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March 29, 2000
For immediate release

Clarification on Tax on Income

Provincial Treasury

Correspondence published in a recent local newspaper indicates that the Province of Prince Edward Island intends to set up its own Income Tax office in order to prevent federal Personal Income Tax cuts being passed down to Islanders through the Provincial Personal Income tax.

Pat Mella Provincial Treasurer wants to set the record straight on the province's announced plans in that regard.

"Clearly, some people are confused over the Income Tax changes that were announced in the latest Provincial Budget and it is important that this be clarified as soon as possible," she said.

First, the Province has no intention of setting up its own administration of provincial income tax, either at the personal or corporate level. These taxes will continue to be administered by Revenue Canada ( now the Canada Customs and Revenue Agency), and members of the public will continue to file their income tax with the federal authorities in the same manner they always have.

Second, the Tax on Income system that the province will move to in the tax year 2001 will continue to be administered by Revenue Canada.

Pat Mella emphasised that, "Under the new system, the provincial tax rates will be far more clear than under the present system." Tax filers will not see a change to their tax forms until 2002, when they file returns for the 2001 tax year. At that time the provincial tax rates will appear as a percent of taxable income, rather than as a percent of the federal tax.

Third, the province has provided for significant income tax reductions in the Budget, and it is wrong to suggest that Tax on Income is designed to remove them, as the correspondence published in the newspaper implies.

"The tax cuts announced in the Budget will flow through to the public both in 2000 and 2001, and these reductions will be fully passed on to tax payers under the Tax on Income system," said Minister Mella.

"In 2001 the provincial income tax reductions announced in the budget are worth $12.2 million in savings to the taxpayers of Prince Edward Island," the Minister stated. "This is in addition to the savings of $6.8 million from the 1999 Budget."

The new reductions consist of the cut in the present income tax rate from 58.5 percent to 57.5 percent, the introduction of a Low Income Tax Reduction program and a guarantee of the full flow through of the federally induced reductions.

The Provincial Treasurer concluded, "I trust that this statement clarifies the Government's intentions concerning the personal income tax and dispels any notion that the province intends to set up its own income tax office, in order to somehow recover lost tax revenues that result from the federal budget, as has been suggested."

Media Contact: John Palmer
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