Tax Transfers

What is a Tax Transfer?

• A federal tax transfer involves the federal government transferring some of its “tax room” to provincial and territorial governments.  Specifically, a tax transfer occurs when, upon agreement, the federal government reduces its tax rates and provincial and territorial governments simultaneously raise their tax rates by an equivalent amount.
• Since all governments act in a coordinated way, the changes in federal and provincial and territorial tax rates offset one another and there is no net financial impact on the taxpayer.  Revenues that would have flowed to the federal government flow instead to provincial and territorial governments.
• In 1977, the federal government then transferred 13.5 percentage points of its personal income tax and one percentage point of its corporate income tax to the provinces and territories as part of a federal-provincial-territorial arrangement.
• The impact of the 1977 tax transfer was taken into account in the determination of provincial shares of Canada Health and Social Transfer and, until 2007-08, Canada Social Transfer payments.  It will continue to be used in the determination of Canada Health Transfer payments until 2013-14, at which time, the CHT will move to equal per capita cash from 2014-15 and onward.

- Major Federal Transfers -