BUDGET 2006

Introducing a New Apprenticeship Job Creation Tax Credit

The difficulty Canadian employers have in finding skilled tradespeople is becoming an impediment to economic growth. Meanwhile, many young Canadians find themselves stuck in low-paying work, and are either not encouraged to consider the trades or unable to do so because of financial barriers.

To encourage employers to hire new apprentices, Budget 2006 proposes a new Apprenticeship Job Creation Tax Credit, effective May 2, 2006. As a result, eligible employers will receive a tax credit equal to 10 per cent of the wages paid to qualifying apprentices in the first two years of their contract, to a maximum credit of $2,000 per apprentice per year.

It is estimated that this measure will reduce federal revenues by $190 million in 2006-07 and $200 million in 2007-08.

In addition to current federal support provided to apprentices through the Employment Insurance program, a new Apprenticeship Incentive Grant program will be established effective January 1, 2007. The program will provide a cash grant of $1,000 per year to apprentices in the first two years of an apprenticeship program in one of the Red Seal trades and other economically strategic apprenticeship programs. This grant will be included in computing the income of the recipient for tax purposes.

The Government of Canada will be consulting with provinces and territories, employers and unions to best determine which other apprenticeship programs will be included in the program. Their views will also be sought concerning how to deliver the grant. This grant for apprentices, together with the proposed tax credit for employers, will provide a strong incentive for more young Canadians to pursue apprenticeships and hence meet the future need for skilled tradespeople that is crucial to the sustained growth of the economy.
The cost of this new Apprenticeship Incentive Grant program, under the auspices of the Minister of Human Resources and Social Development, is estimated to be $125 million over 2006-07 and 2007-08.

It is estimated that about 100,000 apprentices will benefit as a result of the new grant and tax credit.

Recognizing Tradespeople's Tool Expenses

Many employed tradespeople must provide their own tools as a condition of employment. The lack of tax recognition for the cost of these tools may contribute to the difficulties employers experience in finding skilled tradespeople.

The new Canada Employment Credit will provide relief on the first $1,000 of employment income, in recognition of expenses incurred by employees. Budget 2006 proposes a new deduction of up to $500 to tradespeople for the cost of tools in excess of $1,000 that they must acquire as a condition of employment.

EXAMPLE: A tradesperson earning $60,000 with $1,500 in tools expenses in 2007 will be able to claim the new Canada Employment Credit on $1,000 and deduct $500 under the new tools deduction. The two measures will reduce federal income taxes by $265.

The tools deduction and the Canada Employment Credit together will provide tax relief to about 700,000 employed tradespeople.

Budget 2006 also proposes to increase to $500 from $200 the limit on the cost of tools eligible for the 100-per-cent capital cost deduction. This measure will provide tax relief and reduce red tape for self-employed tradespeople and small businesses.

These measures will be effective for tools acquired on or after May 2, 2006.

It is estimated that these measures will reduce federal revenues by $75 million in 2006-07 and $80 million in 2007-08.