Doug Ashbury
Northern News Services

Yellowknife (Mar 08/00) - Tax accountant Andy Wong says Federal Finance Minister Paul Martin's move to index the tax system is a "fundamental and significant" change.

It was a change that "caught everyone by surprise," he said.

Speaking Friday at a Yellowknife Chamber of Commerce luncheon, Wong, a CGA with Yellowknife firm MacKay and Partners gave indexation an A grade.

Under the recently released federal budget, the basic exemption the level of income not subject to tax, will increase to $7,231 in 2000, compared to $6,794 in 1999, then be indexed to inflation. This means that as the cost of living changes, so too will the basic exemption.

To illustrate what has happened without indexation, Wong said in 1992, tax benefits on the basic exemption translated into two plane tickets to Edmonton from Yellowknife. Today, inflation has eroded those two tickets down to 1.2 tickets.

"All things being equal, what you buy today you can buy five years from now."

And if individuals were getting less, that means the federal government was getting more, he said.

"Now, with full indexation, the government has taken its hands out of (taxpayers') back pockets."

Prior to indexation, the government did not have to increase the tax rate to get more money, Wong said.

Asked if there were any budget bits that targeted the NWT, Wong said there are no tax proposals that favour any sector or region.

But many NWT students receive Government of the Northwest Territories bursaries, he noted. And the new budget increases the exemption from $500 to $3,000 for the 2000 tax year.

Families will also get more because child tax benefits have been increased, he adds.

Wong also noted that some capital gains can be deferred by reinvesting those gains in another corporation. Wong said this change promotes investment.

Regarding the 15 per cent income tax reduction, Wong says that percentage will be brought in over five years. It means that five years from now someone making $30,000 will realize $866 in tax savings. Someone with a $50,000 salary will have $2,003 more and those making $70,000 will have $3,248 more in their pockets.

Next year, Canadians at these three income levels will pay $161, $527 and $966 less tax respectively, he said.

For high income earners, the five per cent surtax on basic federal tax in excess of $12,500 will be phased out. This surtax currently applies to those making about $65,000. For 2000, this tax will kick in at about $75,000 and at about $85,000 in 2001.

With the reductions in income tax paid, the territorial government will also be collecting less income tax though.

Territorial and provincial income taxes are a percentage of the federal amount. But because of the way the formula financing agreement between the GNWT and Ottawa is structured, the decline in territorial tax revenue will be supplemented up to 80 per cent. Although it's not the full amount, any reduction is "significant," Wong said.