Ottawa is proposing to end the so-called “marriage penalty” by increasing the spousal tax credit to match the basic personal tax credit. This will take effect beginning in 2007, and will provide up to $209 in additional personal income tax relief.

“It is good public policy to encourage commitment an marriage, not penalize it. That’s what we’re doing,” Finance Minister Jim Flaherty said in his budget speech.

The income tax system currently includes personal credits to allow individuals to receive a basic amount of income on a tax-free basis, plus an additional credit for a spouse, common-law partner, or a wholly dependent relative, known as the “spousal amount.”

Under present tax rules, the amount of the spousal credit must be reduced on a dollar-for-dollar basis by any income made by the dependant in excess of a pre-set threshold. For 2007, the threshold was set at $759.

In 2007 the basic personal amount is $8,929. The spousal amount was set at $7,581.

Ottawa is proposing to increase the spousal credit by $1,348 — matching the basic personal amount.

It is also eliminating the threshold above which the dependant’s net income must be taken into account. The elimination of the income that could be made within the threshold is offset by the increase in the spousal amount to match the personal amount.

This change results in simpler calculation of these credits for two-income families.