The federal government is offering direct tax relief to Canadians, with particular emphasis on low- and middle-income earners. It plans to raise both the personal income tax exemption amount and the maximum of the two lowest income tax brackets. In addition, it is also proposing targeted tax relief for seniors and low-income parents and incentives for those on social assistance to seek work.

The basic personal amount will be raised to $10,320 this year from $9,600 in 2008, representing an increase of 7.5%.

“This will affect everyone, not just those in low and middle tax brackets,” says Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth Management in Toronto. “While it’s not a huge change, it should put dollars in the pockets of all Canadians.”

The maximum of the lowest personal income tax bracket will be increased to $40,726 in 2009 from $37,885 in 2008. Income below the lowest personal tax bracket is taxed at a rate of 15%, compared to 22% above that amount.

The maximum of the next-highest personal income tax bracket will be increased to $81,452 in 2009 from $75,769 in 2008. Income below that bracket is taxed at a rate of 22%, compared to 26% above that amount.

Both changes to the two-lowest tax brackets represent increases of 7.5%. The government says that normal indexation rules, which are governed by changes to the consumer price index, will apply to the new basic personal amount and bracket maximums for future years.

For Canadians 65 and over, the government also intends to increase the age credit amount by $1,000 in 2009. With the change, the age credit amount for 2009 will be $6,408, which will provide tax relief of up to $961 for eligible seniors. This increase will provide those low- and middle-income Canadians who are eligible up to $150 of additional income tax savings every year. The changes are retroactive to Jan. 1 and indexed in following years.

The government also says it will be proceeding with its November proposal to reduce the required minimum registered retirement income fund withdrawal for 2008 by 25%.

For lower-income parents, the 2009 budget proposes to apply a new upper limit for the 15% tax bracket for income testing both the national child benefit supplement and the Canada child tax benefit. With the proposed change, low-income families will be able to earn an additional $1,894 and still receive the maximum child benefits. They will also be able to earn an additional $1,894 before their child benefits are fully phased out or before their base benefit under the Canada child tax benefit begins to be phased out.

For Canadians who are on social assistance and looking for work, the government is proposing to add $580 million to the tax relief provided by the working income tax benefit, a program introduced in the 2007 budget. The WITB is a refundable tax credit that is meant to supplement the earnings of low-income Canadians to make sure that these Canadians are financially better off working. The government says that the additional $580 million will in effect double the tax relief provided by the program.

IE