Tax Expenditures 1999: 4
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Chapter 4 - Description of Personal Income Tax Provisions

The descriptions of the specific tax measures contained in this chapter are intended as a simplified reference and are not detailed descriptions of specific tax measures.

A number of measures which primarily affect corporations, but also unincorporated businesses, are treated in Chapter 5 on the corporate income tax measures.

Explanations of the methodologies used to produce estimates and projections are provided where they deviate from the standard approach of using the personal income tax simulation model described in Chapter 3.

Culture and Recreation

Deduction for clergy residence

A taxpayer who is a full-time member of the clergy or regular minister of a religious denomination may deduct housing costs from income for tax purposes. Where a member of the clergy is supplied living accommodation by his/her employer or receives housing allowances, an offsetting deduction may be claimed to the extent that this benefit is included in income. The estimate for this item is based on the number of clergy in Canada and Statistics Canada expenditure data on rent.

Flow-through of capital cost allowance on Canadian films

Prior to 1995, the capital cost allowance (CCA) rate generally available on films was 30 per cent, subject to the half-year rule. On Canadian content films, the half-year rule did not apply. The CCA could be flowed through to investors and deducted against all sources of income. An additional allowance of up to the remaining undepreciated capital cost of the film was deductible against an investor's income from certified Canadian films.

Losses arising from CCA claimed at the partnership level and flowed through as limited partnership losses are included in the "Deduction of limited partnership losses" tax expenditure. It is estimated that 15 per cent of limited partnership losses relate to CCA on Canadian films.

The 1995 budget replaced the special tax shelter rules that applied to Canadian content films by a 12-per-cent credit that can be claimed only by certain film and video production corporations. Transitional rules for the 1995 taxation year allowed full deductibility of undepreciated capital cost against film income and the flow-through of the CCA to the investor only if the 12-per-cent refundable tax credit was not claimed in respect of the production.

Deduction for certain contributions by individuals who have taken vows of perpetual poverty

Where a person has taken a vow of perpetual poverty as a member of a religious order, that person may deduct donations to the religious order up to his/her total employment and pension income (but not investment or other income) in lieu of the charitable donations credit.

Write-off of Canadian art purchased by unincorporated businesses

Canadian art acquired by businesses for display in an office may be depreciated on a 20-per-cent declining-balance basis even though it may depreciate at a much slower rate, and may even appreciate.

No data are available.

Assistance for artists

Artists may deduct the costs of creating a work of art in the year the costs are incurred rather than in the year the work of art is sold.

Artists may also elect to value a charitable gift from their inventories at any amount up to its fair market value. This value is included in the artist's income. The percentage of income limit for the charitable donations tax credit does not apply.

No data are available.

Deduction for artists and musicians

Employed musicians are able to claim the cost of maintenance, rental, insurance and capital cost allowance on musical instruments against employment income earned as a musician.

Employed artists are also entitled to deduct expenses related to their artistic endeavours up to the lesser of $1,000 or 20 per cent of their income derived from employment in the arts.

No data are available.

Non-taxation of capital gains on gifts of cultural property

Certain objects certified as being of cultural importance to Canada are exempt from capital gains tax if donated to a designated museum or art gallery.

Such donations amounted to $101 million in 1994 and $99 million in 1995. However, there is no information on the portion of the value which represents capital gains.

Education

Tuition fee credit

A 17-per-cent tax credit is available for tuition fees paid by students to a prescribed educational institution. A credit is available with respect to fees paid to an institution if the total tuition fees paid to the institution exceed $100. The 1997 budget extended the credit to most mandatory ancillary fees imposed by post-secondary institutions, starting in 1997.

Education credit

Students who are enrolled at prescribed educational institutions on a full-time basis are entitled to claim a tax credit of 17 per cent of an education amount. The amount was $80 for every month of full-time attendance for 1994 and 1995, and $100 for 1996. The 1997 budget increased the amount to $150 for 1997, and to $200 for 1998 and subsequent taxation years.

The 1998 budget proposed to extend this tax relief to part-time students for 1998 and subsequent years. Students enrolled at an educational institution in Canada in an eligible program lasting at least three consecutive weeks and involving a minimum of 12 hours of courses each month will be eligible. For each qualifying month, the education amount will be $60 per month, to which the 17-per-cent credit will be applied.

Education and tuition fee credits transferred

The unused portions of the education and the tuition fee amounts may be transferred to a supporting spouse, parent or grandparent. The maximum transfer for the two credits combined was 17 per cent of $4,000 for taxation years 1994 and 1995 and of $5,000 for 1996 and subsequent taxation years.

Carry-forward of education and tuition fee credits

Effective 1997, students may carry forward indefinitely, for their own use, education and tuition fee amounts that have not been either already used by the student or transferred to a supporting individual.

Student loan interest credit

In order to ease the burden of student debt, the 1998 budget proposed a 17-per-cent tax credit on the interest portion of student loan payments made in a year for 1998 and subsequent years. The credit may be claimed in the year in which it is earned or in any of the subsequent five years.

Registered education savings plans

A taxpayer may contribute to a registered education savings plan (RESP) on behalf of a designated beneficiary (usually the taxpayer's child). Contributions to RESPs are not deductible, but are usually returned to the subscriber free of tax. The investment return on these funds is not taxable until they are withdrawn for the education of the named beneficiary. In 1994 and 1995, the annual contribution in respect of a beneficiary could not exceed $1,500, with an overall limit of $31,500. Effective 1996, the annual limit was increased to $2,000 with an overall limit of $42,000. In 1997, the annual limit was increased to $4,000.

Starting in 1998, RESP contributors are allowed, under certain conditions, to receive investment income from their plan either directly or through their registered retirement savings plans (RRSPs) where beneficiaries of the plan do not pursue higher education. The income received directly is subject to regular tax plus a deferral tax of 20 per cent while the amount transferred to an RRSP is subject to available RRSP room as well as lifetime limitations. Prior to 1998, RESP income could be used only for educational purposes, and was generally taxable in the hands of the beneficiary.

Effective in 1998, the government supplements contributions to RESPs with a 20-per-cent grant (the Canada Education Savings Grant -- CESG), subject to annual and lifetime limitations. While this enhancement does not directly represent a tax expenditure, the grant increases the cost of the tax expenditure to the extent that it encourages the use of RESPs.

Estimates are based on the data and projections provided by the CESG program. No data are available for years prior to 1996.

Exemption on first $500 of scholarship, fellowship and bursary income

The first $500 of scholarship, fellowship and bursary income is exempt from income tax.

The tax expenditures reported in the table are understated since no data are available on individuals receiving scholarship, fellowship or bursary income of less than $500.

Deduction of teachers' exchange fund contributions

Teachers may deduct up to $250 per year in contributions to a fund established by the Canadian Education Association for the benefit of teachers from Commonwealth countries visiting Canada under a teachers' exchange agreement.

Employment

Deduction of home relocation loans

For up to five years, an offsetting deduction from taxable income is provided for the benefit received by an employee in respect of a home relocation loan. The amount of the deduction is the lesser of the amount included in income as a taxable benefit and the amount of the benefit that would arise in respect of an interest-free loan of $25,000.

Non-taxation of allowances for volunteer firefighters

Volunteer firefighters were eligible to receive up to $500 per year in non-taxable allowances. The 1998 budget proposed to replace this measure with an exemption of up to $1,000 for amounts received by emergency service volunteers.

The estimates are based on census data.

Deduction for emergency service volunteers

The 1998 budget proposed to provide a tax exemption of up to $1,000 for amounts received by emergency service volunteers who, in their capacity as volunteers, are called upon to assist in emergencies or disasters.

Northern residents deductions

Individuals living in prescribed areas in Canada for a specified period may claim the northern residents deductions. The benefits consist of a residency deduction of up to $15 a day, a deduction for two employer-provided vacation trips per year, and unlimited employer-provided medical travel. Residents of the Northern Zone are eligible for full benefits, while residents of the Intermediate Zone are eligible for 50 per cent of the benefits.

The current definition of prescribed areas came into force in 1991. However, the implementation of the current system was gradual. Certain communities, which had qualified under the pre-1991 regime but which are no longer eligible under the current system, received full benefits until 1992, two-thirds benefits in 1993, one-third benefits in 1994, and zero benefits thereafter. Communities in the Intermediate Zone which had qualified under the pre-1991 regime received full benefits until 1992, two-thirds benefits in 1993, and 50-per-cent benefits thereafter.

Overseas employment credit

A tax credit is available to Canadian employees working abroad for more than six months in connection with certain resource, construction, installation, agricultural or engineering projects. The credit is equal to the tax otherwise payable on 80 per cent of the employee's net overseas employment income taxable in Canada (up to a maximum income of $80,000).

Employee stock options

Provided certain conditions are met, the benefits provided by employee stock options (ESOs) are taxed at a preferential rate. A deduction equal to one-quarter of the value of the benefit from the ESO is available to offset the tax liability on the option.

For employees of Canadian-controlled private corporations (CCPCs), the benefits accruing from ESOs are not generally included in income until the disposition of shares acquired with the options. However, the shares must be held for a minimum of two years to qualify for the one-quarter deduction. For non-CCPCs, the benefit provided by an ESO must be included in income when the option is exercised.

Estimates presented in the table reflect the one-quarter deduction, but not the benefit from the deferred inclusion in income of benefits accruing under ESOs.

Non-taxation of strike pay

Strike pay is non-taxable.

Statistics Canada has ceased collecting information on the amount of strike pay.

Deferral of salary through leave of absence/sabbatical plans

Employees may be entitled to defer salaries through a leave of absence/sabbatical plan. Provided certain conditions are met by the plan, these amounts are not subject to tax until received.

No data are available.

Employee benefit plans

In certain circumstances, employers may make contributions to an "employee benefit plan" on behalf of their employees. The employee is not required to include in income the contributions to the plan or the investment income earned within the plan until amounts are received. Employers may not deduct these contributions to the plan until these contributions are actually distributed to the employees.

No data are available.

Non-taxation of certain non-monetary employment benefits

Fringe benefits provided to employees by their employers are not taxed when it is not administratively feasible to determine the value of the benefit. Examples include merchandise discounts, subsidized recreational facilities offered to all employees and special clothing.

No data are available.

Family

Spousal credit

A taxpayer supporting a spouse is entitled to a tax credit of 17 per cent of $5,380. This credit is reduced by 17 per cent of the amount by which the dependent spouse's income exceeds $538. The 1999 budget proposes to increase the maximum amount of the credit to 17 per cent of $6,055 and to raise the threshold at which the credit amount begins to be reduced to $606, effective July 1, 1999.

Effective with the 1993 taxation year, the definition of spouse for tax purposes has been expanded to include common-law spouses, provided that the couple has lived together at least one year or has a common child.

Equivalent-to-spouse credit

An "equivalent-to-spouse" tax credit may be claimed in respect of a dependent child under age 18 or a parent or grandparent by taxpayers without a spouse. The amount of the credit and the limitation on the dependant's income are the same as for the spousal credit. The 1999 budget proposal to increase the spousal credit will also apply to the equivalent-to-spouse credit.

Infirm dependant credit

For taxation years 1994 and 1995, taxpayers could claim the dependant credit for dependent relatives over 17 years of age who were physically or mentally infirm. The credit was 17 per cent of $1,583 for dependants whose income was below $2,690. The credit was reduced by 17 per cent of the dependant's net income in excess of that amount and was exhausted when the dependant's net income exceeded $4,273.

Effective in the 1996 taxation year, the amount on which the credit is based is $2,353 and the credit begins to be phased out at $4,103.

Caregiver credit

The 1998 budget proposed to provide a caregiver tax credit of up to $400 for individuals residing with, and providing in-home care for, an elderly parent or grandparent or an infirm dependent relative. The credit amount will be reduced by the dependant's net income in excess of $11,500. This measure is effective for 1998 and subsequent years.

Canada Child Tax Benefit

The Canada Child Tax Benefit (CCTB) was introduced in 1993 (until July 1998, it was called the Child Tax Benefit), replacing the family allowance, the dependant credit for children under 18 years of age and the refundable child tax credit. The CCTB payments are made monthly and are non-taxable.

The CCTB has two key components, i.e. the base benefit and the National Child Benefit (NCB) supplement. The base benefit provides a basic amount of up to $1,020 per child, plus $75 for the third and subsequent child. It also includes a supplement of $213 for each child under age 7, the total of which is reduced by 25 per cent of child care expenses claimed. The total base benefit is reduced by 5 per cent (2.5 per cent for one-child families) of family net income over $25,921.

The NCB supplement provides maximum benefits of $605 for the first child, $405 for the second child and $330 for each subsequent child. The NCB supplement is reduced by 11 per cent for a one-child family, 19.7 per cent for a two-child family and 27.6 per cent for larger families with incomes over $20,921. The NCB supplement is completely eliminated at $25,921.

The CCTB was changed in the 1997 and 1998 budgets as follows:

• In July 1997, the Working Income Supplement (WIS) was enriched and restructured. The maximum benefit under the WIS increased from $500 per family to $605 for the first child, $405 for the second child and $330 for each subsequent child.
• In July 1998, the NCB supplement replaced the WIS. The maximum NCB supplement was fixed at $605 for the first child, $405 for the second child and $330 for each subsequent child.

The 1999 budget, released February 16, proposed changes to both the NCB supplement and the base benefit.

• In July 1999, the NCB supplement will increase by $180 per child, to reach $785 for the first child, $585 for the second child and $510 for each subsequent child. The threshold at which the NCB supplement is fully phased out will be extended to $27,750 from $25,921.
• In July 2000, the NCB supplement will increase by an additional $170 per child, to reach $955 for the first child, $755 for the second child and $680 for each subsequent child. The threshold at which the NCB supplement is fully phased out will be extended to $29,590 from $27,750.

Also in July 2000, the income threshold at which the base benefit begins to be phased out will be increased to $29,590 from its current level of $25,921. This will provide increased benefits to 2 million families with income over $25,921.

Deferral of capital gains through transfers to a spouse, spousal trust or family trust

Individuals may transfer capital property to their spouses or spousal trusts at the adjusted cost base of the property rather than the fair market value. This provides a deferral of the capital gain until the subsequent disposition of the property or until the transferee spouse dies.

Property transferred to other family members or to unrelated individuals (or to trusts of which they are beneficiaries) is treated differently. The transferor is generally deemed to have disposed of the property at the time of transfer at fair market value and must include any resulting capital gain in income at that time.

In the case of property transferred to a trust (other than a spousal trust), capital gains are generally considered to be realized at the time of the transfer on the basis of the fair market value of the property at that time. In addition, trust assets are generally subject to a deemed realization every 21 years at the fair market value of the assets. The 21-year deemed realization date was deferred for certain electing trusts. However, the 1995 budget eliminated this election and prevents any deferral of the 21-year realization beyond January 1, 1999.

Farming and Fishing

$500,000 lifetime capital gains exemption for farm property

A $500,000 lifetime capital gains exemption is available for gains in respect of the disposition of qualified farm property. The $500,000 limit is reduced to the extent that the basic $100,000 lifetime capital gains exemption (where applicable) and the $500,000 lifetime capital gains exemption on small business shares have been used. Further, it can be applied only to the extent that the gains exceed cumulative net investment losses incurred after 1987.

Net Income Stabilization Account

Farmers may deposit a percentage of a given year's eligible net sales, up to a limit, to their Net Income Stabilization Account (NISA). No tax deduction is given in respect of these deposits. Some of the deposits are matchable by the federal and provincial governments. Governments also pay a 3-per-cent interest bonus annually on the farmer's deposits which remain in the account. Governments' contributions and interest accrued in the account are not taxable until withdrawn. All withdrawals from the NISA are taxable except for the contributor's original deposits, which were made with after-tax dollars. Withdrawal entitlements from the NISA are triggered if the current year gross margin (net sales less eligible expenses) is less than the average gross margin from previous years (up to five), or if net income is below $10,000 (or $20,000 of family net income if the family held only one account).

The federal tax expenditure is a function of two components: the deferral of tax on the investment income accrued in the account and on government contributions to the account; and the income inclusion of these amounts when withdrawn from the account. The former has the effect of increasing tax expenditures, while the latter has the opposite effect. The estimates provided in the table are made on a current cash-flow basis – that is, they measure the impact on revenues of the tax measure in each of the years under consideration.

Deferral of income from destruction of livestock

If the taxpayer elects, when there has been a statutory forced destruction of livestock, the income received from the forced destruction can be deemed to be income in the following year. The deferral is also available when the herd has been reduced by at least 15 per cent in a drought year. This provision allows for a deferral of income to the following year when the livestock is replaced. Under the benchmark tax system, income is taxable when it accrues.

The estimates are based on data provided by Agriculture Canada.

Deferral of income from grain sold through cash purchase tickets

Under the cash purchase ticket program of the Canadian Wheat Board, farmers may make deliveries of grain before the year-end and receive payment in the form of a ticket that may be cashed in subsequent years. The payment is included in income only when the ticket is cashed.

The estimates are based on data provided by the Canadian Wheat Board.

Deferral through 10-year capital gain reserve

If proceeds from a sale of a farm property to a child, grandchild or great-grandchild are not all receivable in the year of sale, realization of a portion of the capital gain may be deferred until the year in which the proceeds become receivable. However, a minimum of 10 per cent of the gain must be brought into income each year, creating a maximum 10-year reserve period. For most other assets, the maximum reserve period is five years.

Deferral of capital gain through intergenerational rollovers of family farms

Sales or gifts of assets to children, grandchildren or great-grandchildren typically give rise to taxable capital gains to the extent that the fair market value exceeds the adjusted cost base of the property. However, capital gains on intergenerational transfers of farm property are deferred in certain circumstances until the property is disposed of outside the immediate family.

No data are available.

Exemption from making quarterly tax instalments

Taxpayers earning business income must normally pay quarterly income tax instalments. However, individuals engaged in farming and fishing pay two-thirds of their estimated tax payable at the end of the taxation year and the remainder on or before April 30 of the following year.

No data are available.

Cash basis accounting

Individuals engaged in farming and fishing may elect to include revenues when received, rather than when earned, and deduct expenses when paid rather than when the related revenue is reported. This treatment allows a deferral of income inclusion and a current deduction for prepaid expenses. Under the benchmark tax structure, income is taxable when it accrues and expenses are deductible for the period to which they relate.

No data are available.

Flexibility in inventory accounting

Farmers using the cash basis method of accounting are allowed to depart from it with regard to their inventory. Under cash accounting, net additions to inventory are treated as a cost which is deducted in computing income. When inventory is increasing from year to year, such costs could create a loss for tax purposes. However, a discretionary amount not exceeding the fair market value of farm inventory on hand at year-end may be added back to income each year. This amount must then be deducted from income in the following year. The effect of this provision is to allow farmers to avoid creating losses which would be subject to the time limitation if carried forward. The value of the tax expenditure is thus the amount of tax relief associated with the losses that would otherwise have been subject to the time limitations.

No data are available.

Federal-Provincial Financing Arrangements

Quebec abatement

Under the contracting-out arrangements which were offered to provinces in the mid-1960s for certain federal transfer programs, provinces could elect to receive part of the federal contribution in the form of a tax abatement. Quebec was the only province to elect this arrangement at the time and this has resulted in a 16.5-percentage-point abatement of federal tax for Quebec residents.

Transfers of income tax room to provinces

In 1967, the federal government transferred tax points to all provinces in place of certain direct cash transfers under the cost-shared program for post-secondary education. As a result, the personal income tax abatement was increased by 4 percentage points. In 1977, an additional 9.5 percentage points of individual income tax were provided to the provinces in respect of post-secondary, hospital insurance and medicare programs.

General Business and Investment

$100,000 lifetime capital gains exemption

The 1994 budget eliminated the $100,000 lifetime capital gains exemption (LCGE) for gains accrued after February 22, 1994. Accrued gains prior to that date were grandfathered. Individuals who had not disposed of their assets on that date were allowed to elect to claim the $100,000 LCGE on their 1994 tax return for gains accrued up to February 22, 1994. They were deemed to have disposed of their assets for an amount not exceeding their fair market value on that date.

The LCGE allowed individuals to exempt up to $100,000 in realized capital gains over their lifetime. The exemption was available only to the extent that the gains exceeded cumulative net investment losses incurred after 1987. The costs of tax expenditures associated with capital gains realized on exempt qualified farm property and exempt qualified small business shares are listed separately, even though some of these gains would qualify for the $100,000 LCGE.

The 1992 budget had already eliminated the exemption for real estate gains accruing after February 1992 on property not used in an active business.

Partial inclusion of capital gains

Only three-quarters of net realized capital gains are included in income.

Deduction of limited partnership losses

A limited partner is able to deduct losses against other income up to the amount of investment at risk whereas a shareholder is normally not permitted to deduct corporate losses against personal income. Unused losses may be carried back three years or forward seven years.

Limited partnership losses arise from a range of investments, from real estate investments to certified film productions. It is estimated that 15 per cent of this tax expenditure for years before 1995 is attributable to capital cost allowance claimed on Canadian films.

Investment tax credits

Tax credits are available for investments in scientific research and experimental development, exploration activities and certain regions. The tax credits range from 15 per cent to 45 per cent. The estimates treat the full investment tax credit as a tax expenditure even though tax credits reduce the capital cost of assets for capital cost allowance purposes and the adjusted cost base for capital gains purposes. A more detailed explanation is provided in Chapter 5.

Deferral through five-year capital gain reserve

If proceeds from a sale of capital property are not all receivable in the year of the sale, realization of a portion of the capital gain may be deferred until the year in which the proceeds are received. A minimum of 20 per cent of the gain must be brought into income each year, creating a maximum five-year reserve period.

Deferral through capital gains rollovers

In certain circumstances, taxpayers may defer the reporting of capital gains for tax purposes. General business rollover provisions may be categorized into three groups:

Involuntary dispositions

Capital gains resulting from an involuntary disposition (e.g. insurance proceeds received for an asset destroyed in a fire) may be deferred if the funds are reinvested in a replacement asset within a specified period. The capital gain is taxable upon disposition of the replacement property.

Voluntary dispositions

Capital gains resulting from the voluntary disposition of land and buildings by businesses may be deferred if replacement properties are purchased soon thereafter (for example, a business changing location). The rollover is generally not available for properties used to generate rental income.

Transfers to a corporation for consideration including shares

Individuals may transfer an asset to a corporation controlled by them or their spouses and elect to roll over any resulting capital gain or recaptured depreciation into the corporation instead of paying tax in the year of sale.

No data are available.

Deferral through billed-basis accounting by professionals

Under accrual accounting, costs must be matched with their associated revenues. In computing their income for tax purposes, however, professionals are allowed to elect either an accrual or a billed-basis accounting method. Under the latter method, the costs of work in progress can be written off as incurred even though the associated revenues are not brought into income until the bill is paid or becomes receivable. This treatment gives rise to a deferral of tax.

No data are available.

Deduction of accelerated tax depreciation

The depreciation allowable for tax purposes is called capital cost allowance. It may differ from true economic depreciation. A tax deferral may thus be created when the tax deductions in the early years of the life of an asset exceed the actual depreciation in the value of the asset. The difference is captured upon subsequent disposition of the asset.

The methodology for estimating this tax expenditure is explained in Chapter 5.

$1,000 capital gains exemption on personal-use property

Personal-use property is held primarily for the use and enjoyment of the owner rather than as an investment.

In calculating the capital gain on personal-use property, if the proceeds of disposition are less than $1,000, no capital gain needs to be reported. If the proceeds exceed this amount, the adjusted cost base (ACB) will be deemed to be a minimum of $1,000, thus reducing the capital gain in situations where the true ACB is less than $1,000.

No data are available.

$200 capital gains exemption on foreign exchange transactions

The first $200 of net capital gains on foreign exchange transactions is exempt from tax.

No data are available.

Taxation of capital gains upon realization

Capital gains are taxed upon the disposition of property and not when they accrue. This provides a tax deferral.

No data are available.

Health

Non-taxation of business-paid insurance benefits for group private health and dental plans

Employer-paid benefits for private health and dental plans are not taxable. The 1998 budget proposed to extend this measure to allow deductions from business income of self-employed persons for amounts paid for private health service plan coverage, subject to certain restrictions.

The estimates are based on data from Statistics Canada and from an annual survey, entitled Health Insurance Benefits in Canada, conducted by the Canadian Life and Health Insurance Association.

Disability credit

Canadians who are markedly restricted by disabilities in the carrying on of the basic activities of daily living are entitled to a tax credit. The credit is 17 per cent of $4,233. Any unused amount of the credit may be transferred to a supporting person.

Medical expense credit

Taxpayers are entitled to a 17-per-cent credit for eligible medical expenses incurred by the taxpayer, the taxpayer's spouse or by dependants. The credit is available in respect of expenses which exceed the lesser of 3 per cent of net income or $1,614. The 1998 budget proposed to allow supporting persons to claim the medical expense tax credit for training courses related to the care of dependent relatives with physical or mental infirmities. The 1999 budget proposes to extend the medical expense tax credit to include certain costs of group homes for disabled persons, certain therapies for disabled persons and tutoring and talking books for persons with learning disabilities.

Medical expense supplement for earners

The 1997 budget created a refundable medical expense credit for low-income working Canadians with high medical expenses.

The new refundable credit supplements the assistance that is provided through the existing medical expense tax credit. The maximum refundable credit is the lesser of $500 and 25 per cent of eligible medical expenses. It is available to those individuals earning over $2,500, and is reduced by 5 per cent of net family income in excess of $16,069.

Income Maintenance and Retirement

The non-taxation of income-tested programs such as the guaranteed income supplement and provincial social assistance presents conceptual difficulties. The problems arise because, in many respects, these programs operate like an income tax in that eligibility for benefits is phased out after a certain income level. In this regard, excluding such benefits from income tax might not be considered a tax expenditure since they are subject to their own "tax." On the other hand, a broadly based benchmark tax system would include such amounts in income. Given the comprehensive approach taken in this document, these items are considered to be tax expenditures.

Non-taxation of guaranteed income supplement and spouse's allowance benefits

The guaranteed income supplement (GIS) is an income-tested benefit payable to old age security (OAS) pensioners. Spouses of OAS recipients (or widows/widowers) between ages 60 and 64 may be eligible for the spouse's allowance (SPA). Benefits under both the GIS and SPA programs are non-taxable. Although GIS and SPA benefits must be included in income, an offsetting deduction from net income is provided. This approach effectively exempts such payments from taxation while continuing to have them affect income-tested credits.

The estimates are based on data from Human Resources Development Canada and the personal income tax simulation model developed by the Department of Finance from tax data.

Non-taxation of social assistance benefits

Social assistance benefits must be included in income. However, an offsetting deduction from net income is provided. This approach effectively exempts such benefits from taxation while continuing to have them affect income-tested credits.

The estimates are based on data from Human Resources Development Canada and the personal income tax simulation model developed by the Department of Finance from tax data.

Non-taxation of workers' compensation benefits

Workers' compensation benefits must be included in income. However, an offsetting deduction from net income is provided. This approach effectively exempts such benefits from taxation while continuing to have them affect income-tested credits.

Non-taxation of certain amounts received as damages in respect of personal injury or death

Amounts received in respect of damages for personal injury or death and awards paid pursuant to the authority of criminal injury compensation laws are not taxable. In addition, investment income earned on personal injury awards is excluded from income until the end of the year in which the person reaches the age of 21.

The values reported in the tables understate the tax expenditure since they are based on awards paid by provinces' Criminal Injuries Compensation Boards only. No data were available for compensation awards paid by other sources, or regarding the investment income earned on awards by individuals under age 22.

Non-taxation of employer-paid premiums for group term life insurance of up to $25,000

Employer-paid premiums for group term life insurance coverage of up to $25,000 per employee paid before July 1, 1994 were not taxable.

The 1994 budget eliminated the tax exemption, effective July 1, 1994.

Non-taxation of veterans' allowances, civilian war pensions and allowances, and other service pensions (including those from Allied countries)

These amounts are not included in income for tax purposes.

The estimates are based on public accounts data.

Non-taxation of veterans' disability pensions and support for dependants

These amounts are not included in income for tax purposes.

The estimates for this item are based on public accounts data.

Treatment of alimony and maintenance payments

Payments by a taxpayer to a divorced or separated spouse are deductible to the payer and taxable in the hands of the recipient for agreements or awards made prior to May 1, 1997.

This treatment represented a tax expenditure because it departed from the benchmark system established for the purposes of this report. Under this benchmark tax system, deductions are permitted only for expenses incurred in order to earn income, and amounts received from other individuals are not included in the income of the recipient.

As of May 1, 1997, child support paid pursuant to a written agreement or court order made on or after that day will not be deductible to the payer nor included in the income of the recipient. Child support paid pursuant to a court order or written agreement made before that date will continue to be deductible to the payer and included in the income of the recipient, unless the agreement is varied. The tax changes do not apply to spousal support. Spousal support payments remain deductible by the payer and are included in the income of the recipient.

The estimates for this item are computed as the value of the deduction to the payer less the tax collected from the recipient.

Age credit

Individual taxpayers age 65 or over are entitled to claim a tax credit of up to 17 per cent of $3,482. Unused portions may be transferred to a spouse. The age credit became subject to an income test in 1994. The age amount was reduced by 7.5 per cent of net income in excess of $25,921 in 1994, and by 15 per cent for 1995 and future years.

Pension income credit

A 17-per-cent tax credit is available on up to $1,000 of certain pension income. The unused portion of the credit may be transferred to a spouse.

Saskatchewan Pension Plan

Contributions to the Saskatchewan Pension Plan are deductible up to the lesser of $600 or the amount of unused registered retirement savings plan room in a particular year.

Registered pension plans/registered retirement savings plans

The federal revenue forgone due to the provisions pertaining to registered retirement savings plans (RRSPs), registered pension plans (RPPs) and deferred profit-sharing plans (DPSPs) is a function of three components: the deductibility of contributions to such plans; the non-taxation of investment income accrued within such plans; and the income inclusion of RPP/RRSP withdrawals, which reduces the cost resulting from the previous two. Individuals benefit from a deferral of tax on amounts contributed and on investment income. Also, there is an absolute tax saving to the extent that the tax rate on withdrawals is below that faced at the time of contributions. That is, many contributors are in a higher tax bracket during their working lives than when they are retired.

As noted in Chapter 3, the estimates provided in the table are made on a current cash-flow basis – that is, they measure the impact of the tax measure on revenues in each of the years under consideration. The Auditor General has recommended that the estimates for RPPs and RRSPs be provided on a present-value basis, as well the current cash-flow estimates. Work is proceeding on developing such estimates, although they are not yet ready to be included in this year's report.

In 1991, a new system of comprehensive limits on tax-assisted retirement saving took effect. Under this system, saving in RRSPs, RPPs and DPSPs is governed by a comprehensive limit of 18 per cent of earnings up to a dollar amount. In more detail, the limits are as follows.

• For defined benefit pension plans, the limits are the same as in 1990 – that is, there are no fixed limits on employee contributions while employer contributions are restricted to the amounts necessary to fully fund the promised benefits. Annual pension benefits under these pension plans are limited to the lesser of $1,722 and 2 per cent of earnings for each year of pensionable service.

• For RRSPs, contributions are limited to 18 per cent of earned income for the preceding taxation year up to a dollar maximum ($13,500 for 1994, $14,500 for 1995 and $13,500 from 1996 to 2003), minus a pension adjustment (PA). The PA is based on RPP or DPSP benefits earned by plan members in the previous taxation year. For a money purchase RPP or a DPSP, the PA is simply the total contribution made by, or on behalf of, a plan member in the year. For a defined benefit RPP, the PA is a measure of the benefits earned in the year, calculated according to a prescribed formula.

In 1992, the federal government introduced the Home Buyers' Plan as a temporary measure. It allowed all individuals to withdraw up to $20,000 from their RRSPs on a tax-free basis to purchase a home. Amounts withdrawn under the Home Buyers' Plan are to be repaid to the individual's RRSP on an interest-free basis over a period of 15 years. Amounts that are not repaid are included in the individual's income for tax purposes. In 1994, this measure was made permanent, but restricted to first-time home buyers only. The 1998 budget proposed to allow persons eligible for the disability tax credit to participate in the Home Buyers' Plan more than once in the individual's lifetime. The funds must be used to purchase a home that is more accessible for, or better suited for, the care of the individual. The impact of the Home Buyers' Plan on the cost of RRSPs is expected to be small.

The 1998 budget also proposed to allow individuals to make tax-free RRSP withdrawals for lifelong learning, subject to certain restrictions. Individuals will have to repay these amounts over a fixed period of time. In many ways, this program parallels the Home Buyers' Plan.

It should be noted that the RRSP/RPP estimates do not reflect a mature system because contributions currently exceed withdrawals. Assuming a constant tax rate, if contributions equalled withdrawals, only the non-taxation of investment income would contribute to the net cost of the tax expenditure. As time goes by and more retired individuals have had the opportunity to contribute to RRSPs throughout their lifetime, the gap between contributions and withdrawals will shrink and possibly even become negative. The upward bias in the current cash-flow estimates can therefore be expected to decline.

The estimates may not reflect the benefit to a particular individual in any given year because the individual is typically either a contributor or withdrawer at a point in time, but not both. In order to estimate the benefit to a particular individual, one could calculate the difference in disposable income between a situation in which that individual invests in an RRSP/RPP and one in which that individual invests in a non-sheltered savings instrument.

Data used to estimate the value of these measures were taken from the personal income tax model, unpublished data from Statistics Canada, and from Statistics Canada publications Trusteed Pension Funds (Cat. 74-201) and Pension Plans in Canada (Cat. 74-401), as well as from the Bank of Canada Review.

Deferred profit-sharing plans

Employers may make tax-deductible contributions to a profit-sharing plan on behalf of their employees. These amounts are taxable in the hands of the employees when withdrawals are made from the plan. The employer's contribution cannot exceed one-half of the money purchase RPP dollar limit for the year ($7,250 in 1994 to 2003) or 18 per cent of the employee's earnings. The amount is included in the PA for the taxpayer. The taxpayer's total PA (for both RPP and DPSP contributions) cannot exceed the money purchase RPP dollar limit for the year ($14,500 for 1994 to 2003).

No data are available.

Non-taxation of RCMP pensions/compensation in respect of injury, disability or death

Pension payments and other compensation received in respect of an injury, disability or death associated with service in the Royal Canadian Mounted Police are non-taxable.

No data are available.

Non-taxation of up to $10,000 of death benefits

Up to $10,000 of death benefits paid by an employer to the spouse of a deceased employee is non-taxable.

No data are available.

Non-taxation of investment income on life insurance policies

The investment income earned on some life insurance policies is not taxed as income to the policyholder. Instead, for reasons of administrative convenience, insurance companies are subject to tax on such earnings.

(See Chapter 5 under "Interest credited to life insurance policies" for a further description of this measure and the corporate income tax expenditure tables for estimates of the cost of the tax expenditure involved.)

Small Business

$500,000 lifetime capital gains exemption for small business shares

A $500,000 lifetime capital gains exemption is available for gains in respect of the disposition of qualified small business shares. The $500,000 limit is available only to the extent that the basic $100,000 lifetime capital gains exemption (where applicable) and the $500,000 lifetime capital gains exemption on qualified farm property have not been used, and to the extent that the gains exceed cumulative net investment losses incurred after 1987.

Deduction of allowable business investment losses

Under the benchmark system, capital losses arising from the disposition of shares and debts are generally deductible only against capital gains. However, three-quarters of capital losses in respect of shares or debts of a small business corporation (allowable business investment losses) may be used to offset other income. Unused allowable business investment losses may be carried back three years and forward seven years. After seven years, the loss reverts to an ordinary capital loss and may be carried forward indefinitely.

The estimated tax expenditure is the amount of tax relief provided by allowing these losses to be deducted from other income in the year. The tax expenditure is overestimated since it does not reflect the future reduction in tax revenues that would occur if those losses were instead deducted from future capital gains.

Labour-sponsored venture capital corporations credit

A tax credit is provided to individuals for the acquisition of shares of labour-sponsored venture capital corporations. For shares acquired before March 6, 1996, the rate of the federal credit was 20 per cent to a maximum credit of $1,000. For shares acquired after March 5, 1996, the rate of the federal tax credit is 15 per cent, to a maximum credit of $525. In August 1998, the government proposed to raise the maximum credit to $750, effective for 1998 and subsequent years.

Deferral through 10-year capital gain reserve

If proceeds from the sale of small business shares to children, grandchildren or great-grandchildren are not all receivable in the year of sale, recognition of a portion of the capital gain realized may be deferred until the year in which the proceeds become receivable. However, a minimum of 10 per cent of the gain must be brought into income each year creating a maximum 10-year reserve period. This contrasts with the treatment of most other property where the maximum reserve period is five years.

Other Items

Non-taxation of capital gains on principal residences

Capital gains realized on the disposition of a taxpayer's principal residence are non-taxable. The capital gains were determined using Multiple Listing Service housing prices, adjusted to include expenditures on capital repairs and major additions and renovations, obtained from Statistics Canada's Consumer Expenditure Survey. The holding period for principal residences was derived from 1981 Census data.

Estimates for this item are provided for both partial and full inclusion rates for capital gains.

Non-taxation of income from the Office of the Governor General

This income is exempt from personal income taxation.

Data were provided by the Office of the Governor General.

Assistance for prospectors and grubstakers

Where a prospector or grubstaker disposes of mining property to a corporation in exchange for shares in that corporation, the tax liability is deferred until the subsequent disposition of the shares. At that time, only three-quarters of the amount for which the mining property was transferred to the corporation need be included in income.

Charitable donations credit

Donations of up to 50 per cent of net income for taxation year 1996 (20 per cent prior to 1996) made to registered charities qualified for the charitable donation credit in the year. The 1997 budget further increased the limit for 1997 and subsequent years to 75 per cent of net income. Provision was made in 1996 and maintained in the 1997 measures to ensure that no short-term tax liability would arise from the realization of capital gains on donations of appreciated assets. This treatment was extended by the 1997 budget to any capital cost allowance recapture arising from the donation of depreciable capital property. Donations in excess of the limit may be carried forward for up to five years. The percentage of income restriction does not apply to certain gifts of cultural property nor, beginning in 1995, to donations of ecologically sensitive lands.

The credit is 17 per cent on the first $200 of total donations (including gifts to the Crown) and 29 per cent on donations in excess of $200.

Reduced inclusion rate for capital gains arising from certain charitable donations

The 1997 budget reduced the inclusion rate on capital gains arising from certain donations by individuals or corporations to charities (other than private charitable foundations) from 75 per cent to 37 1/2 per cent where the donation is made between February 18, 1997 and the end of the year 2001. Eligible securities qualifying for this treatment are those for which a current value can readily be obtained and d publicly on a prescribed stock exchange.

Gifts to the Crown credit

A tax credit is available for gifts to the Crown. The credit is 17 per cent on the first $200 of total donations (including charitable donations) and 29 per cent on donations in excess of $200. Prior to 1997, tax credits arising from gifts to the Crown could be used to reduce taxes on up to 100 per cent of income.

The 1997 budgetreduced this to 75 per cent of income for 1997 and subsequent years. The limit is increased by 25 per cent of the amount of taxable capital gains arising from the donations of appreciated capital property and 25 per cent of any capital cost allowance recapture arising from the donation of depreciable capital property. Donations of ecologically sensitive land and certain gifts of cultural property are exempt from the net income limit. The limit does not apply to gifts in the year of death and the preceding year. Unused contributions may be carried forward for up to five years.

Political contribution credit

A credit is available for donations to registered federal political parties. The credit is 75 per cent of the first $100 of contributions, 50 per cent on the next $450 of contributions and 33 1/3 per cent on the next $600. The maximum credit claimable in any year is $500.

Retroactive lump-sum payments

The 1999 budget proposes to allow taxpayers receiving qualifying retroactive lump-sum payments to use a special mechanism to compute the tax on those payments. To be eligible for the special tax calculation, the right to receive the income must have existed in a prior year. In addition, the principal portion of the lump-sum payment must be at least $3,000 and must have been received in any year after 1994. The tax under the special mechanism is the federal tax that would have been payable if the principal portion of the retroactive lump-sum payment had been taxed in the year to which it relates, plus interest, to reflect the delay in receiving the tax.

The tax expenditure under this item is equal to the difference between the tax that would be owed on the principal portion of eligible retroactive lump-sum payments if they were taxed in the year received, and the tax computed under the special mechanism. There is no tax expenditure associated with the interest element of any lump-sum payment, because it is fully included in income for the year in which it is received.

Non-taxation of income of Indians on reserves

Section 87 of the Indian Act exempts the personal property of a status Indian and Indian bands from taxation if such personal property is situated on a reserve. Courts have held that the term "personal property" includes income. Determining whether income is situated on a reserve requires an examination of the factors that connect it to a reserve. With respect to employment income, for example, a key factor is the location (on or off a reserve) at which the employment duties were performed.

No data are available.

Non-taxation of gifts and bequests

Gifts and bequests are not included in the income of the recipient for tax purposes.

No data are available.

Memorandum Items

Non-taxation of lottery and gambling winnings

Lottery and gambling winnings are excluded from income for tax purposes.

The estimate for the non-taxation of winnings in government lotteries is based on information provided by Statistics Canada. Values for the non-taxation of winnings from horse racing are estimated using data provided by Agriculture Canada. The values do not include winnings from other types of gambling, such as bingo and casino winnings, where no accurate data are available.

The tax expenditure estimate assumes that the total amount of lottery and horse racing winnings would be included in income and subject to tax. This would likely not be the case because there would be a large administrative cost in taxing thousands of small prizes, in particular instant win lotteries. A threshold below which winnings would be non-taxable would result in substantially lower revenues than the figure published in this report.

It should also be noted that 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 a considerable element of taxation to lottery and gambling proceeds.

This estimate is therefore included as a memorandum item only.

Non-taxation of specified incidental expenses

Members of Parliament (MPs), Members of Legislative Assemblies (MLAs), Senators and some other public officials (such as elected municipal officials and judges) receive flat allowances for expenses incidental to their duties. These amounts are not included in income for tax purposes.

This provision is a memorandum item because it is not possible to distinguish the proportion of these allowances which is used for personal consumption and that which is for work-related expenses.

Data are available only for the non-taxable allowances provided to MPs, MLAs and Senators. This information is found in the publications Canadian Legislatures and The Canadian Parliamentary Guide.

Non-taxation of allowances for diplomats and other government employees posted abroad

Diplomats and other government employees posted abroad receive an allowance to cover the additional costs associated with living outside Canada. These allowances are not taxable.

Information on total allowances was obtained from the Treasury Board.

Child care expense deduction

Child care expenses incurred for the purpose of earning business or employment income, taking an occupational training course or carrying on research for which a grant is received are deductible, up to a limit. Prior to 1998, the deduction could not exceed the lesser of $5,000 per child if the child was under age 7 or was disabled plus $3,000 per child between 7 and 14 years of age (16 years after 1995); two-thirds of earned income for the year; and the actual amount of child care expenses incurred. The two-thirds earned income limit does not apply to single parent students after 1995. The deduction must generally be claimed by the spouse with the lower income. However, the higher-income parent may claim a deduction if the lower-income parent is infirm, confined to a bed or a wheelchair, in prison, or attending a designated educational institution on a full-time basis.

The 1998 budget proposed to enhance the child care expense deduction by increasing the deduction limits by $2000 to $7000 for children under age 7 or disabled, and by $1000 to $4000 for older children. The budget also proposed to allow child care expenses incurred by an individual in order to pursue part-time education to be claimed, subject to certain limits.

Attendant care expense deduction

A disabled individual can deduct the cost of unreimbursed care provided by a part-time attendant, if such an expense is required to enable the individual to work. For taxation years 1994 to 1997, the deduction cannot exceed the lesser of $5,000 and two-thirds of earned income for the year. The 1997 budget eliminated the limit on attendant care expenses.

Moving expense deduction

All reasonable moving expenses incurred to earn employment or self-employment income at a new location (e.g. transportation, meals and temporary accommodation, cost of selling a former residence) are deductible from earnings or business income received after the move if the taxpayer moves at least 40 kilometres closer to the new place of employment or study. The deduction has to be claimed in the year, or in the following year if it exceeds earnings at the new location in the year of the move.

Prior to 1998, most moving expense reimbursements provided by employers were not included in income. The 1998 budget proposed to include certain employer-provided reimbursements in income, and to allow an offsetting deduction to the same extent as permitted for self-paid expenses. The 1998 budget also proposed to expand the definition of relocation costs eligible for deduction.

The estimates do not include non-taxable reimbursements received from employers.

Deduction of carrying charges incurred to earn income

Interest and other carrying charges, such as investment counselling fees and safety deposit box charges, incurred to earn business or investment income are deductible.

Some might consider the deductibility of such expenses to be a tax expenditure because of the tax deferral arising from the up-front deduction of expenses associated with the earning of income which will not be taxed until received possibly in future years. Others would hold that carrying charges are incurred for the purpose of earning income and therefore represent part of the benchmark income tax system.

Deduction of meals and entertainment expenses

Meals and entertainment expenses are considered to be a memorandum item because the amount that should be deductible under a benchmark tax system is debatable. While a portion of these expenditures is incurred in order to earn income, there is an element of personal consumption associated with these expenditures. Consequently, only a partial deduction for these expenses would be permitted under the benchmark tax system.

The deduction is limited to 50 per cent of the cost of food, beverages and entertainment (80 per cent before March 1, 1994). Where the cost of food, beverages or entertainment is part of a package price which includes amounts not subject to the 50-per-cent limitation – for instance, the fee for a conference – the taxpayer is required to determine the value or make a reasonable estimate of the amount subject to the 50-per-cent limitation.

Deduction of farm losses for part-time farmers

Individuals whose major source of income is not farming are allowed to deduct farm losses against other income up to an annual maximum of $8,750.

Part-time farm losses that are not deductible in the current year may be carried back 3 years and forward 10 years to deduct against farm or non-farm income. The estimates include the cost of these carry-overs.

Farm and fishing loss carry-overs

Farm and fishing losses may be carried back 3 years and forward 10 years. Most other business losses may be carried forward only 7 years.

The only data that are available are prior years' losses carried forward to the current year. In this regard, the estimates do not include current year losses carried forward or back to other taxation years, nor do they include future losses carried back to the taxation year in question. The estimates do not include losses carried over by part-time farmers.

Capital loss carry-overs

Net capital losses may be carried back three years and forward indefinitely to offset capital gains of other years.

The only data which are available are prior years' losses carried forward to the current year to reduce taxes payable. The estimates do not include current-year losses carried forward or back to other taxation years nor do they include future losses carried back to the taxation year in question.

Non-capital loss carry-overs

Non-capital losses may be carried back three years and forward seven years to offset other income.

The only data which are available are prior years' losses carried forward to the current year to reduce taxes payable. Thus, the cost estimates may understate the true amount of revenue forgone because they do not include current-year losses carried forward or back to other taxation years, nor do they include future losses carried back to the taxation year in question.

Logging tax credit

The logging tax credit reduces federal taxes payable by the lesser of two-thirds of any logging tax paid to a province and 6 2/3 per cent of income from logging operations in that province.

The estimates are based on data from Revenue Canada.

Deduction of resource-related expenditures

Individuals are entitled to deduct certain expenses associated with the exploration for, and development of, Canadian natural resources. These expenses are deductible if the taxpayer either engages directly in these resource activities or provides financing to a resource company which, in turn, "flows through" the tax deductions to the taxpayer.

A tax expenditure arises when a flow-through share investor is able to use deductions for exploration and development more quickly than would otherwise have been possible by the resource company that actually undertook these expenditures. This may be because the taxpayer has otherwise-taxable income in a year and the corporate issuer of the flow-through share does not. It may also be the direct result of a special provision for junior oil and gas companies whereby expenses that would otherwise be deductible at 30 per cent can be deducted at 100 per cent when "flowed through" using flow-through shares.

However, the available data do not permit a separation of expenses that are flowed through to investors and those that are incurred directly by the taxpayers. Accordingly, only some portion of resource-related expenditures deducted represents a true tax expenditure. Consequently, the total cost of all these deductions has been calculated, but these amounts are treated as a memorandum item.

Deduction of other employment expenses

Employees generally cannot deduct work-related expenses. However, specific employment expenses (e.g. automobile expenses, cost of meals and lodging for certain transport employees, legal expenses paid to collect salary) are deductible in certain circumstances in the computation of income.

This provision is a memorandum item because it is not possible to distinguish the proportion of these expenses which is used for personal consumption and that which is incurred in order to earn income.

Deduction of union and professional dues

Union and professional dues are fully deductible from income.

The mandatory nature of these payments leads to their classification as expenses incurred to earn income.

Employment insurance contribution credit/non-taxation of employer-paid premiums

A 17-per-cent tax credit is provided for employment insurance (EI) contributions. Employer-paid premiums are not included in the employee's income.

The mandatory nature of EI contributions leads to their classification as expenses incurred to earn income.

Canada and Quebec Pension Plan contribution credit/non-taxation of employer-paid premiums

A 17-per-cent tax credit is provided for Canada Pension Plan/Quebec Pension Plan (CPP/QPP) contributions by both employees and the self-employed. Employer-paid premiums are not included in the employee's income.

Again, since CPP/QPP contributions are mandatory, they are classified as expenses incurred to earn income.

Foreign tax credit

In order to avoid double taxation, a tax credit is provided in recognition of income taxes paid in foreign countries.

Dividend gross-up and credit

Dividends received from taxable Canadian corporations are "grossed up" by a factor of one-quarter and included in income. A tax credit equal to 13.33 per cent of the grossed-up amount is then provided, in recognition of taxes paid at the corporate level. These provisions contribute to the integration of the corporate and personal income tax systems.

Supplementary low-income credit

The 1998 budget proposed a supplement of $500 to the basic personal, spousal and equivalent-to-spouse non-refundable tax credits for low-income taxfilers. The supplementary amount for a single individual will be reduced by 4 per cent of income in excess of $6,956. The total amount available to an individual with an eligible dependant will be reduced by 4 per cent of the filer's income minus the total of $6,956 and the dependant's adjusted income. The 1999 budget proposes to extend the benefit of this credit to all taxpayers through the basic personal and spousal/equivalent-to-spouse credits, effective July 1, 1999.

Basic personal credit

All taxpayers qualify for a basic personal credit equal to 17 per cent of $6,456. The 1999 budget proposes to increase the basic personal credit to 17 per cent of $7,131, effective July 1, 1999.

Non-taxation of capital dividends

Private corporations may distribute the exempt one-quarter of any realized capital gains accumulated in their "capital dividend account" to their shareholders in the form of a capital dividend. This dividend is non-taxable. This measure is reported as a memorandum item since it contributes to the integration of the taxation of corporate and personal income.

No data are available.

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