Achi news desk-
The federal government is moving to raise the minimum tax rate paid by wealthy Canadians in the budget and narrow its focus on the highest earners.
In its budget on Tuesday, Ottawa is raising the alternative minimum tax rate and setting new limits on many of the exemptions, deductions and credits that apply under the system starting in 2024.
“We’re making sure the very rich and our biggest corporations pay their fair share of taxes, so we can afford to keep taxes low for middle-class families,” Finance Minister Chrystia Freeland said in a text ready his comments.
The alternative minimum tax (AMT) introduced in 1986 is a parallel income tax calculation that allows fewer deductions, exemptions and tax credits than the normal tax rules for the country’s highest earners. Wealthy Canadians pay the minimum or the regular alternative tax, whichever is higher.
The government announced in the budget that it was increasing the alternative minimum rate to 20.5 per cent from 15 per cent starting in 2024.
To help ensure that lower and middle income Canadians are not caught up in the increase, Ottawa is also proposing to increase the exemption to the beginning of the fourth federal tax bracket from $40,000. For 2024, he expects the exemption to be around $173,000 and will be indexed annually to inflation.
The government estimates that about 32,000 Canadians will fall under the new rules in 2024, compared to about 70,000 if it did not make the changes.
However, the higher rate and overhaul of the deductions and credits allowed means Ottawa expects to take in an additional $150 million in 2023-24 and an additional $625 million in 2024-25.
Bruce Ball, vice-president of tax at CPA Canada, said there is a wider range of things that will go into the alternative minimum tax calculation, but the good news for most taxpayers is that the threshold will be much higher.
“That should exclude a lot of people even if they have more additions than they would have under the old system, so there’s probably good news and bad news, depending on your situation,” Ball said. .
“If you are on a higher income you may pay more; if you are on a lower income you may not be subject to AMT.”
While the wealthiest Canadians face the prospect of higher taxes, the budget also includes a one-time payment to those receiving the goods and services tax credit to help offset rising living costs.
“We all know that our most vulnerable friends and neighbors are still feeling the bite of higher prices. And that’s why our budget provides targeted inflation relief to those who need it most,” Freeland said.
Under the proposal presented as a grocery rebate, eligible Canadians will receive an additional amount equal to twice the amount of the GST tax credit for the month of January. For couples with two children the amount could be up to $467, while a Canadian without children could receive up to $234 extra.
Student budgets will also see a boost from the budget as the government increases Canada Student Grants compared to pre-pandemic levels and raises the interest-free Canada Student Loan limit.
The changes increase the total federal aid available to a full-time student based on financial need to $14,400 for 2023, up from $13,160 for 2022 and $10,140 in 2019 before the pandemic.
The government is also moving to cap the increase in alcohol excise duty to two per cent for a year. The rates are normally indexed to the consumer price index and were previously expected to rise by 6.3 per cent.
However, Canadians who want to take a flight next year will face an increase in the air passenger security charge paid by those flying in Canada starting on May 1, 2024. The charges, paid by passengers when they buy a plane ticket, help pay for the air travel security system and were last increased in 2010.
The charge for a domestic round trip will rise to $19.87, from its current rate of $14.96. The charge for a cross-border flight to the United States will rise to $16.89 from $12.71, while passengers for an international flight will pay $34.42, up from $25.91.
This report was first published by The Canadian Press on March 28, 2023.
