February 27, 2008
Manitoba Announces It Will Match Federal Tax Measures
– – –Province Parallels Capital Cost Allowances for Manufacturers, Won't Tax New Savings Account: Selinger
Manitoba taxpayers planning to take advantage of the new federal tax-free savings account will enjoy provincial tax-free status on any withdrawals, Finance Minister Greg Selinger confirmed today.
“It only makes sense that Manitobans taking advantage of the new federal savings plan be treated equally by the provincial tax system,” said Selinger. “For this reason, we will not apply provincial tax to the new federal government savings plan.”
Yesterday’s federal budget committed to establishing a tax-free savings account that allows taxpayers 18 years of age or older to deposit up to $5,000 annually into a special account. While there is no tax deduction for these contributions, withdrawals from the account will be free of both federal and provincial tax.
For example, if someone invests $5,000 into an account and withdraws $8,000 10 years later, the full $8,000 is tax free. Outside of a tax-free savings account, that $3,000 gain would have been taxable as dividends, interest or capital gains. If withdrawn from an RRSP, the full $8,000 would have been taxable as ordinary income.
Not only will the withdrawals from a tax-free savings account be free from income tax in Manitoba, they will also not be used to reduce other provincial benefits that are normally income-tested including the Personal Tax Credit, the Education Property Tax Credit, the School Tax Credits for Homeowners and Tenants, the Manitoba Shelter Benefit, pharmacare, child-care subsidies and others.
“These new accounts should be especially helpful in encouraging lower income Manitobans to save since the money they earn on their saving will not reduce other benefits,” said Selinger.
He also confirmed the province will parallel federal changes that allow for the fast writeoff of new investments, providing further tax relief to the manufacturing sector in Manitoba.
Today’s commitment is estimated to save Manitobans and manufacturing businesses about $1 million in 2009, growing to about $10 million by 2010.
Last year, Manitoba matched the federal government’s pension income-splitting tax changes which saved Manitoba pensioners about $11 million.
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