Archived - Tax Expenditures and Evaluations : 3

- Table of Contents - Previous - Next -

Table 2
Corporate Income Tax Expenditures*

	Estimates				Projections1
	2001		2002		2003		2004			2005		2006	2007		2008
	($ millions)
Charities, Gifts and Contributions
Deductibility of charitable donations2	490		295		260		320			360		395	415		405
Deductibility of gifts of cultural property and ecologically sensitive land3	13		26		9		24			9		9	9		9
Deductibility of gifts to the Crown	S		S		S		S			S		S	S		S
Non-taxation of registered charities	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Non-taxation of other non-profit organizations (other than registered charities)	185		175		160		160			145		165	165		185
Political contribution tax credit4	S		S		S		S			S		S	–		–
Culture
Canadian film or video production tax credit	160		155		150		165			175		185	195		205
Non-deductibility of advertising expenses in foreign media	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Federal-Provincial Financing Arrangements
Income tax exemption for provincial and municipal corporations	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Transfer of income tax room to provinces	1,145		1,065		1,210		1,455			1,590		1,730	1,810		1,855
Logging tax credit5	17		22		14		59			36		39	40		42
General Business and Investment
Accelerated write-off of capital assets and resource-related expenditures	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.
Taxation of capital gains upon realization	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Partial inclusion of capital gains6	3,270		2,320		2,465		3,330			3,170		3,370	3,525		3,565
Expensing of advertising costs7	50		-80		30		45			35		35	40		40
Atlantic investment tax credit8
Earned and claimed in current year	110		91		67		120			130		135	145		150
Claimed in current year but earned    in prior years	220		220		85		150			165		180	195		210
Earned in current year but carried    back to prior years	19		7		11		4			11		12	13		14
Total expenditure	349		318		163		274			306		327	353		374
	Estimates				Projections1
	2001		2002		2003		2004			2005		2006	2007		2008
	($ millions)
Scientific research and experimental development investment tax credit
Earned and claimed in current year	1,800		1,860		1,755		1,770			1,755		1,900	2,060		2,235
Claimed in current year but    earned in prior years9	495		480		610		930			1,010		1,095	1,185		1,285
Earned in current year but carried    back to prior years	89		96		88		94			93		95	97		98
Total expenditure	2,384		2,436		2,453		2,794			2,858		3,090	3,342		3,618
Write-off of capital assets before available for use	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Apprenticeship Job Creation Tax Credit10	–		–		–		–			–		145	200		205
Small Business
Deduction of allowable business investment losses11	35		35		25		21			23		28	31		33
Low tax rate for small businesses12	3,650		3,610		3,440		3,305			3,560		3,940	4,250		4,420
Accelerated rate reduction for small businesses13	50		65		35		7			–		–	–		–
Non-taxation of provincial assistance for venture investments in small businesses	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
International
Exemption from Canadian income tax of income earned by non-residents from the operation of a ship or aircraft in international traffic	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Exemption from tax for international banking centres	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Exemptions from non-resident withholding tax14
Dividends	340		325		400		590			505		625	685		720
Interest
On deposits	400		185		135		110			120		120	115		120
On long-term corporate debt	195		170		195		365			260		260	255		260
Other15	220		330		415		260			310		310	305		310
Rents and royalties
Copyright royalties	36		29		43		31			36		38	40		42
Rents and royalties for the use       of, or right to use, other       property	115		125		91		90			105		110	115		125
Research and development       royalties	3		4		S		S			S		S	S		S
Natural resource royalties	S		S		S		S			S		S	S		S
Rents from real property	S		S		S		S			S		S	S		S
Management fees	74		70		64		65			73		76	79		82
Estate or trust income	10		18		4		11			12		13	13		14
	Estimates				Projections1
	2001		2002		2003		2004			2005		2006	2007		2008
	($ millions)
Non-taxation of life insurance companies’ world income	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Tax exemption on income of foreign affiliates of Canadian corporations	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Sectoral Measures
Farming
Cash-basis accounting	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Deferral of income from destruction of livestock	S		S		S		4			S		S	S		S
Deferral of income from grain sold through cash purchase tickets16	-18		14		S		S			14		S	S		S
Flexibility in inventory accounting	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Agricultural cooperatives17	–		–		–		–			–		30	30		30
Resource
Corporate mineral exploration tax credit18	–		–		S		12			21		26	35		46
Deductibility of contributions to a qualifying environmental trust	S		S		S		S			S		S	S		S
Earned depletion19	45		21		14		28			38		38	33		30
Net impact of the resource allowance and the non-deductibility of Crown royalties and mining taxes20	285		360		365		395			420		225	25		–
Tax rate on resource income21	-85		-210		-250		-595			-680		-335	-40		–
Transitional arrangement for the Alberta Royalty Tax Credit22	–		–		S		S			3		5	S		S
Other Sectors
Exemption from branch tax for transportation, communications, and iron ore mining corporations	n.a.		n.a.		n.a.		n.a.			n.a.		n.a.	n.a.		n.a.
Film or video production services tax credit23	81		77		110		115			120		130	135		140
Low tax rate for credit unions24	79		80		69		67			75		82	85		83
Manufacturing and processing allowance25	1,520		1,130		470		75			–		–	–		–
Surtax on the profits of tobacco manufacturers26	-80		-75		-75		-55			-55		n.a.	n.a.		n.a.
	Estimates				Projections1
	2001		2002		2003		2004			2005		2006	2007		2008
	($ millions)
Other Measures
Deductibility of countervailing and anti-dumping duties	n.a.			n.a.		n.a.		n.a.	n.a.		n.a.			n.a.		n.a.
Deductibility of earthquake reserves	7			5		5		5	5		6			6		6
Deferral through use of billed-basis accounting by professional corporations	n.a.			n.a.		n.a.		n.a.	n.a.		n.a.			n.a.		n.a.
Holdback on progress payments to contractors27	20			5		35		40	40		40			40		40
Interest credited to life insurance policies	66			68		76		81	82		85			89		93
Non-taxation of certain federal Crown corporations	n.a.			n.a.		n.a.		n.a.	n.a.		n.a.			n.a.		n.a.
Memorandum Items
Mechanisms for the Integration of Personal and Corporate Income Tax
Investment corporation deduction	S			S		S		S	S		S			S		S
Refundable capital gains for investment corporations and mutual fund corporations28	520			35		55		115	130		135			140		145
Refundable taxes on investment income of private corporations29
Additional Part I tax30	-655			-670		-800		-1,150	-1,285		-1,395			-1,490		-1,590
Part IV tax	-2,105			-1,940		-1,950		-1,965	-2,140		-2,310			-2,465		-2,585
Dividend refund	4,145			3,805		3,265		3,910	4,260		4,600			4,910		5,145
Net expenditure	1,385			1,195		515		795	825		895			955		970
Expenses Incurred to Earn Income
Deduction for intangible assets	n.a.			n.a.		n.a.		n.a.	n.a.		n.a.			n.a.		n.a.
Deductibility of provincial royalties (joint venture payments) for the Syncrude project (remission order)31	n.a.			n.a.		n.a.		–	–		–			–		–
Loss Offset Provisions
Capital loss carry-overs
Net capital losses carried back32	585			1,425		465		210	205		250			285		310
Net capital losses applied to    current year	305			190		320		440	420		445			465		475
Farm and fishing loss carry-overs	22			18		18		23	20		22			23		22
		Estimates			Projections1
		2001	2002		2003		2004			2005		2006	2007		2008
		($ millions)
Non-capital loss carry-overs
Non-capital losses carried back		2,840	2,000		1,900		1,185			1,230		1,415	1,575		1,715
Non-capital losses applied to     current year		2,995	3,385		3,060		3,205			3,190		3,315	3,405		3,280
Other
Non-resident-owned investment corporation refund33		285	420		135		–			–		–	–		–
Partial deduction of meals and entertainment expenses		270	275		280		305			335		370	385		365
Patronage dividend deduction		240	390		330		355			405		440	455		435
* 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

Unless otherwise indicated in the footnotes, changes in the projections from those in last year’s edition of this document as well as variations from year to year result from changes in the explanatory economic variables upon which the projections are based. These changes and variations also reflect the availability of new data and improvements to the methodology used to derive the estimates/projections. Estimates and projections reflect the impact of the reduction in the general corporate income tax rate to 27 per cent on January 1, 2001, 25 per cent on January 1, 2002, 23 per cent on January 1, 2003, 21 per cent on January 1, 2004, and 20.5 per cent on January 1, 2008. The corporate surtax, which raises these rates by 1.12 percentage points, will be eliminated on January 1, 2008.

²

Donations in 2001 were significantly higher than the historical average.

³

The increase observed for 2004 reflects the availability of new information compiled from corporate income tax returns filed for the 2004 tax year.

⁴

The Federal Accountability Act prohibits political contributions from corporations. Accordingly, this tax expenditure will be zero after 2006.

⁵

Increases for 2004 and later years reflect a significant improvement in industry performance in 2004.

⁶

The estimate for 2001 has been revised downward relative to last year to reflect improvements in methodology and the impact of the partial inclusion of capital gains on the value of the refundable capital gains for investment and mutual fund corporations. The lower amount in 2002 reflects an estimated decrease in capital gains as well as the reduction in the corporate income tax rate. For the most part, the lower amounts in 2002 and 2003 are due to a decrease in capital gains resulting from declines in the market value of technology stocks.

⁷

The amount of this tax expenditure can fluctuate significantly from year to year depending on the amount of advertising expenses claimed.

⁸

Cyclical investments in oil and gas projects explain the downward trend from 2001 to 2003.

⁹

The large amounts for 2004 to 2007 relative to last year’s estimates reflect the availability of preliminary data for 2004, which shows a substantial increase in the profitability of large firms engaged in scientific research and experimental development activities allowing them to use credits earned in previous years.

¹⁰

This measure was introduced in the 2006 budget (see the "What’s New in the 2006 Report" section for more details).

¹¹

The amount of this tax expenditure can fluctuate from year to year depending on the amount of current-year losses and the availability of income against which to apply these losses.

¹²

The reduction in the tax expenditure from 2001 to 2004 results from reductions in the benchmark rate. Projections reflect the increase in the amount of income eligible for the small business deduction (from $200,000 in 2002 to $400,000 in 2007) and the decrease in the small business tax rate from 12 per cent in 2007 to 11.5 per cent in 2008, followed by an additional half-point reduction, to 11 per cent, in 2009 announced in the 2006 budget. Methodological improvements have resulted in higher tax expenditures in all years compared to the 2005 publication.

¹³

This measure was announced in the 2000 budget and became effective January 1, 2001. On that date the general federal corporate income tax rate on income between $200,000 and $300,000 earned by a Canadian-controlled private corporation from an active business carried on in Canada was reduced to 21 per cent. The lower rate on the general income of small businesses and the change in the general federal corporate income tax rate effective January 1, 2001, only partially affect the estimate for tax year 2001 since many firms reporting income in the 2001 tax year earned a portion of that income in the 2000 calendar year, before the rate reductions were introduced. Subsequent declines in the tax expenditure are a result of the reduction in the general corporate income tax rate and the increase, announced in the 2003 budget, in the amount of income eligible for the small business deduction. This measure was effectively eliminated on January 1, 2004, when the general corporate income tax rate was reduced to 21 per cent. Some tax expenditure occurs in 2004, however, as many firms reporting income in the 2004 tax year earned a portion of that income in the 2003 calendar year.

¹⁴

Estimates and projections were computed on the basis of an analysis of payments to non-residents and withholding tax collections available for 1997 to 2004. Significant variations from last year's estimates and projections are due mainly to revised and new data, as well as to specific methodological changes that were adopted to address certain deficiencies identified with the data.

¹⁵

This category includes interest paid to non-resident persons or organizations that would be exempt from income tax in Canada were they residents in Canada. Also included is interest paid under certain securities-lending arrangements exempt under subparagraph 212(1)(b)(xii) of the Income Tax Act, and interest exempt under certain other domestic and treaty provisions.

¹⁶

Projections are calculated using a historical average growth rate. Since tax expenditures are estimated on a cash-flow basis, an increase in the balance of uncashed grain tickets represents additional income that is being deferred and results in a positive tax expenditure. A decrease in the balance of uncashed grain tickets indicates that less income is being deferred and results in a negative tax expenditure. The tax expenditure estimates and projections are volatile over time since a small number of corporations are affected in a very specific sector. Estimates and projections are based on data obtained from Statistics Canada.

¹⁷

This measure will apply only to patronage dividends paid after 2005. See the "What’s New in the 2005 Report" section in the 2005 Tax Expenditures and Evaluations publication for further details.

¹⁸

This credit was introduced in the 2003 budget and phased in starting at 5 per cent in 2003, 7 per cent in 2004 and 10 per cent in subsequent years. In the prior years, tax expenditure estimates for this credit were based primarily on exploration estimates. The projections have now been modified to incorporate actual tax collection information for 2003 and 2004. Cost estimates include the value of credits used in the year, whether they were earned in the current year or carried forward from a previous year, and credits carried back to a previous year in the current year’s tax return.

¹⁹

Additions to earned depletion pools were eliminated as of January 1, 1990. Determination of the tax expenditure reflects projected use of the existing earned pools.

²⁰

The tax expenditure is calculated as the revenue cost of the resource allowance net of Crown royalties and provincial mining taxes. Over a five-year period beginning in 2003, the resource allowance is being phased out and a deduction for Crown royalties and mining taxes phased in, so that by 2007, this tax expenditure will be removed. See the technical paper "Improving the Income Taxation of the Resource Sector in Canada" (Department of Finance, March 2003) for further details. Costs for 2007 relate to companies that do not have a December 31 year-end for which the 2007 tax year includes a portion of 2006 activities.

²¹

Budget 2003 announced the extension to resource income of the lower general corporate income tax rate, to be phased in over five years beginning in 2003. Although the rate difference no longer exists in 2007, there are still costs associated with 2006 rates for companies that do not have a December 31 year-end and the 2007 tax year includes some income earned in 2006.

²²

The Alberta government has announced that the Alberta Royalty Tax Credit (ARTC) will be eliminated as of January 1, 2007. Costs for the federal transitional measure will continue into 2007 and 2008 because some credit amounts related to 2006 will only be received in 2007, and for companies that do not have a December 31 year-end, some amounts received in 2007 will fall into their 2008 taxation year.

²³

Projections for 2003 and subsequent years reflect the increase of the rate of the credit from 11 per cent to 16 per cent.

²⁴

The increases from last year’s projections for 2006 and 2007 are due to an increase in the growth rate of taxable income. This tax expenditure also includes credit unions’ deposit insurance corporations, which receive similar tax treatment to credit unions.

²⁵

Although this tax expenditure was eliminated on January 1, 2004, when the general corporate income tax rate was reduced to 21 per cent, many firms reporting income in the 2004 taxation year earned a portion of that income in the 2003 calendar year.

²⁶

The decrease in this tax expenditure after 2003 is due to the decrease in tobacco manufacturers’ profits. For confidentiality reasons, projections for 2006 to 2008 are not published.

²⁷

The amount of this tax expenditure can fluctuate significantly from year to year depending primarily on the level of construction activity. Therefore, it is projected at its historical average.

²⁸

For the most part, the large declines in 2002 and 2003 are due to a decrease in capital gains resulting from declines in the market value of technology stocks.

²⁹

Refundable tax provisions of the corporate income tax system provide some integration of the corporate and personal income tax regimes. For more information about these measures, see the 2004 publication Tax Expenditures: Notes to the Estimates/Projections.

³⁰

This item includes the additional 62⁄3 per cent refundable tax on investment income as well as the Part I tax paid on investment income in excess of the benchmark rate. Increases in this tax expenditure result from the increase in the difference between the Part I tax on investment income and the benchmark rate.

³¹

The cost of the Syncrude Remission Order ("Order Respecting the Remission of Income Tax for the Syncrude Project," P.C. 1976-1026,
May 6, 1976 [C.R.C. 1978, Vol. VII, c. 794]) is published annually in the Public Accounts of Canada (ISBN 0-660-177792-7). The order expired on December 31, 2003.

³²

Large values in 2001 and 2002 reflect, for the most part, the capital losses recorded in these two years resulting from declines in the market value of technology stocks.

³³

This measure was repealed in 2000. To allow for an orderly restructuring of their operations, however, existing non-resident-owned investment corporations were entitled to retain their status until the end of their last tax year that began before 2003.

Table 3
GST Tax Expenditures*

	Estimates				Projections
	2001	2002	2003	2004	2005	2006	2007	2008
	($ millions)
Aboriginal Self-Government
Refunds for Aboriginal self-government1,2	S	S	S	S	S	S	S	S
Business
Exemption3 for domestic financial services	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Exemption for ferry, road and bridge tolls4	5	10	10	5	5	5	5	5
Exemption and rebate for legal aid services	25	25	25	25	30	25	25	30
Non-taxability of certain importations5	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Rebates for foreign visitors6	80	85	85	70	80	70	20	–
Small suppliers’ threshold	155	165	170	180	195	180	160	170
Zero-rating7 of agriculture and fish products and purchases	S	S	S	S	S	S	S	S
Zero-rating of certain purchases made by exporters	S	S	S	S	S	S	S	S
Charities and Non-Profit Organizations
Exemption for certain supplies made by non-profit organizations	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Rebates for registered charities1	240	255	270	280	295	290	280	295
Rebates for non-profit organizations1	60	60	70	70	75	75	70	75
Education
Exemption for education services (tuition)4	395	435	470	505	535	525	515	545
Rebates for book purchases made by qualifying public institutions8	30	30	30	30	30	30	30	35
Rebates for colleges1	80	85	85	80	80	80	80	80
Rebates for schools1	375	380	380	400	420	410	400	420
Rebates for universities1	180	205	240	260	275	270	260	270
Health Care
Exemption for health care services4	325	445	480	505	525	515	510	555
Rebates for hospitals1	390	395	425	465	490	480	465	485
Zero-rating of medical devices4	120	135	145	150	160	155	155	165
Zero-rating of prescription drugs4	430	465	500	535	565	555	545	575
Households
Exemption for child care and personal services4	130	130	130	125	130	130	125	135
GST/HST credit9	3,130	3,250	3,415	3,460	3,545	3,620	3,660	3,720
Zero-rating of basic groceries4	3,270	3,515	3,650	3,800	4,015	3,935	3,855	4,095
	Estimates				Projections
	2001	2002	2003	2004	2005	2006	2007	2008
	($ millions)
Housing
Exemption for sales of used residential housing and other personal-use real property	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Exemption for residential rent (long-term)4	1,275	1,355	1,420	1,445	1,515	1,490	1,465	1,565
Rebates for new housing10	640	785	835	925	990	1,015	970	1,050
Rebates for new residential rental property	40	45	50	60	60	65	60	60
Municipalities
Exemption for municipal transit4	85	105	105	160	170	165	165	175
Exemption for water and basic garbage collection services4	160	180	185	230	245	240	235	250
Rebates for municipalities1,11	700	725	805	1,435	1,510	1,480	1,435	1,500
Memorandum Items
Recognition of Expenses Incurred to Earn Income
Rebates to employees and partners12	105	105	115	115	120	110	100	105
Other
Exemption for quick method accounting	200	205	215	230	245	240	230	245
Partial input tax credits for meals and entertainment expenses13	120	125	135	160	180	170	155	155
* 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 public sector body rebates are based on Canada Revenue Agency administrative data for the years up to and including 2004. The projections are based on the National GST Model of the Department of Finance.

²

These refunds are paid to Aboriginal governments that have an agreement providing for a GST/HST (harmonized sales tax) refund for goods and services acquired for self-government activities.

³

Final consumers and businesses pay no tax on exempt goods and services. Vendors, however, are not entitled to claim input tax credits to recover the GST/HST paid on inputs to these products.

⁴

The National GST Model used to generate these estimates is based on the 2002 national input-output tables from Statistics Canada and the latest release of the National Income and Expenditure Accounts.

⁵

Certain importations are tax-free including, for example, duty-free personal importations by Canadian travellers.

⁶

The Visitor Rebate Program is proposed to be eliminated effective April 1, 2007.

⁷

Final consumers and businesses pay no tax on zero-rated goods and services. Vendors of zero-rated products are entitled to claim input tax credits to recover the GST/HST paid on inputs to these products.

⁸

Book rebates are now taken directly from administrative data for 2001 to 2004.

⁹

Based on personal income tax data.

¹⁰

Estimates for the housing rebate are based on information provided by Statistics Canada.

¹¹

The rebate rate for municipalities increased from 57.14 per cent to 100 per cent effective February 1, 2004.

¹²

This item includes the apprentice vehicle mechanics’ tools deduction.

¹³

Based on tax expenditure estimates and projections reported for the personal and corporate income tax systems.

- Table of Contents - Previous - Next -