OTTAWA - Unlike recent years, Canadians will have to do without the large Christmas gift of tax cuts from Ottawa as the new year begins.
But thanks to provincial changes, some - especially Albertans - will still be able to realize tax savings in 2009 starting New Year's Day.
Alberta is eliminating the health care premium, saving individuals $528 and families $1,056 on average this year, as well as introducing other tax savings.
Most other Canadians will have to wait until the Jan. 27 federal budget to see if their tax burden - as large as 44 per cent of income on average - will be significantly lightened in a multi-billion stimulus package being planned by Ottawa.
So far, Canadians have gotten little more than a lump of coal from Ottawa.
Starting Thursday, the basic income tax personal exemption increases by $500 to $10,100, which the Canadian Taxpayers Federation calculates will save most taxpayers about $39 for the year.
But the lobby group notes the minor gain will be eclipsed by payroll tax changes - for both employment insurance and the Canada Pension Plan premiums - that will result in an increase of $90 for most workers.
The net impact? Minus $51.
That's quite a change from 2008, when most Canadian families were expected to gain well over $1,000 during the year as a result of lower income taxes and the cut to the GST from six per cent to five per cent.
In a statement Wednesday, Finance Minister Jim Flaherty said changes brought in since 2006 will result Canadians and businesses paying about $31 billion less in taxes in the upcoming fiscal year starting April 1 - or about two per cent of the economy.
The vast majority of the savings are a carry forward from previous years, however.
"The Canadian economy is facing challenges," Flaherty said in the statement. "But this government has a plan, and we will come out of this stronger than ever."
A coalition of the Liberal and New Democratic parties, supported by the Bloc Quebecois, came close to toppling the minority Conservative government - arguing Flaherty's fall fiscal update contained no substantive plan for dealing with the downturn.
The Conservatives have since set Jan. 27 as the date for the next federal budget and made it clear they're planning to make several major spending commitments, resulting in a budget deficit.
Businesses have been a major beneficiary of tax cuts announced by Flaherty in October 2007 in a mini-budget.
In 2009, the corporate income tax continues to shrink from the current 19.5 per cent to 19 per cent on route to a 15 per cent rate by 2012, although businesses will be paying higher payroll taxes of about $98 per employee.
Whether Canadians wind up paying more or less taxes in 2009 largely depends on whether they take advantage of the new Tax-Free Savings Account that allows them to invest $5,000 a year starting Jan. 1 without paying taxes on future growth.
A $5,000 one-year guaranteed investment certificate would generate about $60 in interest tax free, based on a posted rate of 1.2 per cent at major Canadian banks. Returns on other types of investments would vary, including higher GIC rates at smaller financial institutions, and some could result in a loss.
"While not every Canadian is going to take advantage of it, the change could be quite significant because the ability to earn money in an account you don't have to pay taxes on may save people way more than the extra $50 they are paying net in 2009," said tax federation director Scott Hennig.
"I'm loathe to say we're worse off in 2009 because of the tax-free savings account, but we're no better off if you look at (changes) happening immediately."
Some Canadians will be better off, however, depending on where they live.
Apart from Alberta, Newfoundland lowered all its tax rates effective to last summer, moving the province from among the highest taxing jurisdictions to the middle of the pack in Canada.
British Columbia lowered its two lowest tax rates, although the gains to tax payers was offset by the introduction of a carbon tax.
Saskatchewan also introduced retroactive tax cuts for 2008, although the taxpayers federation points out that the prairie province still taxes single wage earners without children more than its neighbours.
Nova Scotians will likely be modest net beneficiaries in 2009, the taxpayers federation added, and Ontario investors will benefit from the increase to 7.4 per cent from seven per cent of the tax credit for dividends from large Canadian companies.
Alberta's elimination of the health care premium will benefit residents even if the payments are fully or partially covered by employers, since those were considered a taxable benefit.
"Albertans are the big winners," said Hennig. "It's not even close. The biggest tax change in all of Canada is the elimination of the health care premium in Alberta."
Other changes with monetary implications include:
- A one-time measure allowing Registered Retirement Income Fund (RRIF) holders to reduce their required minimum withdrawal by 25 per cent for 2008;
- The extension for three years of the tax writeoff for manufacturers making investments in new machinery and equipment.
