OTTAWA — The concept of an employment-expense credit -- to offset commuting, work clothes and other costs people ring up just to go to work -- was revived by the Conservative government in yesterday's budget.
An employment-expense deduction of up to $500 was part of the tax regime until 1988, when it was eliminated in sweeping tax changes. Under the Tory plan, an employment credit will be introduced on July 1. For 2006, it will cut taxable income by $250, and the credit will rise to $1,000 for the 2007 tax year and beyond and be indexed to inflation.
Tax expert Tim Cestnick of WaterStreet Group Inc. in Burlington, Ont., said the new credit is effectively just an increase in the basic personal credit, although it will apply only to people with employment income.
In 2006, the credit will reduce the amount a working person pays in taxes by $38. This saving will rise to $155 in 2007. Because the credit is indexed to inflation, that amount will increase slightly in future years. While the credit is aimed generally at the middle class (people with incomes under about $9,000 will not benefit), even the wealthy will gain the few dollars it generates, Mr. Cestnick noted.
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The government, however, is selling the new credit as a boon to low-income Canadians. "This new tax credit gives Canadians a break on what it costs to work, recognizing expenses for things such as home computers, uniforms and supplies," Finance Minister Jim Flaherty said in his budget speech.
Unlike the expense deductions available to the self-employed, employees claiming the credit will not have to show receipts. When combined with the current basic personal tax credit -- now at about $8,600 -- the new credit will increase to almost $10,000 the amount an employee can earn without paying any federal income tax. The credit will cost the government about $890-million in 2006-2007, and about $1.8-billion in 2007-2008, according to the budget documents.
Nancy Hughes Anthony, president of the Canadian Chamber of Commerce, praised the new credit as a "simple, non-bureaucratic tax reduction for workers." But Lorne Kutner, a tax expert at Mintz & Partners in Toronto, said it would have made more sense -- and been much simpler -- merely to increase the basic personal tax credit.
