Tax Expenditures and Evaluations: 2001: 2
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Table 1
Personal income tax expenditures* ^†

Notes:

^* The elimination of a tax expenditure would not necessarily yield the full tax revenues shown in the table. See the companion document, Tax Expenditures: Notes to the Estimates/Projections, published in 2000 and also available on the Department of Finance Web site (http://www.fin.gc.ca) for a discussion of the reason for this.

^† Budget 2000 fully indexed, effective January 1, 2000, those parameters that were previously only partially indexed. The 2000 budget also introduced full indexation of the income threshold at which tax rates begin to apply. These measures represent a change in the benchmark tax system and, consequently, there is no tax expenditure associated with indexation. The Economic Statement and Budget Update of October 2000 reduced all personal income tax rates and eliminated the deficit reduction surtax, effective January 1, 2001. These rate reductions lower the value of exemptions and deductions, as well as those non-refundable tax credits whose values depend on a tax rate, in the year the change is introduced but this is generally followed by growth in their value over time in line with increases in the size of incomes.

¹ The 1997 budget extended this credit to most mandatory ancillary fees imposed by post-secondary institutions, beginning in 1997.

² The 1996 budget increased this credit from $80 to $100 per month, beginning in 1996. The 1997 budget increased it to $150 per month for 1997 and $200 per month thereafter. The 1998 budget allowed part-time students to claim a part-time education amount of $60 per month. The October 2000 Economic Statement and Budget Update increased the credit to $400 per month for full-time students and $120 per month for part-time students, effective January 1, 2001.

³ The 1996 budget increased from $4,000 to $5,000 the limit on the transfer of these amounts, beginning in 1996.

⁴ Changes in these estimates from last year’s publication reflect improvements in the methodology used to calculate them. The increase from $345 million in 2000 to $460 million in 2001 is largely explained by the doubling of the education amount announced in the October 2000 Economic Statement and Budget Update. Since most students do not have sufficient income to use this increased amount, this significantly increases transfers to supporting relatives.

⁵ The 1997 budget introduced this measure, effective for 1997 and subsequent years. It is assumed that tax filers will begin to claim the credits carried forward beginning the year after they are earned. The lower estimate for 1998 relative to last year’s publication reflects lower than anticipated take-up of this measure in its first year. The increase after 2001 is largely due to the doubling of the education credit which increases the extent to which students carry forward these credits.

⁶ The 1998 budget introduced this measure, effective for 1998 and subsequent years. The decrease in the projections relative to last year's publication reflects recently available 1998 income tax data on the take-up of this measure.

⁷ The 1998 budget supplemented annual contributions to RESPs with a 20-per-cent grant, the Canada Education Savings Grant, beginning in 1998. While this enhancement does not represent a tax expenditure, it increases the cost of the tax expenditure to the extent that it encourages participation in the RESP program. The decrease in the projections relative to last year's publication reflect recently available data on RESPs.

⁸ The 2000 budget raised the exemption for scholarship, fellowship and bursary income from $500 to $3,000 for students eligible for the education credit. In addition, for 2000 and later tax years, the tax expenditure reflects the additional funds made available to students under the Millennium Scholarship Fund.

⁹ This measure was introduced in the October 2000 Economic Statement and Budget Update, effective 2001. The tax expenditure estimates the incremental cost of allowing self-employed individuals to deduct the employer share of their Canada/Quebec pension plan contributions paid for their own coverage, relative to a benchmark system in which no such deduction is provided. Prior to this measure, self-employed individuals could claim a non-refundable credit on this share of their Canada/Quebec pension plan contributions. As a result, the actual cost of the change is lower than given by the tax expenditure.

¹⁰ The 1998 budget replaced the $500 tax-free allowance for volunteer firefighters with an exemption of up to $1000 for emergency service volunteers. The tax expenditure estimate for the emergency service volunteer exemption includes claims by firefighters after 1997.

¹¹ This tax expenditure reflects only the stock option deduction and not the deferral from income inclusion. The increase in this tax expenditure in 1997 reflects a 65-per-cent increase in the number of claimants. The 2000 budget increased the stock option deduction from one-quarter to one-third. The October 2000 Economic Statement and Budget Update further increased this deduction from one-third to one-half.

¹² The 1999 budget increased this tax credit by $675 for all taxpayers, beginning July 1, 1999.

¹³ The 2000 budget introduced full indexation of this tax credit effective January 1, 2000.

¹⁴ The October 2000 Economic Statement and Budget Update increased the amount on which this credit is based from $2,386 to $3,500 for 2001.

¹⁵ The 1998 budget introduced this measure.

¹⁶ The 1996 through 2000 budgets and the October 2000 Economic Statement and Budget Update increased this tax benefit. Payments made between January and December of the year are reported. The 2000 budget fully indexed the Canada Child Tax Benefit (CCTB) starting January 2000. The 2000 budget and the October 2000 Economic Statement and Budget Update scheduled increases above and beyond indexation for the CCTB base benefit in July 2000 and for the NCB supplement in July 2001. Despite these program enhancements, CCTB tax expenditure projections have fallen relative to last year's publication. This reflects the higher than expected income growth in 1998, the year on which this publication's projections are based. High income growth resulted in more families with children earning higher family net incomes, which in turn placed them in the income ranges at which benefits are reduced.

¹⁷ The 2000 budget reduced the capital gains inclusion rate from three-quarters to two-thirds, effective February 28, 2000. The October 2000 Economic Statement and Budget Update further reduced the capital gains inclusion rate from two-thirds to one-half, effective October 18, 2000. The decline in this tax expenditure after 1999 reflects, in part, reductions to this inclusion rate.

¹⁸ NISA data on this tax expenditure is available up to 2000. The deferral of tax on government contributions is highly volatile and, beyond 2000, is projected at its historical average. For the deferral of tax on bonus and interest income, the decline between 2000 and 2001 is due to the fall in tax rates.

¹⁹ Until last year’s publication, estimates of this tax expenditure were based on data provided by the Canadian Wheat Board, which included cash purchase tickets for wheat and barley. As of this year’s publication, these estimates are based on Statistics Canada data, available up to 1999, which include cash purchase tickets for wheat, barley, oats, canola, flax and rye. Beyond 1999 the projections are historical averages because of the volatility of this series.

²⁰ The increase in the value of this tax expenditure for 1997 reflects a 33-per-cent increase in the amount of taxable capital gains reported in that year and a 30-per-cent increase in the number of claimants. The 2000 budget reduced the capital gains inclusion rate from three-quarters to two-thirds, effective February 28, 2000. The October 2000 Economic Statement and Budget Update further reduced the capital gains inclusion rate from two-thirds to one-half, effective October 18, 2000. Increases in this tax expenditure after 1999 reflect these reductions to the capital gains inclusion rate as well as anticipated increases in capital gains realizations resulting from changes to this measure.

²¹ This tax expenditure is highly volatile. It is projected at its historical average.

²² This tax expenditure does not include measures in the 2000 budget or the October 2000 Economic Statement and Budget Update for rollovers of eligible small business investments.

²³ This tax expenditure includes the deduction of scientific research and experimental development expenditures. Data are not available to estimate this tax expenditure with precision.

²⁴ The 2000 budget amended the rules so that the $1,000 deemed adjusted cost base, and deemed proceeds of disposition for personal-use property will not apply if the property is acquired after February 27, 2000, as part of an arrangement in which the property is donated as a charitable gift.

²⁵ The 1998 budget allowed unincorporated owner-operators to deduct premiums for supplementary health care coverage against their business income to a maximum amount, beginning in 1998. Statistics Canada and Canadian Life and Health Insurance Association data used to estimate their tax expenditure are available up to 1998 and 1999 respectively.

²⁶ The 2000 budget enhanced the disability tax credit (DTC) by extending eligibility for the DTC to individuals requiring extensive therapy, and by expanding the list of relatives to whom the DTC can be transferred. The 2000 budget also provided a supplement of up to $500 for children eligible for the DTC. The October 2000 Economic Statement and Budget Update increased the amount on which the DTC is based from $4,293 to $6,000 effective 2001.

²⁷ The 1997 budget broadened this credit to cover additional expenses, beginning in 1997. The 1999 budget further broadened this credit for the care and education of persons with disabilities, beginning in 1999.

²⁸ This measure was introduced in the 1997 budget.

²⁹ The projected decline in this tax expenditure after 1997 reflects changes in the 1998 to 2000 budgets and the October 2000 Economic Statement and Budget Update to reduce tax rates on low-income individuals (e.g., increases in the personal amounts and the reduction in the low-income tax rate).

³⁰ Public Accounts data used for this tax expenditure are available up to 1999.

³¹ The 1996 budget eliminated the income inclusion for recipients of child support payments, and disallowed the deduction to payers, for agreements made after April 30, 1997.

³² Revisions in estimates for 1997 reflect a change in the calculation of effective average tax rates.

³³ Projected values for this tax expenditure are higher for 1999 than those provided in last year’s publication due to higher-than-expected interest rates for that year. In addition, for other years, the estimates are lower due to lower-than-expected interest rates in those years.

³⁴ Net expenditure represents the total tax expenditure associated with this measure.

³⁵ These estimates are being introduced this year and will be provided in future reports. The present-value estimates reflect the lifetime cost of a given year’s contributions. This definition is different from that used for the cash-flow estimates and thus the two sets of estimates are not directly comparable. Further information on how these estimates are calculated is contained in the paper "Present-Value Tax Expenditure for Tax Assisted Retirement Savings" contained in this report.

³⁶ The tax expenditure per dollar of contributions is relatively stable from 1997 to 2000, then it drops sharply in response to lower tax rates. This causes the total value of the tax expenditure to fall in 2001, despite a rise in contributions. By 2003, however, strong growth in contributions is projected to raise the value of the tax expenditure above its level in 2000.

³⁷ The amounts reported in previous years for this tax expenditure included taxable amounts and did not cover all non-taxable RCMP pensions. This tax expenditure cannot be estimated with precision.

³⁸ Although this measure does provide tax relief for individuals, it is implemented through the corporate tax system. See the corporate income tax expenditure section of this report for an estimate of the value of this tax expenditure.

³⁹ The fall between 2000 and 2001 reflects the reduction in the capital gains inclusion rate announced in the 2000 budget and in the October 2000 Economic Statement and Budget Update.

⁴⁰ The 1996 budget reduced this credit from 20 per cent to 15 per cent and the purchase amount eligible for the credit from $5,000 to $3,500 per year, for purchases made after March 5, 1996. The purchase amount eligible for the credit was increased to $5,000 in 1998, effective for 1998 and subsequent years.

⁴¹ The decline in the value of this expenditure in 1997 reflects a decline in the number of claimants and in the average claim in that year, resulting from Budget 1996 changes to the credit. The increase in the value of this expenditure for 1998 reflects a 30-per-cent increase in the number of claimants and a 25-per-cent increase in the average claim in that year. The values of this tax expenditure in 1999 and 2000 are based on preliminary information on sales of shares of labour-sponsored venture capital corporations for those years. Projections assume sales remain constant after 2000.

⁴² This provision was introduced in the 2000 budget. The October 2000 Economic Statement and Budget Update expanded this measure by increasing the size of small businesses eligible for the rollover, and by raising the eligible investment limit from $500,000 to $2 million.

⁴³ This measure was introduced in the October 2000 Economic Statement and Budget Update. This new non-refundable investment tax credit will be available to individuals (other than trusts) at the rate of 15 per cent of specified mineral exploration expenses incurred in Canada pursuant to a flow-through share agreement. The flow-through share investor will then be able to use this tax credit to reduce federal tax otherwise payable, and will be applicable to eligible expenses occurred atfer October 17, 2000 and before 2004. These estimates differ from those in the Economic Statement and Budget Update since tax expenditure estimates are based on the calendar year whereas the budget update estimates were on a fiscal year basis.

⁴⁴ The decline in this tax expenditure in 1998 reflects a decline in the volume of home sales and in the average home value. The decline in the partial inclusion rate projections after 1999 reflects the reduction in the capital gains inclusion rate from three-quarters to two-thirds, effective February 18, 2000, and from two-thirds to one-half, effective October 18, 2000.

⁴⁵ This tax expenditure includes both gifts to the Crown and donations to other charities, as they were treated equivalently in the ITA beginning in 1997.

⁴⁶ This measure was proposed in the 2000 budget. No data are currently available.

⁴⁷ This measure was introduced in the 1997 budget for a five-year experimental period and will be reviewed this year. The 1997 to 1999 figures are based on income tax data. Consistent with the methodology of tax expenditures, these estimates assume that the measure did not bring forth any incremental donations. They therefore do not measure the full fiscal cost of the measure. Consistent with the legislated expiration of the measure at the end of 2001, no amount is estimated for 2002 or 2003. The lower figures for tax years 2000 and 2001 relative to last year’s publication reflect the October 2000 Economic Statement and Budget Update announcement that reduced the capital gains inclusion rate from two-thirds to one-half, effective October 18, 2000.

⁴⁸ This provision was introduced in the 1999 budget, effective for qua lifying retroactive lump-sum payments received after 1994. Cost estimates for 1996-1998 reflect the costs associated with qualifying payments received in those years, even though claims have not been processed before 2000.

⁴⁹ This estimate assumes that the total amount of lottery and horse racing winnings would be included in income and subject to tax. However, there is some uncertainty regarding the proper benchmark tax system in this area. For example, if the benchmark system included taxation of winnings, it would also have to include a deduction for the purchase cost of tickets. A threshold below which winnings would not be taxable may also be necessary, due to the large administrative cost of taxing very small prizes. In addition, proceeds from the sale of lottery tickets are an important source of funds for provincial governments and not-for-profit organizations. As a result, there is already an element of taxation to lottery and gambling proceeds. This estimate is therefore included as a memorandum item only.

⁵⁰ The increase in this tax expenditure after 1996 reflects the recent availability of data on casino and video lottery winnings, which Statistics Canada began collecting starting with fiscal year 1997/98.

⁵¹ The 1996 budget broadened eligibility criteria for claiming this deduction, beginning in 1996. The 1998 budget increased the maximum claim under this provision, and extended it to part-time students, beginning in 1998. The 2000 budget increased limits in respect of persons eligible for the Disability Tax Credit.

⁵² The 1998 budget enhanced the moving expense deduction by including certain costs of maintaining a vacant former residence (including mortgage interest and property taxes) and other miscellaneous relocation expenses.

⁵³ This tax expenditure applies to a subset of resource-related deductions. Data was available for 1996 to 1999 on the volume of re-classified shares, and this data was used to calculate estimates. Due to volatility, the projections for 2000 to 2003 are based on a three-year historical average, with the decline between 2000 and 2001 resulting from the decline in average tax rates.

⁵⁴ The October 2000 Economic Statement and Budget Update introduced a measure, effective 2001, allowing self-employed individuals to deduct the employer share of their Canada/Quebec pension plan contributions paid for their own coverage. Prior to the introduction of this measure, self-employed individuals could claim a non-refundable credit on this share of their Canada/Quebec pension plan contributions. The decline in these projections relative to last year’s publication reflects this change.

⁵⁵ Changes in these estimates from last year’s publication reflect improvements in the methodology used to calculate them.

⁵⁶ The expected increase in this tax expenditure is in line with the historical trend.

⁵⁷ This measure was introduced in the 1998 budget. The 1999 budget extended this measure to all taxpayers, effective July 1, 1999. The 1999 budget increased the tax expenditures associated with the basic personal credit and the spousal/equivalent-to-spouse credits and eliminated the supplementary low-income credit.

⁵⁸ From 1996 through 1998, the basic personal credit was $6,456. The 1999 budget increased the basic personal credit by $675, effective July 1, 1999, raising the value of the credit to $7,131 (since this credit was implemented half-way through the year, the effective basic credit in the 1999 taxation year was $6,794, or half the proposed annual increase). The 2000 budget fully indexed this credit, effective January 1, 2000, raising the value of this credit to $7,231 for the 2000 taxation year and to $7,412 for the 2001 taxation year.

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