Archived - Tax Expenditures and Evaluations - 2005: 2

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Table 1
Personal Income Tax Expenditures^{* †}

	Estimates			Projections
2000	2001	2002	2003	2004	2005	2006	2007

($ millions)
Charities, Gifts and Contributions
Charitable donations credit	1,495	1,490	1,580	1,605	1,635	1,670	1,700	1,745
Reduced inclusion rate for capital gains arising from donations of publicly listed securities and ecologically sensitive land1	19	6	3	6	6	7	7	8
Non-taxation of capital on gifts of cultural property2	7	6	3	13	9	7	7	7
Non-taxation of gifts and bequests	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Political contribution tax credit3	19	8	9	11	22	15	17	17
Culture
Assistance for artists	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deduction for artists and musicians	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Education
Adult basic education—tax deduction for tuition assistance	–	–	10	5	5	5	5	5
Apprentice vehicle mechanics’ tools deduction	–	–	10	10	10	10	10	10
Education credit4	140	260	250	260	275	280	280	280
Tuition credit	310	275	275	295	305	320	325	330
Education and tuition credits carried forward from prior years5	165	170	245	250	255	255	255	260
Transfer of education and tuition credits	325	390	420	435	450	460	465	470
Partial exemption of scholarship, fellowship and bursary income6	29	21	22	22	22	23	23	23
Registered education savings plans7, 8	97	95	120	120	135	135	130	115
Student loan interest credit	66	66	60	62	63	64	66	68

	Estimates			Projections
	2000	2001	2002	2003	2004	2005	2006	2007
	($ millions)
Employment
Deduction for income earned by military and police deployed to high-risk international missions	–	–	–	–	30	30	30	30
Deduction of home relocation loans	S	S	S	S	S	S	S	S
Deferral of salary through leave of absence/sabbatical plans	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Employee benefit plans	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Employee stock options9	690	650	415	480	400	350	300	250
Non-taxation of certain non-monetary employment benefits	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of strike pay	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Northern residents deductions	135	125	130	130	130	135	135	140
Overseas employment credit	55	57	62	62	63	64	65	66
Tax-free amount for emergency service volunteers	14	14	14	14	14	14	14	14
Family
Adoption expense tax credit10	–	–	–	–	–	5	5	5
Canada Child Tax Benefit11	6,610	7,370	7,755	7,985	8,650	9,210	9,605	9,850
Caregiver credit12	35	57	65	65	70	70	75	75
Deferral of capital gains through transfers to a spouse, spousal trust or family trust	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Infirm dependant credit12	5	6	6	6	6	6	7	7
Spouse or common-law partner credit13,14	1,215	1,160	1,180	1,210	1,275	1,315	1,380	1,455
Eligible dependant credit13,14	620	610	630	645	665	680	700	730
Farming and Fishing
$500,000 lifetime capital gains exemption for farm property15	325	215	255	240	245	255	265	275
Cash-basis accounting	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral of capital gains through intergenerational rollovers of family farms and commercial woodlots	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral of income from destruction of livestock16	S	3	S	S	9	-9	S	S
Deferral of income from sale of livestock during drought years	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral of income from grain sold through cash purchase tickets17	5	-26	21	S	S	11	13	13
Deferral through 10-year capital gain reserve	S	S	S	S	S	S	S	S
Exemption from making quarterly tax instalments	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Flexibility in inventory accounting	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Tax treatment of the Net Income Stabilization Account18
Deferral of tax on    government contributions	74	66	170	45	–	–	–	–
Deferral of tax on bonus    and interest income	34	31	26	23	22	7	S	S
Taxable withdrawals	-86	-76	-105	-100	-185	-160	-8	S
	Estimates			Projections
	2000	2001	2002	2003	2004	2005	2006	2007
	($ millions)
Federal-Provincial Financing Arrangements
Logging tax credit	S	S	S	S	S	S	S	S
Quebec abatement	3,175	2,965	3,050	3,195	3,270	3,475	3,705	3,980
Transfer of income tax points to provinces	14,105	13,555	13,585	14,145	14,530	15,435	16,465	17,675
General Business and Investment
$200 capital gains exemption on foreign exchange transactions	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
$1,000 capital gains exemption on personal-use property	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deduction of accelerated capital cost allowance19	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral through use of billed-basis accounting by professionals	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral through capital gains rollovers	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral through five-year capital gain reserve	64	20	31	32	32	33	34	35
Investment tax credits	28	33	36	33	34	35	36	37
Mineral exploration tax credit for flow-through share investors20	9	12	25	45	59	56	-21	–
Partial inclusion of capital gains21	2,500	1,985	1,665	2,120	2,150	2,195	2,235	2,285
Taxation of capital gains upon realization22	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Small Business
$500,000 lifetime capital gains exemption for small business shares23	740	345	305	310	315	320	325	335
Deduction of allowable business investment losses	39	44	48	49	50	51	53	54
Deferral through 10-year capital gain reserve	S	S	S	S	S	S	S	S
Labour-sponsored venture capital corporations credit24	255	215	180	160	200	200	200	200
Rollovers of investments in small businesses	3	6	3	4	4	4	4	4
Health
Child Disability Benefit25	–	–	–	15	40	50	65	65
Disability tax credit26	275	330	350	370	380	465	480	495
Medical expense tax credit27	550	570	635	700	765	820	880	950
Non-taxation of business-paid health and dental benefits	1,610	1,710	1,875	2,060	2,240	2,430	2,625	2,805
Refundable medical expense supplement28	42	55	64	70	75	85	90	95
Estimates			Projections
2000	2001	2002	2003	2004	2005	2006	2007
($ millions)
Income Maintenance and Retirement
Age credit	1,385	1,320	1,355	1,400	1,460	1,515	1,555	1,620
Deferred profit sharing plans	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of certain amounts received as damages in respect of personal injury or death	15	15	15	17	17	18	19	19
Non-taxation of Guaranteed Income Supplement and Allowance benefits29	290	265	265	290	285	300	305	310
Non-taxation of investment income on life insurance policies30	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of RCMP pensions/compensation in respect of injury, disability or death	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of social assistance benefits31	290	245	225	220	205	200	185	175
Non-taxation of up to $10,000 of death benefits	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of veterans’ allowances, income support benefits, civilian war pensions and allowances, and other service pensions (including those from Allied countries)32	5	5	4	3	3	3	S	S
Non-taxation of veterans’ disability pensions and support for dependants33	135	135	140	150	155	165	165	165
Non-taxation of veterans’ Disability Award33	–	–	–	–	–	–	16	20
Non-taxation of workers’ compensation benefits	665	650	700	745	760	800	840	885
Pension income credit	425	405	415	425	435	445	455	470
Registered pension plans34
Deduction for contributions	4,895	4,575	5,325	7,300	9,100	9,405	10,000	10,630
Non-taxation of investment income	9,390	2,785	335	11,520	9,370	10,005	10,670	11,320
Taxation of withdrawals	-6,695	-6,415	-6,670	-7,125	-7,380	-7,870	-8,340	-8,830
Net tax expenditure	7,590	940	-1,010	11,695	11,090	11,540	12,330	13,120
Registered retirement savings plans34
Deduction for contributions	7,155	6,225	5,915	6,030	6,305	6,720	7,225	7,760
Non-taxation of investment    income35	4,600	1,280	17	6,300	5,095	5,485	5,905	6,355
Taxation of withdrawals	-3,515	-3,465	-3,510	-3,855	-4,105	-4,490	-4,880	-5,305
Net tax expenditure	8,240	4,040	2,425	8,475	7,295	7,720	8,250	8,815
Supplementary Information:
Present value of tax assistance for retirement savings plans36, 37	6,465	6,140	6,365	7,475	8,760	9,130	9,520	9,930
Saskatchewan Pension Plan	S	S	S	S	S	S	S	S
Treatment of alimony and maintenance payments	170	115	115	115	110	110	110	110

	Estimates			Projections
2000	2001	2002	2003	2004	2005	2006	2007
($ millions)
Other Items
Deduction related to vows of perpetual poverty	S	S	S	S	S	S	S	S
Deduction for clergy residence	68	67	74	75	75	77	78	79
Non-taxation of capital gains on principal residences38
Partial inclusion rate	1,000	885	1,405	1,835	2,335	2,385	2,440	2,500
Full inclusion rate	1,530	1,770	2,810	3,665	4,670	4,770	4,880	5,000
Non-taxation of income from the Office of the Governor General	S	S	S	S	S	S	S	S
Non-taxation of income of Indians on reserves	n.a.	n.a	n.a	n.a.	n.a.	n.a.	n.a.	n.a.
Special tax computation for certain retroactive lump-sum payments	S	S	S	S	S	S	S	S
Memorandum Items
Avoidance of Double Taxation
Dividend gross-up and credit	970	1,215	1,260	1,310	1,365	1,420	1,470	1,540
Foreign tax credit	580	635	665	675	685	695	705	720
Non-taxation of capital dividends	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Recognition of Expenses Incurred to Earn Income
Child care expense deduction39	595	530	535	535	535	545	550	560
Deduction of carrying charges incurred to earn income	875	825	730	735	745	855	895	940
Deduction of union and professional dues	590	550	575	605	610	630	650	675
Disability supports deduction (attendant care deduction)40	S	S	S	S	15	20	20	20
Moving expense deduction	71	81	88	91	92	95	97	100
Loss Offset Provisions
Capital loss carry-overs41	225	86	91	150	125	100	100	100
Farm and fishing loss carry-overs	14	16	15	12	12	13	14	15
Non-capital loss carry-overs	91	78	82	85	85	88	90	92
Social and Employment Insurance Programs
Canada Pension Plan and Quebec Pension Plan42
Employee-paid contribution credit	1,845	1,980	2,245	2,460	2,535	2,625	2,710	2,820
Non-taxation of employer-paid premiums43	2,485	2,160	2,140	2,100	1,985	2,005	2,045	2,105
Other
Basic personal amount14	20,905	20,460	21,085	21,715	22,650	23,370	24,350	25,570
Deduction of farm losses for part-time farmers	59	60	61	52	53	56	60	63
Deduction of other employment expenses	770	735	775	810	820	845	870	905
Deduction of resource-related expenditures44	125	155	175	245	300	325	280	280
Reclassification of    flow-through shares45	24	33	31	31	37	41	39	39
Non-taxation of lottery and gambling winnings46	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of specified incidental expenses47	4	–	–	–	–	–	–	–
Non-taxation of allowances for diplomats, military and other government employees posted abroad	9	9	10	10	10	10	10	10
Partial deduction of meals and entertainment expenses	86	85	72	73	73	75	76	77

^*

The elimination of a tax expenditure would not necessarily yield the full tax revenues shown in the table. See the publication Tax Expenditures: Notes to the Estimates/Projections, published in 2004 and available on the Department of Finance Canada website (www.fin.gc.ca), for a discussion of the reasons for this. [Return]

† The February 2000 budget fully indexed, effective January 1, 2000, those parameters that were previously only partially indexed. 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 was introduced, but this is generally followed by growth in their value over time in line with increases in the underlying tax base. [Return]

Notes:

¹

The decline in the tax expenditure in 2001 reflects both the decline in capital markets after 2000 and the reduction in the normal capital gains inclusion rate from three-quarters to one-half in 2000.

The total tax expenditure cost of this measure has two components: the revenue forgone as a result of the reduced inclusion rate (which is shown in the main table), and the increased cost of the charitable donations credit from any increase in donations that results from the measure. If all of the donations of listed securities and ecologically sensitive land would have been made in the absence of this measure, then (as shown in the main table) the total cost ranges from $3 million to $19 million between 2000 and 2007. If, on the other hand, all donations of listed securities and ecologically sensitive land came about as a result of the reduced inclusion rate on capital gains, and if in the absence of the measure the shares and land would have been sold instead of donated, then the cost of the measure ranges from $32 million to $80 million between 2000 and 2007, as shown below (in millions of dollars):

2000	2001	2002	2003	2004	2005	2006	2007
80	42	32	45	46	53	54	55

The true costs fall somewhere between the lower and upper bounds set by the ranges indicated.

²

The estimates and projections for this tax expenditure are different from those in previous publications due to an improvement in the methodology, which provides a more accurate estimate of the total cultural gifts donated by individuals.

The total tax expenditure cost has two components: the revenue forgone as a result of the reduced inclusion rate (which is shown in the main table), and the increased cost of the charitable donations credit from any increase in donations that results from the measure. If all of these donations of cultural property would have been made in the absence of this measure, then (as shown in the main table) the total cost ranges from $3 million to $13 million between 2000 and 2007. If, on the other hand, all donations of cultural property came about as a result of this measure, and if the property would otherwise have been sold instead of donated, then the cost of the measure ranges from $18 million to $72 million over the period 2000 to 2007, as shown below (in millions of dollars):

2000	2001	2002	2003	2004	2005	2006	2007
25	31	18	72	48	36	36	36

The true costs fall somewhere between the lower and upper bounds set by the ranges indicated.

³

While the large tax expenditure in 2000 is primarily a result of the federal general election in that year, the projected increase in 2004 reflects both the impact of the election and the onset of two additional factors. First, the three political contribution tax credit thresholds were increased by $200 each, for 2004 and subsequent years. Second, An Act to amend the Canada Elections Act and the Income Tax Act, which received Royal Assent on May 14, 2004, enables additional political parties to become registered and eligible for the tax credit.

⁴

The tax expenditure amount is the credit amount earned and claimed in the year. 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 extending the education credit, beginning 2002, to people who receive taxable assistance for post-secondary education under certain government programs. Effective taxation year 2004, Budget 2004 extended the education credit to students who pursue post-secondary education related to their current employment, provided that their employer does not reimburse the cost of education in whole or in part.

⁵

For a given year, the tax expenditure represents the value of education and tuition credits earned in past years and used in that year. The tax expenditure does not include the pool of unused education and tuition credits that have been accumulated but will be deferred for use in future years. For example, in taxation year 2005, it is projected that taxpayers will defer $290 million of accumulated education and tuition credits for use in future years. In addition, the tax expenditure for the carry-forward for 2002 and beyond has increased by approximately 50% compared to last year’s publication. This reflects the impact of changes introduced in taxation year 2000 (increase in the scholarship exemption) and 2001 (doubling of the education credit) on the stock of carried-forward credits used in 2002 and beyond.

⁶

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.

⁷

The tax expenditure equals the tax revenue foregone on the tax-sheltered income earned on registered education savings plan (RESP) assets, minus the revenue from taxing withdrawals of income (as an Educational Assistance Payment or Accumulated Income Payment) from RESPs.

⁸

Projections include the impact of the Canada Learning Bond introduced in the 2004 budget.

⁹

The tax expenditure reflects the higher value of the stock option deduction, which was increased to 50% in 2000 to reflect the reduced inclusion rate for capital gains. The results for 2000 and, to a lesser extent, 2001 were also affected by market appreciation, especially in the technology sector, as well as increased take-up. Projections for 2003 and subsequent years reflect an assumption of reduced market volatility and reduced take-up due to non-tax considerations.

¹⁰

This measure was proposed in the 2005 budget.

¹¹

Although the program year is July–June, payments are reported on a calendar year basis. The 2000 budget and the October 2000 Economic Statement and Budget Update fully indexed the Canada Child Tax Benefit (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, reduced the 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. The projections for 2003 to 2006 do not include the projections for the Child Disability Benefit, which are shown separately.

¹²

The October 2000 Economic Statement and Budget Update increased the amount on which the caregiver and infirm dependant credit are based from $2,368 to $3,500 in 2001. The amount is indexed to inflation for subsequent years.

¹³

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.

¹⁴

Budget 2005 increased the basic personal amount by $100 in both 2006 and 2007, and made corresponding increases to the amount for a dependent spouse or common-law partner and an eligible dependant.

¹⁵

The decline in this tax expenditure from 2000 to 2001 reflects, in part, reductions to the inclusion rate for capital gains from three-quarters to one-half in 2000.

¹⁶

The projected tax expenditure for 2004 is slightly higher than in other years due to the effects of the outbreak of avian flu in British Columbia. Because this provision is a deferral measure, the deferred income from 2004 will be reported in 2005, resulting in a negative tax expenditure that year.

¹⁷

Estimates are based on Statistics Canada data available up to 2004, which includes cash purchase tickets for wheat, barley, oats, canola, flax and rye. Projections after 2003 are calculated using a historical average growth rate.

¹⁸

The data for the Net Income Stabilization Account (NISA) program are observed up to 2004. Since NISA has been replaced by the Canadian Agricultural Income Stabilization (CAIS) program, tax expenditure projections reflect wind-down provisions that require amounts in NISA accounts be withdrawn by March 31, 2009. Projections also reflect recent data from Statistics Canada, which indicates that withdrawals from the government portion of NISA accounts reached record levels in 2004. It should also be noted that CAIS does not result in a tax expenditure.

¹⁹

Data for unincorporated businesses is not available to estimate this tax expenditure with precision.

²⁰

The estimates and projections have been revised to reflect recent data and a one-year extension of the temporary measure announced in the 2004 budget. The negative figure for 2006 reflects the inclusion in income for that year of an amount equal to the credit claimed in 2005. A deduction for the full amount of the eligible exploration expenditure is allowed for the year for which the credit is claimed. An amount equal to the credit is required to be included in income the following year, however, so as to reverse the deduction in respect of the portion of the expenditure that was effectively paid for by the credit.

²¹

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 estimates for this tax expenditure can vary significantly from year to year, primarily due to unanticipated year-to-year fluctuations in realized capital gains.

²²

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

²³

The decline in this tax expenditure for 2001 and subsequent years reflects the reduction in the capital gains inclusion rate from three-quarters to one-half in 2000. The decline from 2000 to 2001 is also the result of a 28% reduction in the number of claimants making use of this measure and a 26% reduction in the average amount of capital gain that they reported for the purpose of this measure.

²⁴

The tax expenditures for 2002 and 2003 are based on preliminary information on sales of shares of labour-sponsored venture capital corporations (LSVCCs) for those years; the decline in the tax expenditure is the result of reduced sales of LSVCC shares. Projections assume sales remain constant after 2003.

²⁵

The Child Disability Benefit (CDB) is delivered as a supplement to the Canada Child Tax Benefit. The CDB was introduced in the 2003 budget and came into effect in July 2003. The 2005 budget increased the maximum annual CDB from $1,681 to $2,000 per child beginning in July 2005. It also amended the disability tax credit to ensure that more individuals are eligible, which will consequently increase the number of children eligible for the CDB.

²⁶

The 2000 budget enhanced the disability tax credit (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 $2,941 supplement amount for children eligible for the DTC effective 2000. The October 2000 Economic Statement and Budget Update increased the amount on which the DTC is based from $4,293 to $6,000, and the amount of the supplement for children to $3,500, effective 2001. Both amounts are indexed to inflation for subsequent years. The 2005 budget proposed to extend eligibility for the DTC to individuals who face multiple restrictions that together have a substantial impact on their everyday lives, and to amend the DTC to ensure that more individuals requiring extensive life-sustaining therapy on an ongoing basis are eligible.

²⁷

The increase in the projected tax expenditure reflects anticipated growth in medical expense claims as well as enhancements to the credit announced in the 2003, 2004 and 2005 budgets.

²⁸

The increase in the projected tax expenditure reflects anticipated growth in medical expense claims as well as the enhancement introduced in the 2005 budget (increase in the maximum amount of the supplement from $571 to $750 per year, effective 2005).

²⁹

The Guaranteed Income Supplement (GIS) and Allowance benefits are indexed for inflation by the Consumer Price Index. However, in both its frequency of application and in the months covered, the GIS indexation factor differs from that used for most of the parameters in the personal income tax system. Differences between the indexation factors cause the tax expenditure to grow at a faster or slower rate, in a given year, than if the two elements shared a common indexation factor.

³⁰

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.

³¹

The decline in this tax expenditure in 2001 reflects reductions in tax rates for low-income individuals in the 2000 budget and the October 2000 Economic Statement and Budget Update.

³²

Beginning in 2006, the Canadian Income Support Benefit will be established for eligible low-income veterans. Estimates and projections are based on data received from Veterans Affairs Canada.

³³

Beginning in 2006, the new Disability Award will replace the veterans’ disability pension for eligible new applicants (current disability pensioners will be grandfathered).

³⁴

Estimates and projections vary from those in last year’s report due to changes in tax rates and estimated/projected levels of registered pension plan/registered retirement savings plan (RPP/RRSP) contributions, investment income and withdrawals. In particular, updated data indicate that RPP/RRSP investment income and RPP contributions were higher in certain years than was previously anticipated, resulting in higher tax expenditure estimates and projections. As well, starting in this year’s report, the foregone tax on RPP and RRSP investment income is calculated by applying separate tax rates to the estimated amount of interest income, dividend income and capital gains (losses) implied by the overall rate of return on RPP/RRSP investments, taking into account the applicable tax treatment of each component. Year-to-year variations in the net tax expenditure estimates can also be sizeable. For example, total RPP/RRSP assets declined in 2002, which significantly lowers the tax expenditure associated with the tax foregone on RPP/RRSP investment income. Since the observed level of RPP and RRSP assets for 2000–2003 is used to determine the rate of return on investment, the tax expenditure will naturally vary from year to year, depending on the derived rate of return. Tax expenditure estimates will be higher in years where assets grow strongly, reflecting the tax foregone on that investment income, and lower in years where assets grow slowly or decline. For years where RPP and RRSP asset growth is projected, the tax expenditure projections are much more stable since a 6.4% nominal annual rate of return is used for those years. This is consistent with the rate of return used to calculate the present-value tax expenditure estimates and projections for RPPs and RRSPs (for more details on the derivation of the rate of return, see the paper "Present-Value Tax Expenditure Estimates of Tax Assistance for Retirement Savings" in the 2001 Tax Expenditures and Evaluations report).

³⁵

The ratio of 1999 RRSP assets reported in Statistics Canada’s Survey of Financial Security (SFS) to 1999 RRSP assets reported in the Statistics Canada publication Pension Plans in Canada is used to adjust RRSP assets for 2000–2004 to reflect the more comprehensive SFS estimate, which includes funds in self-administered plans (the ratio is $408 billion/$268 billion or 1.52).

³⁶

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.

³⁷

The present-value tax expenditure estimates for the 2000–2003 period presented in this year’s report are lower than in last year’s report due to updated estimates of applicable tax rates and adjustments to the methodology that better reflect the effect of all taxes on non-registered investments. These changes have also affected projections for the 2004-2007 period, but are offset by RPP contributions that are higher than previously anticipated in these years.

³⁸

The decline in the tax expenditure for the partial inclusion rate for 2001 reflects the reduction in the capital gains inclusion rate in 2000 from three-quarters to one-half. Projected tax expenditures reflect anticipated increases in home resales and resale housing prices. The estimates and projections for this tax expenditure can vary significantly from year to year. This is primarily the result of unanticipated year-to-year fluctuations in the number of residence resales and in the average price of residences.

³⁹

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

⁴⁰

The 2004 budget replaced the attendant care deduction with a broader disability supports deduction, beginning with the 2004 tax year. The 2005 budget proposed to expand the list of expenses eligible for the disability supports deduction.

⁴¹

Estimates and projections have been updated to reflect market conditions.

⁴²

This includes employee- and employer-paid premiums by and for self-employed workers.

⁴³

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.

⁴⁴

Large increases relative to last year’s projections reflect the availability of new data and higher oil and gas prices.

⁴⁵

This tax expenditure applies to a subset of resource-related deductions. Data are available for 1999 to 2003 on the volume of reclassified shares and are used to calculate the 2000–2002 estimates and the 2003 projection. Due to volatility, the projections for 2004 to 2007 are based on a three-year historical average.

⁴⁶

A number of substantial methodological difficulties call into question the accuracy and utility of estimates and projections 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.

Also, 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.

⁴⁷

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

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