Table 1
Personal Income Tax Expenditures*†

Notes:

¹ The tax expenditure after 1999 reflects the reduction in the capital gains inclusion rate from three-quarters to two-thirds, effective February 28, 2000, and from two-thirds to one-half, effective October 18, 2000. [Return]

² The October 2000 Economic Statement and Budget Update increased the education credit to $400 per month for full-time students and $120 per month for part-time students, effective January 1, 2001. The 2001 budget introduced a measure that extends the education tax credit, beginning 2002, to people who receive taxable assistance for post-secondary education under certain government programs. [Return]

³ 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 Canada Millennium Scholarship Foundation. [Return]

⁴ The 2000 budget increased the stock option deduction from one-quarter to one-third, effective February 28, 2000. The October 2000 Economic Statement and Budget Update further increased the stock option deduction from one-third to one-half, effective October 18, 2000. These changes are in line with the reductions to the capital gains inclusion rate. Increases in the tax expenditure for 2000 and 2001 reflect the higher value of stock option benefits due to the appreciation in the capital market, especially in the technology sector. Following the downturn in that sector, projections for 2002 onwards assume that the market will revert to its late 1990s level (i.e., the 1999 aggregate stock option deductions to which 2002, 2003, 2004 and 2005 tax structures are applied).  [Return]

⁵ The spouse or common-law partner credit was previously known as the spousal credit. The eligible dependant credit was previously known as the equivalent-to-spouse credit. [Return]

⁶ 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. [Return]

⁷ Payments are reported on a calendar year basis. The 2000 budget and the October 2000 Economic Statement and Budget Update fully indexed the CCTB starting January 2000, increased the per-child benefit amounts and the National Child Benefit (NCB) supplement and CCTB base benefit phase-out thresholds and, effective July 1, 2004, will reduce CCTB base benefit phase-out rates. The 2003 budget increased the NCB supplement, beyond indexation adjustments, by an annual amount of $150 per child in July 2003, $185 in July 2005 and $185 in July 2006. [Return]

⁸ The projections for 2003 to 2005 do not include the projections for the Child Disability Benefit, which are shown separately. [Return]

⁹ The 2000 budget reduced the capital gains inclusion rate from three-quarters to two-thirds for deposits on or after 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 the inclusion rate that reduce the value of the exemption. [Return]

¹⁰ The data for the three tax expenditures under the Net Income Stabilization Account is observed up to 2002. Projections for 2003 and subsequent years are based on a historical average growth rate. [Return]

¹¹ The 2002 figure includes a one-time government contribution of $500 million. [Return]

¹² The decline in this tax expenditure for 2001 and 2002 is attributable to a drop in interest rates. [Return]

¹³ Estimates are based on Statistics Canada data available up to 2002, which includes cash purchase tickets for wheat, barley, oats, canola, flax and rye. Projections after 2002 are calculated using a historical average growth rate. [Return]

¹⁴ 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 reductions to the capital gains inclusion rate as well as anticipated increases in capital gains realizations resulting from changes to this measure. [Return]

¹⁵ The estimates and projections for this tax expenditure are different from those in previous years’ publications due to a change in methodology. Under the new methodology, average marginal tax rates have been used to determine the tax expenditure of the five-year reserve by comparing the average rate if all capital gains are taxed in the year of disposition versus the average rate if taxed as reserves. The tax expenditure for a particular year represents the difference in tax yield under these two scenarios. [Return]

¹⁶ Data for unincorporated businesses is not available to estimate this tax expenditure with precision. [Return]

¹⁷ No data is available, as it is difficult to estimate the value of unsold assets. [Return]

¹⁸ The 2000 budget enhanced the DTC by extending eligibility 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. Moreover, the 2003 budget announced an additional $80 million per year for persons with disabilities, but it is not taken into account in computing this tax expenditure as the Government has not yet determined how this amount will be spent. [Return]

¹⁹ The Child Disability Benefit is delivered as a supplement to the Canada Child Tax Benefit. [Return]

²⁰ The decline in this tax expenditure after 1999 reflects changes in the 1998 to 2000 budgets and the October 2000 Economic Statement and Budget Update to reduce tax rates for low-income individuals (e.g., increases in the personal amounts and the reduction in the lowest tax rate). [Return]

²¹ Estimates and projections may vary from those in last year’s report due to changes in tax rates and projected levels of contributions, assets and withdrawals, and changes in methodology and assumptions. In particular, estimates of assets in trusteed RPPs used in this year’s report are based on market values as reported by Statistics Canada (previous estimates were based on book values). The effect is to increase the tax expenditure associated with the tax foregone on the investment income earned on RPP assets, for both the 1998-2000 estimates and the 2001-2005 projections. In addition, the rate of return on RPP/RRSP assets for the 1998-2000 estimates is derived from actual levels of RPP/RRSP assets, contributions and withdrawals (the 10-year government bond rate was used for estimates in previous reports and continues to be used for the projections). This also has the effect of increasing the tax expenditure associated with the tax foregone on investment income earned on both RPP and RRSP assets. The use of market value RPP assets and the derived rate of return on both RPP and RRSP assets for the 1998-2000 estimates explain most of the differences between the estimates in this year’s and last year’s report. [Return]

²² The 1999 RRSP assets are based on the estimate reported in Statistics Canada’s Survey of Financial Security (SFS). The ratio of 1999 RRSP assets reported in the SFS to 1999 RRSP assets reported in the Statistics Canada publication Pension Plans in Canada is used to adjust RRSP assets for 1998 and 2000 to reflect the more comprehensive SFS estimate, which includes funds in self-administered plans (the ratio is $408 billion/$268 billion or 1.52). [Return]

²³ The increase in 1999 is attributable to a significantly higher rate of return on investment income in that year. [Return]

²⁴ 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 Estimates of Tax Assistance for Retirement Savings, which was published in the 2001 edition of this report. [Return]

²⁵ The present-value tax expenditure projections presented in this year’s report vary from those in previous reports due to changes in projected RPP/RRSP contribution levels and updated estimates of tax rates. [Return]

²⁶ Although this measure does provide tax relief for individuals, it is implemented through the corporate tax system. See under “interest credited to life insurance policies” in table 2 of this report for an estimate of the value of this tax expenditure. [Return]

²⁷ The projections of this tax expenditure for 2001 and 2002 are based on preliminary information on sales of shares of labour-sponsored venture capital corporations for those years. Projections assume sales remain constant after 2002. [Return]

²⁸ 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. The 2003 budget eliminated the original investment and reinvestment limits and extended the time for acquiring eligible replacement shares. The tax expenditure for this measure is substantially lower than in previous editions. This reflects the reduction in gross capital gains that occurred as a result of the market downturn, and lower-than-expected take-up of the measure. A gradual increase in the tax expenditure is projected in later years due to the enhancements proposed in the 2003 budget, an improvement in market conditions leading to increases in realized capital gains and increased awareness of the measure. [Return]

²⁹ The estimates for this measure have been revised to reflect both recent data and announced changes to this measure in the 2003 budget. Recent data indicates that actual expenditure under the credit was below the level estimated in the previous report. The negative figure for 2005 reflects the inclusion in income for that year of an amount equal to the credit claimed in 2004. Any excess of deductions and credits claimed over the creditable expenditure incurred is required to be included in income in the following year. As an expenditure renounced pursuant to a flow-through share agreement is fully deductible, the following year’s income will be increased by an amount equal to the tax credit. [Return]

³⁰ The declines in the tax expenditures in 2001 reflect the reduction in the capital gains inclusion rate from three-quarters to two-thirds, effective February 28, 2000, and from two-thirds to one-half, effective October 18, 2000. The increases in 2002 reflect a rise in the volume of home sales and in the average home value. The data used for this measure was available up to 2002. [Return]

³¹ The reduced inclusion rate on donations of ecologically sensitive land and related easements, covenants and servitudes was introduced in 2000. Therefore, the data shown prior to 2000 reflect only donations of publicly traded securities. The data for the two measures cannot be separated in subsequent years. The tax expenditure shown includes only the impact of the reduced inclusion rate for capital gains arising from these donations; there is an additional revenue loss arising from the charitable donations credit. The decline in the tax expenditure from that in 2000 reflects both the decline in capital markets after that year and the reduction in the normal capital gains inclusion rate from three-quarters to one-half in 2000. [Return]

³² Revisions to the Income Tax Act beginning in tax year 2000 increased the limit for the 75% tax credit from the first $100 contributed in a year to the first $200. The figures from 2000 onwards reflect these changes. The higher estimated value for 2000 also reflects evidence from historical data that the level of political contributions and the value of their tax expenditure increase in the year of a federal election. Also, effective January 1, 2004, the contributions eligible for the 75% credit rate will double from $200 to $400, with $200 increases in each of the higher brackets of contribution. The maximum allowable credit for any contribution of $1,275 or more will thereby be increased to $650. This change will apply to tax years ending after 2003. The change is reflected in the projections starting in 2004. [Return]

³³ Projections for this tax expenditure now incorporate tax filer data that only became available as of the 2000 taxation year. [Return]

³⁴ Allowances for members of Parliament and senators are no longer tax-exempt, effective January 2001. [Return]

³⁵ The 2000 budget increased the deduction limit from $7,000 to $10,000 for children eligible for the disability tax credit. [Return]

³⁶ This tax expenditure applies to a subset of resource-related deductions. Data was available for 1998 to 2001 on the volume of reclassified shares and was used to calculate 1998-2000 estimates and the 2001 projection. Due to volatility, the projections for 2002 to 2005 are based on a three-year historical average. [Return]

³⁷ This includes employee- and employer-paid premiums by and for self-employed workers. [Return]

³⁸ Prior to 2001, self-employed individuals could claim a non-refundable credit at the lowest marginal rate on the employer share of their Canada/Quebec Pension Plan contributions. For 2001 and subsequent years, self-employed individuals may deduct the employer share of their Canada/Quebec Pension Plan contributions paid for their own coverage. The estimates and projections shown are relative to a benchmark system in which no such deduction (or credit) is provided. [Return]

³⁹ A number of substantial methodological difficulties call into question the accuracy and utility of estimates of the revenue implications of non-taxation of lottery and gambling winnings. The first methodological difficulty is that the data on payouts/winnings is incomplete. There is solid information on aggregate payouts only for government-run lotteries and bingos. Data on payouts at casinos, video lottery terminals, horseracing, and racetrack slot machines, which constitute a rising share of total spending on gaming, is fragmentary. In addition, no data is available on the payouts/winnings from activities sponsored by charities and other non-government organizations. Second, even if complete information on aggregate payouts were available, the revenue implications of non-taxation still could not be determined with precision. For example, if the benchmark tax system were to include taxation of gambling and lottery winnings, consideration would have to be given to including a deduction for expenses incurred in earning this income, i.e. ticket purchases or wagers/losses. This deduction could be allowed either against all income or against only lottery and gambling winnings. A threshold below which winnings would not be taxable would also be necessary, due to the large administrative cost of taxing very small prizes. In the absence of information on the distribution of prizes and the incomes of winners, the resulting potential tax base is difficult to estimate. Further, it would be impractical to tax some forms of winnings (e.g. slot machines) because of the way in which prizes are paid out. For reference, estimates and projections of the tax expenditure associated with the non-taxation of lottery and gambling winnings presented in the 2002 publication as a memorandum item were as follows (in millions of dollars):

Another important point to note with respect to the non-taxation of lottery and gambling winnings is that under federal-provincial agreements negotiated in 1979 and 1985, the federal government, in exchange for an ongoing payment, undertook to refrain from re-entering the field of gaming and betting and to ensure that the rights of the provinces in that field are not reduced or restricted. [Return]

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