February 2008 Archives

Tax-Free Savings Account

For information on the newly announced Tax-Free Savings Account (TFSA) in the Government of Canada Federal Budget 2008, please see our information page on the Tax Free Savings Account.

The 2008 federal budget announced the introduction of a Tax-Free Savings Account (TFSA). According to the Convervative government, it is “the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP)”.

The TFSA is similar to an RRSP. It is intended to help Canadians save money. The contributions you make to the TFSA are made with after-tax dollars but withdrawals are tax-free. So whether saving for a new car or a new house, tax-free savings may help you get there.

A New Tax Savings Plan & Modest Spending Growth

Program spending budgeted to rise 3.4% in 2008/09, but hold the applause – spending has already increased by 14.8% under the Conservatives.

Gone is the promise to pay down debt by $3-billion a year.

OTTAWA: The Canadian Taxpayers Federation (CTF) reacts to the 2008/09 federal budget, which was tabled in the House of Commons by Finance Minister Jim Flaherty this afternoon.

The Tax-Free Savings Account – A Pro-Growth Tax Plan:

The Conservative government will allow Canadians to invest after-tax dollars and any investment gains from interest, dividends and capital gains will not be subject to tax. Moreover, savings will not trigger clawbacks on government entitlement programs that are income-tested, such as pension allowances and child tax benefits. Starting in 2009, Canadians will be permitted to contribute up to $5,000 a year to this new savings vehicle.

“The new tax-free savings account is a pro-growth policy that will encourage Canadians to save, reward individuals and benefit the economy,” said CTF federal director John Williamson. “This is an excellent policy proposal. Canada needs to reward people that save because their investments fuel economic growth and job creation. The big criticism of the GST cut was that it did little to encourage savings. Mr. Flaherty responded to this concern today by proposing a plan that will not punish people that save.”

Finance Minister Flaherty Hasn’t Controlled Spending So Far. Will He Tomorrow?

The budget proposes that program spending will increase to $208.1-billion in the next fiscal year, which is a modest 3.4 per cent rise. Unfortunately, the Conservatives have failed to control spending during their first two years in office. When the Liberals left office total program spending stood at $175-billion (2005/06 fiscal year). In fiscal 2007/08, the current year ending on March 31, the federal government’s annual outlays will – for the first time – break the 200-billion-dollar mark.

The Conservative government’s first budget called for Ottawa’s expenditures to grow by 5.4 per cent in fiscal 2006. Yet, at the end of that year government receipts had instead ballooned an astounding 7.5 per cent. The 2007 budget plan announced an additional 5.6 per cent spending hike. The real amount will be 6.85 per cent.

“Under Mr. Flaherty, the size of the federal government has grown by an astounding 14.8 per cent. How is this fiscally conservative or even ‘responsible,’” Williamson asked rhetorically. “As prime minister, Paul Martin grew the federal government by 14 per cent over two years. Amazingly, the Conservatives have bested Liberal spending. This is a spend-thrift government.”

“The government’s overall expenditure level is disappointing. Spending growth has repeatedly exceeded the minister’s own target, which is the economic growth rate. As a result, Canada will pay down less debt in the future,” said Williamson.

… Less Debt Repayment:

Minister Flaherty will reduce Canada’s $467.3-billion debt by $10.2-billion this fiscal year, which ends on March 31. The government plans to reduce the federal debt by only $2.3-billion next year (fiscal 2008/09) and a trivial $1.3-billion the following year (2009/10). Up until today, Mr. Flaherty had pledged to reduce debt by at least $3-billion each and every year.

“Ottawa needs a more aggressive debt reduction schedule. The Conservatives should not be downplaying the importance of paying off Canada’s debt,” said Williamson. “Debt servicing will chew up $31.5-billion next year, which amounts to $86-million each day. Ottawa should set yearly debt reduction targets, as was done with the deficit, and make those targets the law.”

A Little More Good News – Managing the Employment Insurance (EI) Surplus:

The 2008 budget will establish a Crown corporation to manage the EI fund. Future EI surpluses will be invested until needed for EI payments. At the same time, a new rate-setting mechanism will limit the surplus to $2-billion.

“Ottawa has been using the EI surplus as a cash cow and maintaining higher EI tax rates on workers than necessary. That’s an unnecessary tax on jobs,” noted Williamson. “It is hoped this new agency will reduce the unnecessarily large tax burden and large surpluses. It is unconscionable that Ottawa has accumulated massive EI surplus, tossed it all into general revenue and spent it. EI taxes should fund EI payments, not government largesse.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Jim Flaherty’s Budget Test

Jim Flaherty has done a good job downplaying expectations in advance of the federal budget, which will be tabled in Parliament on February 26th. The finance minister has said there will be no new expenditures nor will he deliver meaningful personal income tax relief. This might be acceptable so long as he delivers on both sides of the ledger.

Suppose Canadians give Mr. Flaherty the benefit of the doubt and accept that his hands are tied. That the economic downturn in the United States will reduce Ottawa’s tax base and the mighty surplus will evaporate. And perhaps many will agree a minority government makes it impossible for the Conservatives to cut government fat and eliminate waste. Maybe a status quo budget is sufficient.

Certainly, taxpayers can take some solace in recent tax cuts. The federal government rolled out a $60-billion package of broad-based tax cuts in October. It delivered substantial business tax relief, cut the GST to 5% and reversed the personal income tax rate increase Mr. Flaherty enacted in his first budget.

BUT … if Mr. Flaherty’s pledge to be fiscally “responsible” is to mean anything he must match his tax relief freeze with a corresponding spending freeze.

Increasing spending while shunning tax cuts will mean the Conservative government has put the interests of the bureaucracy ahead of ordinary taxpayers. And if the size of the federal government expands, Canadians are unlikely to buy the government line that taxpayers must wait for income tax relief.

Voters are hoping the finance minister finally follows through on his budget rhetoric. From the beginning of the Conservative government’s mandate Mr. Flaherty has vowed to control expenditures and spend responsibly. Taxpayers are still waiting.

When the Liberals left office total program spending stood at $175-billion (2005/06 fiscal year). The Conservative government’s first budget called for Ottawa’s spending to grow by 5.4% in fiscal 2006. Yet, at the end of that year government spending had instead ballooned an astounding 7.5%.

The 2007 budget plan announced an additional 5.6% spending hike. Once again spending has continued to creep upward throughout the year. Last month, the department of finance revealed expenditures had increased by 6.7% in the first eight months of the fiscal year (April to November). What fuelled the increase? The department says higher transfer payments, Crown corporation expenses, and operating expenses of departments and agencies. Translation: spending is up everywhere.

An example of lazy management is Ottawa’s recent $1-billion plan to retrain laid-off workers and fund community infrastructure projects. (More federal bocce ball courts and canoe museums anyone?) Rather than reallocate from non-priority spending, like handouts to special interests groups or corporate welfare subsidies, the government decided it was easier to reach into the coffers and drive federal spending to new heights.

Toss in end-of-fiscal-year “March madness” spending and the federal government’s annual outlays will – for the first time – break the 200-billion-dollar mark. How is this fiscally conservative or even “responsible?”

Mr. Flaherty is developing a reputation as being a big spending finance minister. Indeed, it is no contest between Mr. Flaherty and former finance minister Paul Martin over who is more fiscally responsible. It is Mr. Martin, by a long-shot.

Some might argue this comparison unjust since Mr. Martin tabled budgets in a majority government. As prime minister, Paul Martin was less “responsible” to be sure. During his two-year tenure he grew the size of government by 14%. And how much has government grown under Stephen Harper and his Conservatives in the same timeframe? It is – surprisingly – also 14%.

Looking ahead, Mr. Flaherty can continue mouthing empty rhetoric about controlling spending or he can start delivering. After two strikes it is hoped his third budget will finally deliver a dose of fiscal responsibility. If the Conservatives exercise even modest spending restraint they will be able to deliver meaningful personal income tax relief next year. The decisions Finance Minister Jim Flaherty makes in the upcoming budget will determine the size of tomorrow’s income tax cut. He should hold the line on spending, and taxpayers will thank him if he does.

John Williamson
Federal Director
Canadian Taxpayers Federation

Canadians say personal income taxes too high, too complicated and unfair – opinion poll

CTF public opinion poll also finds 45% of respondents believe cutting personal income taxes should be given priority over other tax measures

OTTAWA – The Canadian Taxpayers Federation (CTF) released results of a public opinion poll in advance of the 2008 budget, expected later this month. The poll was conducted by Praxicus Public Strategies Inc. for the CTF to determine what Canadians think of the personal income tax burden and gauge perceptions of the tax codes fairness and its complexity.

The CTF-commissioned public opinion survey found:

65% of Canadians say federal personal income tax rates are somewhat too high (33%) or much too high (32%);

63% of Canadians believe the federal income tax system is too complicated;

57% of Canadians deem the income tax system somewhat unfair (40%) or very unfair (17%);

45% of Canadians said income taxes should be the federal government's top tax cut priority with gas taxes second (18%) with payroll taxes and GST tied for third at 10% each; and

51% of Canadians prefer broad-based tax relief over 44% who like targeted tax measures.

The survey was conducted January 4 – 8, 2008, among 1,000 Canadian adults 18 years-of-age and older. The results are considered accurate to within +/-3.1 percentage points, 19 times out of 20. The results are available online: http://www.taxpayer.com/pdf/PollResults2008.pdf

On January 17th, the CTF released a groundbreaking study urging the federal government to enact a multi-year tax reform/relief plan. The report, entitled Lower, Simpler & Flatter – Towards a Single Tax Rate for Canada, urges Ottawa to reduce personal income taxes and cut the number of tax brackets from four to two while maintaining only a handful of deductions like RRSP, spousal and child allowances. The goal is to both simplify the tax code while lowering the personal income tax burden in a manner that strengthens the Canadian economy. The tax reform/tax relief news release is available here: http://www.taxpayer.com/main/news.php?news_id=2781

“This poll indicates our tax reform/tax relief proposal correctly identified problems with the existing personal income tax system. Specifically, a majority think income taxes are too high, the tax code is too complicated, and the system unfair,” said CTF federal director John Williamson. “The Conservative government should move to two federal income tax rates of 15% and 25% by 2012 as a way to make the system fairer and less complicated. There is public support for tax reform and tax relief.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Tax Tip: Are you a newcomer to Canada?

The Canada Revenue Agency provides the following Tax Tip:

Did you know…

That if you are a newcomer to Canada, you may be eligible for credits and benefits such as the Canada Child Tax Benefit, the Universal Child Care Benefit, and the GST/HST credit?

For more information, visit www.cra.gc.ca/individuals and select “N” from the drop-down menu for “Newcomer to Canada.”

For more information on this or other CRA tax tips, please see;
http://www.cra-arc.gc.ca/newsroom/taxtips/2008/tt080208-e.html

Protecting the money given to charity

The Canada Revenue Agency has provided a news releases assuring Canadians that they can be confident in their charitable giving. The CRA encourages donors to become more informed about charitable organizations by accessing resources on the CRA website to research registered charities before you donate.

“The Canada Revenue Agency works to support charitable giving in Canada by helping donors make informed choices about the charities they support, and warning Canadians about organizations that are not playing by the rules,” says Minister O'Connor.

Most of the approximately 83,000 charities registered in Canada abide by the tax laws. When non-compliance is suspected based on public complaints or the information provided on annual information returns, the CRA undertakes an audit. Last year, 847 charities were selected for audit and as a result the CRA revoked the charitable status of 27 organizations for serious infractions of the law. Many additional charities also lost their charitable status for failure to file their annual return.

The CRA Charities Listings is available at www.cra.gc.ca/donors. The site allows you to search for any charity to view its annual information returns and verify that the charity you wish to donate to is registered.

Tax Tip: Generosity is rewarding!

Did you know…

That you may be able to reduce your income tax by donating to registered charities? You can verify whether a charity is registered by searching for it in the Canada Revenue Agency (CRA) Charities Listings.

In 2007, the federal tax credit for charitable donations is calculated as 15% of the first $200 of donations, plus 29% of the amount donated over $200. You may also be eligible for provincial or territorial tax credits based on the applicable provincial or territorial rates. You can claim donations made this year, or carry forward any unclaimed donations for up to five years. Married or common-law couples can pool their donations and claim them on one return.

The CRA advises Canadians to be aware of certain charitable donation schemes being promoted about which the CRA has issued numerous warnings. For more information, visit www.cra.gc.ca/newsroom/alerts/2007/a070813-e.html or www.cra.gc.ca/donors.

The Canada Revenue Agency offers business tax help on Saturdays

The Canada Revenue Agency (CRA) has issued a news release reminding Canadians that it will provide service on its business enquiries telephone lines on two Saturdays, February 16, and 23, 2008, from 10:00 a.m. to 4:00 p.m. The extended service is provided to assist employers who need help preparing T4 slips for employees.

"The CRA's business enquiry telephone service operates year round with agent-assisted service available from Monday to Friday between 8:15 a.m. and 8:00 p.m. Automated service is available 24 hours a day, 7 days a week.

The business enquiry telephone number is 1-800-959-5525.

The CRA takes the privacy and confidentiality of taxpayer information very seriously. When calling the business enquiry service, taxpayers are asked to answer personal and account-specific questions to confirm their authority to discuss the business account with the CRA. Taxpayer account information is available only to those individuals who have authorization to access the account.

For general information on business-related topics 24 hours a day, 7 days a week, visit the CRA Web site at www.cra.gc.ca."

A not so private matter

The assertion about “abortion being a private matter between a woman and her doctor” has been made a lot this week, mostly by proponents of the Supreme Court ruling that struck down Canada’s abortion law 20 years ago. It’s a clever jingle, but not entirely true. At least not as far as taxpayers are concerned.

Canada spends generously on things like senior pensions, education and health care. Despite the obvious public support for core spending, Canadian voters remain less willing to fund programs they believe are not providing positive outcomes or helping people in a constructive way.

The most obvious example of this is welfare. With the backing of taxpayers, governments provide a basic minimum amount, recognizing overly rich payments encourage dependence and disincentives to work. One province even offered one-way bus tickets to neighbouring provinces for people unwilling to work. Another was more progressive and enacted a workfare program. It requires recipients to participate in mandatory work activities to ensure the social safety net does not become a comfortable hammock.

A similar logic applies to abortion.

While few Canadians are clamouring for legislative restrictions on abortion, it is doubtful those same voters would support government promoting it. Hence, the pro-abortion lobby employs language that implies the state has little to do with it. They say it’s about the freedom to choose, an individual’s choice, and the state has no business interfering in a private decision. It’s a position that satisfies small-government libertarians as well as those claiming to be both fiscally conservative and socially liberal. Yet, government is more involved in promoting abortion than Canadians realize.

We’re familiar with provincial funding of abortion (with the exception of New Brunswick). Of course, it’s not terribly expensive – it is estimated $50-million a year is spent on the medical procedure from a $100-billion public health budget. Ultimately, it is for provincial legislatures to decide whether or not to fund it under Medicare.

But what might Canadians say about the federal government offering unemployment benefits to women who have an abortion? It is worth asking because Ottawa’s employment insurance (EI) program does just that.

According to EI guidelines, when a pregnancy is terminated within the first 19 weeks it is considered an illness and benefits can be collected. Ottawa does not distinguish between a miscarriage and an abortion. If an abortion occurs in the 20th week or later benefits are paid out under the EI maternity program despite there being no mother or child. According to the federal government, the “birth mother” need only sign “a statement declaring the expected due or actual date of birth.” Illness and maternity benefits are paid for up to three and a half months.

Government support doesn’t end there. Last year, the federal government’s Canadian International Development Agency (CIDA) quietly approved funding to the United Kingdom-based International Planned Parenthood Federation. This organization will collect $18-million over four years from Canadian taxpayers to promote its agenda.

Planned Parenthood acts as a political pressure group. On January 22, the Wall Street Journal reported the U.S. “abortion-rights advocate Planned Parenthood is launching a major effort to elect pro-abortion-rights candidates to Congress and the White House in November.” It will “spend $10-million to persuade voters to elect abortion-rights candidates in the 2008 election.” The Canadian government should not be sending tax dollars to advocacy groups that engage in political activism in Canada or elsewhere.

Early in the Conservative government’s mandate brave attempts were made to limit this type of careless spending. The ideologically charged Court Challenges Program was cancelled as was the ill-conceived prison tattoo program. Ottawa should move to undo its spending policies that either encourage or reward having an abortion. It should certainly not pay out EI illness or maternity benefits when there is no child.

John Williamson
Federal Director
Canadian Taxpayers Federation