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Table 1
Personal Income Tax Expenditures*

		Estimates					Projections
		2001		2002	2003		2004	2005		2006	2007	2008
	($ millions)
Charities, Gifts and Contributions
Charitable donations credit		1,490		1,580	1,825		1,965	1,925		1,990	2,025	2,055
Reduced inclusion rate for capital gains arising from donations of publicly listed securities and ecologically sensitive land1		6		3	6		8	10		26	29	29
Non-taxation of capital gains on gifts of cultural property2		6		3	14		7	3		4	4	4
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		8		9	11		19	16		14	10	11
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	5
Apprentice vehicle mechanics’ tools deduction		–		10	10		10	10		10	10	10
Education tax credit4		260		250	235		235	215		220	220	220
Tuition tax credit		275		275	270		275	260		260	265	270
Textbook tax credit5		–		–	–		–	–		80	82	83
Education and tuition tax credits carried forward from prior years6		170		245	290		290	270		265	285	310
Transfer of education and tuition tax credits7		390		420	440		455	435		485	500	505
Partial exemption of scholarship, fellowship and bursary income8		14		13	11		11	10		38	38	39
Registered education savings plans9,10		96		110	130		150	145		175	215	285
Student loan interest tax credit		66		59	63		65	62		65	67	69
Employment
Canada Employment Credit		–		–	–		–	–		439	1,805	1,881
Deduction for income earned by military and police deployed to high-risk international missions		–		–	–		30	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 options11		650		415	480		730	540		565	595	625
		Estimates					Projections
		2001		2002	2003		2004	2005		2006	2007	2008
	($ millions)
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		125		130	135		135	135		135	135	140
Overseas employment credit		57		62	58		59	60		60	61	62
Tax-free amount for emergency service volunteers		14		14	14		14	14		14	14	14
Tradespeople’s tool expenses		–		–	–		–	–		15	15	15
Family
Adoption expense tax credit12		–		–	–		–	5		5	5	5
Caregiver credit		57		65	73		80	77		81	85	85
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 credit		6		6	6		6	6		6	6	7
Spouse or common-law partner credit13,14		1,165		1,180	1,190		1,245	1,290		1,325	1,330	1,415
Eligible dependant credit13,14		610		630	660		680	680		710	730	755
Farming and Fishing
$500,000 lifetime capital gains exemption for farm/fishing property15		215		255	240		240	245		310	315	320
Cash-basis accounting		n.a.		n.a.	n.a.		n.a.	n.a.		n.a.	n.a.	n.a.
Deferral of capital gains through intergenerational rollovers of family farms and commercial woodlots		n.a.		n.a.	n.a.		n.a.	n.a.		n.a.	n.a.	n.a.
Deferral of income from destruction of livestock16		3		S	S		9	-9		S	S	S
Deferral of income from sale of livestock during drought years		n.a.		n.a.	n.a.		n.a.	n.a.		n.a.	n.a.	n.a.
Deferral of income from grain sold through cash purchase tickets17		-26		21	S		S	25		7	8	9
Deferral through 10-year capital gain reserve		S		S	S		S	S		S	S	S
Exemption from making quarterly tax instalments		n.a.		n.a.	n.a.		n.a.	n.a.		n.a.	n.a.	n.a.
Flexibility in inventory accounting		n.a.		n.a.	n.a.		n.a.	n.a.		n.a.	n.a.	n.a.
Tax treatment of the Net Income Stabilization Account18
Deferral of tax on    government contributions		66		170	45		S	S		S	S	S
Deferral of tax on bonus    and interest income		31		26	22		21	7		S	S	S
Taxable withdrawals		-76		-105	-98		-180	-155		-8	S	S
		Estimates					Projections
		2001		2002	2003		2004	2005		2006	2007	2008
	($ millions)
Federal-Provincial Financing Arrangements
Logging tax credit	S		S			S	S		S	S	S	S
Quebec abatement	2,965		3,050			3,215	3,350		3,565	3,465	3,715	3,905
Transfer of income tax points to provinces	13,555		13,585			14,235	14,930		16,010	15,565	16,680	17,530
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	20		31			16	16		16	17	17	17
Investment tax credits	33		36			43	43		44	45	45	46
Mineral exploration tax credit for flow-through share investors20	12		25			45	49		68	56	-8	-4
Partial inclusion of capital gains21	1,985		1,665			2,040	2,795		2,935	3,080	3,235	3,395
Taxation of capital gains upon realization22	n.a.		n.a.			n.a.	n.a.		n.a.	n.a.	n.a.	n.a.
Small Business
$500,000 lifetime capital gains exemption for small business shares	345		305			305	305		310	315	325	330
Deduction of allowable business investment losses	41		43			29	33		38	40	40	40
Deferral through 10-year capital gain reserve	S		S			S	S		S	S	S	S
Labour-sponsored venture capital corporations credit23	215		180			160	150		150	150	150	150
Rollovers of investments in small businesses	6		3			4	10		10	10	10	10
Health
Children’s fitness tax credit	–		–			–	–		–	–	160	165
Disability tax credit24	330		350			365	380		425	440	465	475
Medical expense tax credit25	570		635			700	765		760	825	925	995
Non-taxation of business-paid health and dental benefits	1,710		1,875			2,010	2,165		2,255	2,430	2,595	2,760
Refundable medical expense supplement26	55		64			68	73		87	100	105	110
		Estimates					Projections
		2001		2002	2003		2004	2005		2006	2007	2008
	($ millions)
Income Maintenance and Retirement
Age credit27	1,320		1,355			1,440	1,505		1,400	1,760	1,885	1,935
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			17	18		17	18	19	20
Non-taxation of Guaranteed Income Supplement and Allowance benefits28	265		265			295	290		240	245	270	270
Non-taxation of investment income on life insurance policies29	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 benefits30	245		225			220	205		155	150	145	130
Non-taxation of up to $10,000 of death benefits	n.a.		n.a.			n.a.	n.a.		n.a.	n.a.	n.a.	n.a.
Non-taxation of veterans’ allowances, income support benefits, civilian war pensions and allowances, and other service pensions (including those from Allied countries)31	5		4			3	3		S	S	S	S
Non-taxation of veterans’ disability pensions and support for dependants32	135		140			145	150		140	150	150	145
Non-taxation of veterans’ disability award33	–		–			–	–		–	–	14	18
Non-taxation of workers’ compensation benefits	650		700			630	655		650	695	750	790
Pension income credit34	405		415			430	435		405	800	840	855
Pension income splitting35	–		–			–	–		–	–	650	685
Registered pension plans36
Deduction for contributions	4,575		5,325			6,615	8,270		8,395	8,700	9,015	9,325
Non-taxation of investment    income	2,785		335			11,465	9,630		10,215	10,670	11,405	12,165
Taxation of withdrawals	-6,415		-6,670			-6,905	-7,140		-7,235	-7,560	-8,055	-8,495
Net tax expenditure	945		-1,010			11,175	10,760		11,375	11,810	12,365	12,995
Registered retirement savings plans36
Deduction for contributions	6,225		5,915			6,000	6,655		7,030	7,520	8,030	8,555
Non-taxation of investment    income37	1,280		17			6,300	4,995		5,360	5,645	6,115	6,610
Taxation of withdrawals	-3,465		-3,510			-3,670	-4,050		-4,285	-4,720	-5,275	-5,855
Net tax expenditure	4,040		2,425			8,630	7,600		8,110	8,445	8,870	9,310
Supplementary information:
Present value of tax assistance for retirement savings plans38,39	5,670		5,850			6,820	8,040		8,490	8,990	9,380	9,850
Saskatchewan Pension Plan	S		S			S	S		S	S	S	S
Treatment of alimony and maintenance payments	115		115			115	105		105	105	105	105
		Estimates					Projections
		2001		2002	2003		2004	2005		2006	2007	2008
	($ millions)
Other Items
Deduction related to vows of perpetual poverty	S		S			S	S		S	S	S	S
Deduction for clergy residence	67		74			70	71		71	72	74	75
Non-taxation of capital gains on principal residences40
Partial inclusion rate	885		1,405			1,830	2,500		3,260	3,325	3,390	3,460
Full inclusion rate	1,770		2,810			3,655	5,000		6,525	6,655	6,780	6,920
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
Tax credit for public transit passes	–		–			–	–		–	98	212	228
Memorandum Items
Avoidance of Double taxation
Dividend gross-up and credit41	1,215		1,260			1,330	1,535		1,680	2,065	2,165	2,260
Foreign tax credit	635		665			580	590		595	605	615	620
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 deduction42	530		535			535	535		500	605	695	700
Deduction of carrying charges incurred to earn income	825		730			725	730		745	815	950	1,080
Deduction of union and professional dues	550		575			600	605		625	650	670	690
Disability supports deduction (attendant care deduction)43	S		S			S	5		5	8	10	12
Moving expense deduction	81		88			82	83		84	87	89	91
Loss Offset Provisions
Capital loss carry-overs44	86		91			165	255		200	150	150	150
Farm and fishing loss carry-overs	16		15			10	9		9	10	10	10
Non-capital loss carry-overs	78		82			62	63		62	64	66	68
Social and Employment Insurance Programs
Canada Pension Plan and Quebec Pension Plan45
Employee-paid    contribution credit	1,980		2,245			2,455	2,545		2,455	2,615	2,750	2,840
Non-taxation of    employer-paid premiums46	2,975		3,400			3,730	3,795		3,875	4,085	4,265	4,420
Employment insurance
Employment insurance    contribution credit	1,085		1,075			1,050	1,010		950	945	980	1,000
Non-taxation of    employer-paid premiums	2,160		2,140			2,085	1,975		1,960	1,935	1,985	2,025
		Estimates					Projections
		2001		2002	2003		2004	2005		2006	2007	2008
	($ millions)
Other
Basic personal amount14	20,475		21,105			21,705	22,665		23,010	24,095	24,970	26,285
Deduction of farm losses for part-time farmers	60		61			61	58		60	63	63	63
Deduction of other employment expenses	735		775			825	835		860	890	915	945
Deduction of resource-related expenditures	155		175			270	365		480	515	500	495
Reclassification of flow-through shares47	33		31			35	54		77	84	80	78
Non-taxation of lottery and gambling winnings48	n.a.		n.a.			n.a.	n.a.		n.a.	n.a.	n.a.	n.a.
Non-taxation of allowances for diplomats, military and other government employees posted abroad	9		10			10	9		9	9	9	9
Partial deduction of meals and entertainment expenses	85		72			76	75		75	77	78	79
* 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 website (www.fin.gc.ca), for a discussion of the reasons for this. [Return]

Notes:

¹

The increase in the tax expenditure in 2006 and later years reflects the reduction in the capital gains inclusion rate on qualifying donations from one-half to zero in 2006. 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 publicly 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 $29 million between 2001 and 2008. If, on the other hand, all donations of publicly 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 $31 million to $125 million between 2001 and 2008, as shown below (in millions of dollars):

2001	2002	2003	2004	2005	2006	2007	2008
45	31	46	68	74	123	125	125

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

²

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 the 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 $14 million between 2001 and 2008. 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 $73 million over the period 2001 to 2008, as shown below (in millions of dollars):

2001	2002	2003	2004	2005	2006	2007	2008
31	18	73	35	17	20	21	21

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

³

The projected increase in the tax expenditure for 2004 reflects both the impact of the 38th general 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. The continuing high levels for the tax expenditure in 2005 and 2006 reflect the fact that contributions in respect of the 39th general election were spread over the two calendar years.

⁴

The tax expenditure amount is the credit amount earned and claimed in the year. The 2001 budget introduced a measure extending the education tax 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 tax 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

This new measure provides $65 per month for full-time students, and $20 per month for part-time students, in textbook tax credit amounts. Students receive a credit on these amounts in recognition of the costs of post-secondary textbooks.

⁶

For a given year, the tax expenditure represents the value of education and tuition tax credits earned in past years, and used in that year. The tax expenditure does not include the pool of unused education and tuition tax credits that have been accumulated but will be deferred for use in future years. For example, in taxation year 2006 it is projected that taxpayers will defer $40 million of education and tuition tax credits accumulated in past years, for use in 2007 and future tax years. In addition, the tax expenditure for the carry-forward for 2007 and beyond increases substantially due to the impact of the textbook tax credit and the full exemption of scholarship and bursary income, which were introduced in Budget 2006.

⁷

The tax expenditure for the transfer of education and tuition tax credits for 2006 and beyond increases substantially due to the impact of the textbook tax credit and the full exemption of scholarship and bursary income, which were introduced in Budget 2006.

⁸

The tax expenditure equals the tax revenue forgone from exempting scholarship, fellowship and bursary income from tax. Budget 2006 introduced a measure that makes all amounts received for post-secondary scholarships, fellowships and bursaries exempt from tax, where these amounts are received in connection with enrolment in a program for which the student can claim the education tax credit. Previously, the first $3,000 of these amounts were exempt from income tax. All other scholarships and bursaries receive a tax exemption on the first $500. In addition, a change in methodology has resulted in revised figures for tax years 2001 to 2005.

⁹

The tax expenditure equals the tax revenue forgone on the tax-sheltered income earned on registered education savings plan (RESP) assets, minus the revenue from taxing withdrawals of income (as an education assistance payment or accumulated income payment) from RESPs. The costs have changed significantly due to revised administrative data from Human Resources and Social Development Canada on education assistance payments received.

¹⁰

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

¹¹

Poor market conditions led to decreased demand for stock options in 2002 and to a lesser extent 2003. Preliminary data indicates that the improved market conditions in 2004 resulted in increased use of stock option plans for that year. Projections for 2004 and subsequent years reflect an assumption of reduced market volatility and reduced take-up due to changes to the accounting treatment of employee stock options.

¹²

This measure was introduced in the 2005 budget.

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 correspondingly increased the amount for a dependent spouse or common-law partner and an eligible dependant.

¹⁵

Budget 2006 extended the lifetime capital gains exemption available on the disposition of farm property and small business shares to qualified fishers, effective May 2, 2006. Projections have been revised to reflect this change.

¹⁶

The projected tax expenditure for 2004 is 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 and projections are based on Statistics Canada data available up to 2005, which includes cash purchase tickets for wheat, barley, oats, canola, flax and rye. Projections after 2005 are calculated using a historical average growth rate.

¹⁸

The data for the Net Income Stabilization Account (NISA) program is observed up to 2004. Since the Canadian Agricultural Income Stabilization (CAIS) program has replaced NISA, tax expenditure projections reflect wind-down provisions that require that 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 projections have been revised to reflect recent data and the reintroduction of the credit for the period from May 2, 2006 to March 31, 2007. The negative figures for 2007 and 2008 reflect the inclusion in income for those years of an amount equal to the credit claimed in the previous year (e.g. credit claimed in 2006 included in 2007 income). 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 estimates and projections 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 projections of this tax expenditure for 2004 and 2005 are based on preliminary information showing reduced sales of shares of labour-sponsored venture capital corporations for those years. Projections assume sales remain constant after 2005.

²⁴

The 2005 budget extended eligibility for the disability tax credit (DTC) to individuals who face multiple restrictions that together have a substantial impact on their everyday lives, and amended the DTC to ensure that more individuals requiring extensive life-sustaining therapy on an ongoing basis are eligible.

²⁵

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.

²⁶

The increase in the projected tax expenditure reflects anticipated growth in medical expense claims as well as enhancements announced in the 2005 and 2006 budgets. Specifically, the 2005 budget increased the maximum amount of the supplement from $571 to $750 per year, effective 2005, and the 2006 budget subsequently increased the maximum amount from $767 to $1,000, effective 2006.

²⁷

The Tax Fairness Plan increased the age credit amount, a credit that provides tax relief to low- and middle-income seniors, by $1,000 from $4,066 to $5,066. This increase is effective for the 2006 and subsequent taxation years.

²⁸

The Guaranteed Income Supplement (GIS) and Allowance benefits are indexed to Consumer Price Index inflation. 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.

²⁹

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 for estimates and projections of this tax expenditure.

³⁰

The decline in this tax expenditure reflects increases in the basic personal amount and reductions in the lowest personal income tax rate implemented in the 2000 budget, the 2000 Economic Statement and Budget Update, the 2005 Economic and Fiscal Update and the 2006 budget.

³¹

Estimates are based on data received from Veterans Affairs Canada. As part of the New Veterans Charter, in 2006, the Canadian Forces Income Support Benefit will be established for eligible low-income veterans.

³²

As of 2006, the new disability award has replaced the veterans’ disability pension for eligible new applicants (current disability pensioners will be grandfathered). Thus, beginning in 2007, tax expenditures are expected to decrease.

³³

As of 2006, the new disability award has replaced the veterans’ disability pension for eligible new applicants (current disability pensioners will be grandfathered)

³⁴

The 2006 budget increased the maximum amount that can be claimed under the pension income credit to $2,000 from $1,000 for the 2006 and subsequent tax years.

³⁵

The October 31, 2006, Tax Fairness Plan proposes to allow pension income splitting commencing in 2007. The measure will allow any Canadian resident who receives qualifying pension income to allocate to their resident spouse or common-law partner up to one-half of that income.

³⁶

Estimates and projections vary from those in last year’s report due to changes in tax rates and projected levels of contributions, assets and withdrawals. Observed levels of registered pension plan (RPP) and registered retirement savings plan (RRSP) assets for 2001 to 2004 are used to determine the rate of return on investment, and as such, the tax expenditure will naturally vary from year to year, depending on the derived rate of return. Tax expenditures will be higher in years when assets grow strongly, reflecting the tax forgone on investment income, and lower in years when 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-per-cent 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 2001 Tax Expenditures and Evaluations report).

³⁷

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 2001 to 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).

³⁸

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 Tax Expenditures and Evaluations report.

³⁹

The present-value tax expenditure estimates and projections presented in this year’s report are lower than in last year’s report due to updated estimates of applicable tax rates, which take into account the enhanced gross-up and tax credit for dividends paid by large corporations that will apply as of 2006, and changes in projected RPP/RRSP contribution levels.

⁴⁰

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, primarily due to unanticipated year-to-year fluctuations in the number of residence resales and in the average price of residences.

⁴¹

Budget 2006 introduced an enhanced gross-up and dividend tax credit for eligible dividends (generally those paid by large corporations) after 2005.

⁴²

Formerly, some families with young children who claimed little or no child care expenses were eligible to receive the Canada Child Tax Benefit (CCTB) under-7 supplement. Thus, the value of the tax expenditure was partially offset by the increase in the CCTB under-7 supplement that would follow any decrease in the amount of child care expenses claimed. The increase in the tax expenditure in 2006 and later years reflects the phase-out of the CCTB under-7 supplement as of June 30, 2006, for children under the age of 6, and June 30, 2007, for 6-year-old children.

⁴³

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

⁴⁴

Projections have been revised to reflect market conditions.

⁴⁵

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

⁴⁶

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.

⁴⁷

This tax expenditure applies to a subset of resource-related deductions. Data are available for 2001 to 2003 on the volume of reclassified shares and are used to calculate these estimates. Projections are based on forecast growth rates in the oil and gas industry.

⁴⁸

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-governmental 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.

Another important point to note 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.

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