Federal Government 2007 Economic Statement

Yesterday the Federal Minister of Finance, the Honourable Jim Flaherty, presented the Conservative government's "Mini Budget". Flush with surplus fiscal funds due to a strong economy and a lofty Canadian dollar, the Minister presented a Halloween bag of goodies that rivals most annual Budget statements. Coincidentally, it was one year ago less a day from when the Minister attacked the Income Trust sector with wholesale tax changes, wiping billions from the equity markets.

What follows is a brief key point summary of the over $60 billion in tax cuts proposed over the current and next five years, coupled with a $10 billion reduction this year to the Federal debt.

CORPORATE TAX CHANGES

· To be phased in on January 1 of each year, the following table illustrates the planned general Federal corporate income tax rate reductions.

· These reductions will also apply to the new distribution tax on publicly traded income trusts and other specified investment flow through entities, beginning in 2011.

· The Federal government indicated that it is hopeful that the provinces will collaborate so that the combined general corporate tax rate at both levels of government will be at 25% by 2012. By way of comparison, Ontario corporations are currently subject to a 36.12% general tax rate.

· In order to reflect these changes, the government has indicated that it will again review the dividend tax credit rates to ensure their integrity is preserved and the intended level of integration is achieved. This review will also encompass other areas of the Income Tax Act which assume certain corporate income tax rates.

· The small business tax rate on the first $400,000 of active business income of a Canadian Controlled Private Corporation will be reduced from 13.12% to 11% on January 1, 2008. In Ontario, this will move the combined small business tax rate to 16.5%.

PERSONAL TAX MEASURES

· Lowest marginal tax rate to be reduced from 15.5% to 15% retroactive to January 1, 2007.

· Basic personal tax credit, spousal tax credit and wholly dependant tax credit will rise to $9,600 for 2007 and 2008, $10,100 for 2009 and will be subject to inflation based indexing thereafter.

GOODS AND SERVICES TAX

· Reduced to 5% effective January 1, 2008

· There are various transitional rules to deal with the rate change pre and post crossover date.

NOTICE

The contents of this report are of a general nature only and are not intended to be a full and complete analysis of the topics discussed. The issues contained herein are not intended to be nor should they be construed as, either the offering or giving of financial advice on any matter.

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