BUDGET 2000 REVEALED

BY RICK SUTHERLAND, CLU, CFP, R.F.P.

n February 29, 2000, Finance Minister Paul Martin presented the seventh federal budget of his government to all Canadians. At long last, personal and corporate taxes will be reduced. This is what we have all been waiting for.

Don't spend your substantial tax refund yet. The budget speaks of tax cuts, but it will take a few years to see the full impact of these promised cuts. The government decided to implement a five-year "phase in" plan.

The middle tax rate will decline to 23% (from 26%), starting with a decrease to 24% as of July 2000. This will be followed by a further 1% reduction at a later date.

The income level for this middle bracket will also be increased to $30,004 (from $29,590) while the upper limit of the middle bracket will move to $60,009 (from $59,180). Ultimately the middle income range will be $35,000 to $70,000 after the five-year phase in period.

The basic personal exemption will increase from approximately $7,000 to $8,000 a year. This too will take five years to realize. It does however open the door for further income splitting opportunities as spouses and children will be able to earn more tax free income.

The government also proposes to phase out the 5% high income surtax by 2004. In 2000, the 5% surtax will apply when federal tax payable exceeds $15,500 (applicable at income of about $75,000, up from $65,000). In 2001, the surtax will apply at the rate of 4% when federal tax payable surpasses $18,500 (applicable at about $85,000 of income).

The capital gains inclusion rate is reduced to two-thirds (from three-quarters) for capital dispositions after the budget. This is good news for those who have seen tremendous gains in stock and mutual fund portfolios over the past year.

The foreign content limit on RRSP investments will rise immediately to 25% this year, and to 30% next year. This change was fairly predictable since the proliferation of foreign clone funds had virtually abolished the foreign content rule.

Over all it appears to be a feel-good budget. We would have liked to see further tax cuts and a speedier process. However, the timing of these tax-cutting measures may simply be a maneuver to convince the public that you must continue to vote for the current government so that you will see the full benefit of these tax reductions. It will be your choice at the next federal election.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, R.F.P. with your topics of interest at 798-2421 or e-mail at rick@invested-interest.ca