By James Langton

(December 14 – 10:50 ET) – Finance Minister Paul Martin is confirming that all Canadians will receive a tax cut effective January 1, 2001.

“The bottom line is that all Canadians, especially families with children, will have more money in their pockets,” said Martin. “The January 2001 rate cuts fulfill our commitment in the October Economic Statement and Budget Update, and they go well beyond the goal we set last February in Budget 2000.”

On January 1, the 17% personal tax rate will fall to 16%, and the 24% middle tax rate, which was already reduced from 26% in July 2000, will be reduced to 22%.

The 29% top tax rate will be reduced to 26% on income between about $61,000 and $100,000, although the 29% rate will still apply to incomes beyond $100,000. The 5% deficit reduction surtax will be eliminated.

As previously announced, the capital gains inclusion rate is cut from 75% to 67% effective February 28, 2000, and down to 50% effective October18, 2000. A capital gains rollover on investments in shares of certain small- and medium-sized corporations is also provided.

The taxation of certain stock option benefits is deferred, increasing the stock option deduction and allowing an additional deduction for certain stock option shares donated to charity.

The Five-Year Tax Reduction Plan includes the restoration of full indexation of the personal income tax system effective January 2000, as well as increases to the Canada Child Tax Benefit. “By reducing tax rates at all income levels, the federal government is giving every taxpayer a well-deserved break,” said Martin.

On the business side, the changes provide a tax-deferred rollover for shares received on certain foreign spin-offs. As well the 28% general corporate tax rate falls to 21% — starting with a one point reduction on January 1, 2001, followed by a two point cut in each of the following three years.

Draft legislation relating to the Five-Year Tax Reduction Plan will be released later this month and will be introduced in Parliament at the earliest opportunity.

The federal government also confirmed yesterday that Relief for Heating Expense payments are expected to be mailed out to eligible individuals and families beginning on January 31, 2001. This one-time measure fulfills a commitment in the October Economic Statement to provide timely relief from higher-than-normal heating costs.