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1 |
PURPOSE |
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1.1 |
The purpose of this directive is to provide clients with information relative to the tax legislation changes that are effective July 1, 2006. |
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1.2 |
A notice of information to employees concerning the above subject has been included with this Compensation Directive and will also be posted in the "Who are you? - Public Service Employee" page of the Compensation Sector Web site.
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2 |
BACKGROUND |
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2.1 |
The federal and Alberta budgets contained changes to the respective tax legislation which will be effective July 1, 2006. |
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2.2 |
The explanations in this directive will help compensation advisors provide information to individuals concerning the factors that may cause changes to their pay cheques.
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3 |
POLICY |
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3.1 |
Federal tax rates |
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The government announced that the lowest personal tax rate will increase from 15% to 15.5% effective July 1, 2006. |
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The current tax rate of 15% that is used to calculate the federal non-refundable tax credits amounts will increase to 15.5% effective July 1, 2006. |
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Tax Adjustment Factors |
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The Canada Revenue Agency (CRA) has advised that the new tax adjustment factors effective July 1, 2006, will be as follows: |
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| Tax Adjustment Factors |
| Province |
Effective January 1, 2006 |
Effective July 1, 2006 |
| Nova Scotia |
99% |
96.56% |
| Ontario |
76% |
73.96% |
| New Brunswick |
100% |
97.76% |
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Please refer to Compensation Directive 2002-012 for more information on tax adjustment factors. |
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Federal personal tax credits |
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The following table provides the changes to the federal tax credit amounts effective July 1, 2006. |
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| Federal Personal Tax Credit amounts |
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Amount effective January 1, 2006 |
Amount effective July 1, 2006 |
| Basic personal amount |
$9,039 |
$8,639 |
| Pension income amount |
$1,000 |
$2,000 |
| Spouse or common-law partner amount |
maximum of $7,675 |
maximum of $7,335 |
| Amount for an eligible dependant |
maximum of $7,675 |
maximum of $7,335 |
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Canada Employment Credit |
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The government introduced the Canada Employment Credit, which is a new non-refundable personal tax credit. The credit is effective July 1, 2006. It will be calculated by using the lowest personal tax rate for the year and will apply on the lesser of: $500 and the individual's employment income for the year. Pension income is not eligible for this credit. Since the credit takes effect July 1, 2006, the maximum amount for 2006 will be $250. |
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Textbook Tax Credit |
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Effective for the 2006 taxation year, post-secondary students will be able to claim, on the new TD1 form (Personal Tax Credits Return), a new non-refundable textbook tax credit. The credit will be calculated on an amount of $65 for each month the student qualifies for the full-time education credit and $20 for each month the student qualifies for part-time education tax credit amount. |
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3.2 |
Provincial personal tax credits |
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Alberta |
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The basic personal amount, spouse or common-law partner amount and the amount for an eligible dependant were increased from $14,799 to $14,899 effective January 1, 2006. To take into consideration the period from January 1, 2006, to June 30, 2006, the following table provides the prorated tax credit amounts effective July 1, 2006. |
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| Alberta Personal Tax Credit amounts |
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Amount effective
January 1, 2006 |
Revised Amount effective January 1, 2006 |
Amount effective
July 1, 2006 |
| Basic personal amount |
$14,799 |
$14,899 |
$14,999 |
| Spouse or common-law partner amount |
maximum of $14,799 |
Maximum of $14,899 |
Maximum of $14,999 |
| Amount for an eligible dependant |
maximum of $14,799 |
Maximum of $14,899 |
Maximum of $14,999 |
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4 |
PROCEDURES/INSTRUCTIONS |
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4.1 |
All pay systems will be programmed to automatically reflect the new federal tax rate for payments dated on or after July 1, 2006. |
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All pay systems will be programmed to include the Canada Employment Credit in the formula to calculate basic federal tax. |
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All pay systems will be programmed to automatically reflect the new federal and Alberta basic personal amount and spouse or common-law partner amount. |
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Employees who wish to change any of their personal tax credit amounts at source that are not automatically programmed as mentioned herein must complete a federal and/or provincial TD1 form. These forms are available at District Taxation Offices or on the Internet at the following address:
Federal and provincial (other than Quebec) TD1 forms http://www.cra-arc.gc.ca/menu/AFAF_T_TD-e.html#ti |
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To change personal tax credit amounts at source for the province of Quebec, employees are to complete a Source Deductions Return (TP1015.3-V) form. This form is available from the ministère du Revenu du Québec (MRQ) and on the Internet at the following address:
http://www.revenu.gouv.qc.ca/documents/eng/
formulaires/tp/tp-1015.3-v(2006-01).pdf (PDF)
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5 |
INQUIRIES |
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5.1 |
Any inquiries on the information contained in this document should be addressed to your Public Works and Government Services Canada (PWGSC) Compensation Services Office. |
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