Most provinces are making only modest changes to their 2008 tax regimes. “Some minor tinkering” is the way Paul McVean, regional vice president of wealth planning with United Financial Corp. in Toronto, describes it.

While two provinces — British Columbia, and Newfoundland and Labrador — have reduced their personal income tax rates, the majority have opted to provide taxpayers with relief through targeted credits.

At the federal level, the principal change affecting individuals is the tax-free savings account, which takes effect in 2009. (See stories on pages B3 and B4.) The new vehicle will allow Canadians to contribute up to $5,000 in after-tax dollars annually to an account in which income can accumulate free of taxes. Withdrawals will not be taxed, although there is no deduction available when the money is placed into the account.

The Department of Finance calls the TFSA the “single most important personal savings vehicle since the introduction of the registered retirement savings plan.”

“Initially, I don’t think that the TFSA will have a huge impact,” says McVean. “But when we look at the tax planning opportunities that will come about over a period of time, it’s significant.”

There are no similarly significant changes at the provincial level. B.C.’s slight reductions in personal income tax rates were triggered by the introduction of the controversial carbon tax.

“It’s very similar to [federal Liberal Party leader] Stéphane Dion’s proposed plan,” says Maria Mavroyannis, senior manager in Deloitte & Touche LLP’s technology, media and telecommunications practice in Toronto. “B.C. calls this tax ‘revenue-neutral’ — otherwise known as ‘tax shifting.’ The revenue the province collects from the tax will be shifted over and reflected in personal income tax cuts.”

Rate reductions — taxpayers in the first income tax bracket, for instance, will pay 5.24% in 2008 as opposed to 5.35% in 2007 — amount to a tax cut of about 2% for all B.C. taxpayers in 2008.

The province has also introduced a low-income tax climate action tax credit and a one-time climate action dividend payment to offset the new carbon tax.

The tax credit will provide a maximum annual credit of $100 per adult and $30 per child for low-income families, while the dividend payment is a $100, one-time-only payment designed to help residents make changes to reduce their use of fossil fuels.

In Newfoundland, employment is at a record high and the economic forecast is bright. As a result, the province has made a significant cut to its personal income tax rates for the second year in a row, paring them back by 1% to 7.7%, 12.8% and 15.5%, respectively. These reductions are expected to save taxpayers $75 million, while the total savings for taxpayers from rate cuts over the past two years is calculated to be $230 million.

In lieu of rate cuts, virtually all the other provinces have enhanced tax credits.

“What governments are trying to do is focus the credits to get a specific effect, as opposed to giving a general tax reduction,” says John Grummett, tax partner with Grant Thornton LLP in Hamilton, Ont. “The only problem is that these credits complicate the system.”

Provincial enhance-ments to caregiver credits were especially popular in 2008, which may possibly reflect the aging population, says Marina Panourgias, senior manager with Deloitte in Toronto.

Alberta, Saskatchewan, Man-i-toba and Quebec all made improvements to caregiver tax credits, with Manitoba introducing a primary caregiver tax credit of up to $1,020 and Saskatchewan doubling its caregiver tax credit to $8,190 from $4,095. The latter province also doubled its infirm dependants and its disability supplement tax credits and topped up the disability tax credit.

In Quebec, a new tax credit for informal caregivers was introduced to cover a portion of the expenses incurred to obtain respite assistance.

Other changes to the provinces’ personal taxation regimes include:

> Nunavut’s new firefighters tax credit of $500 for full- and part-time volunteer firefighters who complete at least 200 hours of community service, as well as an increase to its pension tax credit and a new textbook tax credit.

> Alberta’s elimination of health-care insurance premiums as of Jan. 1, 2009 — a budget highlight equal to a 12% reduction in personal income taxes. The province also increased the maximum benefit for the family employment tax credit and introduced annual inflation indexing of personal income taxes.

@page_break@> Saskatchewan fulfilled its promise to provide up to $20,000 in tuition rebates for graduates who remain in the province. The province is also introducing an active families benefit in 2009, a refundable tax credit of up to $150 a year for children aged six to 14 registered in cultural, recreational or sport programs.

> Manitoba’s basic personal income tax exemption increased by $100. Its lowest bracket rate will fall to 10.8% from 10.9%, while the thresholds for the middle and top brackets have been nominally increased. As well, its education property tax credit was raised to $600 and its farmland school tax rebate was raised to 70%.

> Ontario’s new senior homeowners’ property tax grant will provide up to $500 a year by 2010 for seniors with low and moderate incomes who own their own homes.

As well, the Ontario child benefit will now be delivered through the personal income tax system. For 2008, the maximum OCB payment is $600 a child.

And, as introduced in the 2007 budget, Ontarians can now withdraw up to 25% from the new Life Income Fund.

> Quebec has improved its tax credits for child-care expenses and home support for elderly persons, as well as increased the maximum amount of the tax credit for retirement income.

> Nova Scotia’s healthy living tax credit for children has been extended to all Nova Scotians. The credit maxes out at $500 a year and is intended to encourage healthy lifestyles through fitness.

The province also increased its graduate tax credit to $2,000 from $1,000 and — as part of a four-year plan — increased its basic personal tax credit by $250.

> Prince Edward island increased its basic personal income tax credit to $7,708 from $7,560. Its tax bracket thresholds were also increased by 2%.

> New Brunswick — whose troubled 2007 budget led to a slight increase in its 2007 personal income tax rates — is currently working on an overhaul of its entire taxation system, including personal income taxes.

No increases were made to New Brunswick’s 2008 tax rates. IE