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Federal budget 2006: Harper government announces sweeping tax cuts, with almost $20 billion in tax relief

By CO Staff @canadaone |

Today the Harper government brought in its first budget, announcing sweeping tax cuts with 29 separate tax reductions in every area the government collects money.

"For every new dollar we spend, this government is returning $2 to working Canadians," said Minister of Finance Jim Flaherty in his budget speech.

The promised GST tax cut was one of the first announced, with the new 6% rate to take effect on July 1, 2006.

For small businesses, effective Jan. 1st, 2007 the threshold that small companies can earn before being taxed at the higher corporate rate will rise from the current $300,000 to $400,000. In addition, the 12% tax rate will be reduced to 11.5% in 2008 and 11% in 2009 for qualifying small businesses.

On July 1st duty on 100% Canadian wines will be eliminated and the excise tax rate on beer brewed at Canadian micro-breweries will be reduced. There will also be a $2000 tax credit for employers who hire apprentices.

For larger companies Minister Flaherty announced that:

  • the federal capital tax will be eliminated as of Jan. 1, 2006
  • the corporate surtax for corporations will be eliminated by Jan. 1, 2008
  • the general corporate tax rate will be reduced from 21% to 19% by 2010.

Personal income tax reductions
A new tax credit will benefit employees, who will receive a tax credit of up to $500, effective July 1, 2006. As of Jan. 1, 2007 the tax credit will double, making employees will be eligible for a $1,000 credit.

Effective July 1, 2006 the lowest tax rate will be set at 15.5%, which is a 0.5% increase from the 15% rate set by the Liberals in their last budget. The budget also confirms that the lowest tax rate will be 15 per cent from January 1, 2005 until June 30, 2006.

The "basic personal amount", which is the amount that all Canadians can earn without paying federal income tax will be increased, which will remove 655,000 low income Canadians from the tax rolls.

Additional cuts & credits
The government also announced a wide range of additional tax cuts and credits. These included the promised $1200 child care tax credit for families with children under the age of six, a sports tax credit for families who enroll their children in sports programs and additional funding and tax relief for post-secondary students. The government also confirmed that it will support the provinces and territories with $1 billion in funding for investments in post-secondary education infrastructure projects.

With a minority government, the next test of the Harper government will be to get a majority vote to approve this budget.

For highlights of additional tax cuts introduced in this budget visit

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