From: dave@lsuc.on.ca (David Sherman)
Subject: Re: Canadian taxes and govt debt (was: Re: Income tax rate in Canada)
Organization: The Law Society of Upper Canada
Distribution: na
Date: Thu, 13 Aug 92 08:10:27 GMT

durham@mpr.ca (Paul Durham) writes:
> mwh@socrates.umd.edu (Michael Hrybyk) writes:
>
>>2. The marginal rate for those earning < 70k CDN is 46% in BC, according
>>   to Coopers and Lybrand. This includes provincial taxes, surtaxes, ...
>>   One must add 2.1% Canada pension and ~1% for UIC, summing to 49%.
>
>Wrong. You have already hit the maximum contribution level for CPP and UIC
>long before you got to the 46% marginal rate.

That's true.  However, the marginal rate in BC at the top end is
going way up, due to the March 26 BC budget.  All of the provinces
have surtaxes on high levels of provincial tax, but BC's is going
up to 30%.  The top rate of combined federal/provincial income tax
as of 1993 will be over 51%.  (BC's basic provincial tax rate is
now 52.5% of federal tax.  The surtax is calculated on BC tax over
a threshold.  And there are two federal surtaxes -- one regular,
one high-income -- to complicate matters further.)

The 46% rate quoted for income under $70K is about right.

>>Note that various deductions and credits are not considered in the above.
>>Also note, for you rich capitalists out there, that capital gains in
>>Canada are taxed as ordinary income.
>
>Wrong. There is a lifetime capital gains exemption of $100,000. After this
>is used up, capital gains are multiplied by 2/3 and _then_ added to the
>income.

Also wrong, but closer.  3/4 of capital gains are taxed.  The 2/3 figure
was a transitional rule for 1988 and 1989 while going from 1/2 (which applied
from 1972-87) to 3/4.  Also, the lifetime $100,000 exemption (which is
$500,000 for certain small business corporation shares and farms) is not
allowed for real estate after February 1992.  For real estate held
since before March 1992, the exemption is reduced proportionate to the
number of months in which the property was owned after February 1992.

>>Probably close to the mark, but I'd like to see some hard facts
>>regarding national and state/provincial debt comparisons.

The Canadian Tax Foundation has published some studies on this
issue.  It's horrendously complicated, and any simple number
comparisons such as have been bandied about on the net are
misleading.

One poster mentioned that home mortgage interest is deductible
in the U.S.  True.  On the other hand, the U.S. deductions for
retirement savings are miniscule relative to our RRSP contributions
limits -- $12,500 per year if you're not in a pension plan and
have sufficiently high earned income.  That's a *lot* of tax deferral
if you do it for a few years.  (Plus, our RRSP contribution limits
can be carried forward and claimed in future years.)
That's just one example of how it's really impossible to compare
the systems.

>>					The Canadian
>>GST was supposed to balance the budget, and erase the yearly deficit.

When first introduced, the GST was supposed to be "revenue neutral".
However, it's widely recognized that it won't be.  The February 1992
federal budget reported thta although the economy was down and
income tax revenues (both personal and corporate) were way down,
GST revenues for 1991 were right on target.  Which tells us that
if the economy had performed as Finance had hoped, GST revenues
would have been much higher than forecast.

The federal government recently enacted legislation that requires
all net GST revenues to be applied towards the public debt (and
interest thereon).  Of course, since money is fungible, this legislation
will have no practical effect whatsoever, but the gesture is nice.

David Sherman
Author, "Basic Income Tax Law" (CAI course)
Newsgroups: can.politics