Province to Change Method of Calculating Income Tax

Nova Scotia is joining other provinces in changing the way provincial income tax is calculated.

The changes will allow Nova Scotians to receive the full benefit of any federal income tax cut while the province gains control over the provincial income tax system, Finance Minister Neil LeBlanc said today.

Currently, Nova Scotians, like most Canadians, pay provincial income tax as a percentage of the federal tax rate. The province has no control over tax credits or income brackets under the current system.

Mr. LeBlanc said Nova Scotia is joining other provinces in taxing individual income, just as federal income tax is now calculated, in order to gain provincial control over provincial income tax.

"Decisions on provincial income tax policy should be made in Nova Scotia and not at the federal level," he said.

"Three things need to be made clear: first, this change to tax on income will not result in Nova Scotians paying any more in provincial income tax, it is simply a different way of calculating the same amount of money; second, Nova Scotians will receive the full benefit of any federal personal income tax reduction; and third, Nova Scotia will have more control over such issues as income brackets, non-refundable credits and tax rates," Mr. LeBlanc said.

Currently, all provinces except for Quebec are tied to the federal rate. Newfoundland and Alberta have already announced that they are switching to a tax-on-income system. Mr. LeBlanc said that by this time next year all other provinces will likely have made the switch.

The Institute of Chartered Accountants of Nova Scotia agrees that this switch to taxing income would not result in Nova Scotians paying any additional tax.

"(Tax on income) will only result in a different basis for the calculation of income taxes," said Don Clow, president of the institute.

For example, a single Nova Scotian with an income of $40,000 and assuming the basic tax credits (basic personal amount, CPP, EI), today pays $6,139 in federal income tax and $3,530 in provincial tax for a total tax of $9,669. Assuming a two per cent cut in the middle federal tax rate and a switch to tax on income, that same Nova Scotian would then pay $5,930 in federal tax and $3,530 in provincial tax, for a total of $9,460. In this example, the taxpayer pays $209 less in federal tax and the same amount in provincial tax.

"The federal government is in a position where it can consider reducing income taxes because it has eliminated its deficit and is now dealing with budget surpluses," Mr. LeBlanc said. "In Nova Scotia we are planning to be in a similar situation in three years and are planning provincial tax cuts for then."

Mr. LeBlanc said the federal government will continue to collect provincial income tax on behalf of the provinces. Other details on the new tax calculation system will be available in the spring provincial budget. The switch will be effective with the federal tax cut and wouldn't have any affect on taxpayers completing their 1999 income tax forms.

NOTE TO EDITORS: Staff from the Department of Finance will present a background briefing on tax on income to the media at 1 p.m in the 4th floor boardroom, Provincial Building, 1723 Hollis St. Finance Minister Neil LeBlanc will be available to the media at about 1:20 p.m. in the boardroom.