%.

To calculate the indexed amounts, multiply the territorial income thresholds and appropriate personal amounts by 1.022. For more information on indexing, see page 16.

The income thresholds are revised as follows:

¦ 5.9% on income less than or equal to $34,555 (formerly $33,811);
¦ 8.6% on income greater than $34,555, but less than or equal to $69,110 (formerly $67,622);
¦ 12.2% on income greater than $69,110, but less than or equal to $112,358 (formerly $109,939); and
¦ 14.05% on income greater than $112,358.

SOURCE: From the “What’s New” Section in my latest tax software update …

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