As part of our 2008 federal election coverage, Investment Executive explores the positions of the major federal political parties on the top issues affecting the financial services industry.

Here we look at where the parties stand on taxation issues.

As economic uncertainty brews, the Conservative Party of Canada is playing it safe offering voters and businesses standard tax incentives. Meanwhile, the Liberal Party of Canada and the Green Party of Canada are stirring the pot with their green shift reforms.

Personal income taxes

The Conservatives have lowered taxes for the average family by over $3,000 a year and will continue to do so through a series of new tax credits. These include giving first-time homebuyers a tax credit of $5,000 towards the closing costs of buying a new home.

Under a renewed Harper mandate, parents can also look forward to receiving an inflation-protected Universal Child Care Benefit of $100 every month. For single parents with children younger than six-years old, this credit will given to them tax-free. In addition, the Conservatives plan to extend income splitting to households with a disabled family member, child or adult, where one partner stays home on a full-time basis to take care of them.

The Liberals, however, are proposing a dramatic tax cut of 10% for low- and middle-income Canadians by 2012, funded by the highly contested green shift. Through charging corporations a green tax of $10 per tonne on their gas emissions raised to $40 per tonne over four years, the Liberals will raise the $1.9 billion to make their promises possible.

For individuals in the lowest bracket, earning less than $37,178, this means their tax rate would fall to 13.5% from 15%. Tax rates for people in the middle brackets, earning between $37,178 and $120,877, would see their rate drop a full percentage as well to 21% from 22% or to 25% from 26%.

To fund the infrastructure needed for a changing environment, the Liberals also want to make the current tax system more progressive. Individuals in higher brackets will be taxed at a greater rate than those in lower and middle class brackets, already affected by rising fuel costs.

Lastly, under a Stephane Dion government, students will also get breaks. The existing Tuition and Education Credit for full-time post secondary students would be replaced with an Education Grant, worth $,1000 per year.

Like the Liberals, the Green Party proposes a greener economy through shifting taxes from individuals to polluting businesses. While the party has not stated exactly how much businesses will be charged, they’ve clearly marked the tax savings for individuals and families.

With an elected Green Party government, gaps between the rich and the poor will shrink. Canadians making less than $20,000 a year will not pay income taxes at all, while people making over $150,000 would be taxed at a higher rate than the 29% marginal rate they pay now. Income splitting for middle class couples will also be allowed, where one partner earns significantly more than the other.

In agreement with the Liberals, the Green Party plans to reverse the Harper government’s decision to heavily tax income trusts and return their tax rate to 10% from 31.5%. They will also increase the taxes for foreign trust investors.

Finally, when Canadians use Revenue Canada’s online NETFILE tax filing system to submit their returns, they’ll receive an automatic $10 tax credit for saving Revenue Canada money. Other direct tax rebates will be given to businesses and individuals, who invest in a low carbon economy. These investments could include installing a solar hot water system or retrofitting a building or home to be more energy efficient.

Children are a priority with the New Democratic Party of Canada, which hasn’t outlined any specific income tax rate policies. Under the NDP’s plan, parents will receive a new child benefit, modeled after the existing Canada Child Tax Benefit of $5,000 a child per year.

On the issue of Disability Tax Credits, all parties, except the Conservatives, have stated they should be made fully refundable.

Corporate income taxes

It’s a catch-22 with the Liberal corporate tax reforms. While they may be adding carbon taxes to a corporation’s expense plate, they promise to lower the general corporate tax rate to 14% from 15% by 2012. This will make Canada one of the most competitive tax jurisdictions in the world, according to their platform document. In the same period, the Liberals also promise small businesses will reap more savings, when their tax rate falls to 10% from 11%.

@page_break@Conversely, the Conservatives will be slashing federal excise taxes on diesel and aviation fuels in half to 2¢ from 4¢ a litre. The eligibility threshold for small business income will be raised to $500,000 from $400,000, so that small businesses making over $400,000 don’t get bumped up into a higher bracket.

In stark contrast to the Conservatives and the Liberals, the NDP plans to hike the general corporate tax rate back to 22.12% from 15%. Both the NDP and Liberals, however, agree on the issue of special tax treatment for oil sands projects. Special tax treatment for oil stands must be stopped, both their platforms both state.

“That’s interesting because there are currently no subsidies or tax breaks for the oil industry,” says Travis Davies, spokesperson from the Canadian Association of Petroleum Producers, based in Calgary, Alberta, since the Harper government abolished the Accelerated Capital Cost Allowance in 2007. “It doesn’t matter, there’s nothing to take away anymore. We pay the same amount of taxes as everyone else in the country.”

As for the Green Party, they will eliminate most corporate subsides, but have not listed which ones. Under their leadership, the Goods and Services Tax would return to 6% from 5%, to help fund infrastructure.

IE