Archived - Tax Expenditures and Evaluations 2007 : 2

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Table 1
Personal Income Tax Expenditures*

	Estimates			Projections
	2002	2003	2004	2005	2006	2007	2008	2009
	($ millions)
Charities, Gifts and Contributions
Charitable donations credit	1,580	1,825	2,000	2,180	2,380	2,495	2,585	2,640
Reduced inclusion rate for capital gains   arising from donations of publicly listed   securities and ecologically sensitive land1	5	6	10	10	28	47	47	47
Non-taxation of capital gains on gifts   of cultural property2	4	15	6	3	4	5	5	5
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	9	11	22	22	22	12	12	22
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	5
Apprentice vehicle mechanics’ tools deduction	10	10	10	10	10	10	10	10
Education tax credit4	250	235	240	220	225	200	210	210
Tuition tax credit4	275	270	290	275	275	255	270	280
Textbook tax credit4,5	–	–	–	–	80	80	81	83
Education, tuition and textbook tax credits   carried forward from prior years6	245	290	345	315	320	320	385	425
Transfer of education, tuition and textbook   tax credits7	420	440	460	440	490	480	490	495
Partial exemption of scholarship, fellowship   and bursary income8	13	11	11	10	38	38	38	39
Registered education savings plans9	110	130	150	145	165	180	225	295
Student loan interest tax credit	59	63	58	56	59	57	59	61
Employment
Canada Employment Credit10	–	–	–	–	465	1,775	1,845	1,900
Deduction for income earned by military   and police deployed to high-risk   international missions11	–	–	26	24	30	34	35	36
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 options12	415	480	725	925	1,050	1,070	1,090	1,110
Non-taxation of certain non-monetary   employment benefits	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
	Estimates			Projections
	2002	2003	2004	2005	2006	2007	2008	2009
	($ millions)
Non-taxation of strike pay	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Northern residents deduction	130	135	135	135	135	135	140	145
Overseas employment credit	50	50	50	55	55	55	55	55
Tax-free amount for emergency   service volunteers	14	14	14	14	14	14	14	14
Deduction for tradespeople’s tool expenses13	–	–	–	–	15	15	15	15
Working Income Tax Benefit14	–	–	–	–	–	555	555	560
Family
Adoption expense tax credit15	–	–	–	5	5	5	5	5
Caregiver credit	65	73	79	75	80	75	80	80
Child tax credit16	–	–	–	–	–	1,380	1,420	1,450
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	6
Spouse or common-law partner credit17	1,180	1,190	1,195	1,235	1,265	1,320	1,340	1,440
Eligible dependant credit18	630	660	665	670	700	755	770	810
Farming and Fishing
Lifetime capital gains exemption   for farm/fishing property19	255	240	255	275	330	375	390	410
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 livestock20	S	S	10	-9	S	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 tickets21	21	S	S	24	-10	6	6	3
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 Account22
Deferral of tax on government contributions	170	45	S	S	S	S	S	S
Deferral of tax on bonus and interest income	26	22	21	7	S	S	S	S
Taxable withdrawals	-105	-98	-180	-155	-8	S	S	S
Federal-Provincial Financing Arrangements
Logging tax credit	S	S	S	S	S	S	S	S
Quebec abatement	3,050	3,215	3,345	3,405	3,615	3,800	3,945	4,170
Transfer of income tax points to provinces	13,585	14,235	14,980	15,935	16,965	17,820	18,520	19,565
	Estimates			Projections
	2002	2003	2004	2005	2006	2007	2008	2009
	($ millions)
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.
$1,000 capital gains exemption on   personal-use property	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deduction of accelerated capital   cost allowance	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral through use of billed-basis   accounting by professionals	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral through capital gains rollovers	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral through five-year capital gain reserve	31	20	23	23	24	22	21	21
Investment tax credits	36	43	55	55	56	57	58	59
Mineral exploration tax credit for      flow-through share investors23	25	45	51	71	67	96	-16	-5
Partial inclusion of capital gains24	1,665	2,040	2,840	3,975	4,965	5,060	5,165	5,270
Taxation of capital gains upon realization	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Small Business
Lifetime capital gains exemption   for small business shares19	305	305	380	405	425	490	510	530
Deduction of allowable business   investment losses	43	29	33	39	41	40	40	40
Deferral through 10-year capital gain reserve	S	S	S	S	S	S	S	S
Labour-sponsored venture capital   corporations credit25	180	160	150	125	120	120	120	120
Rollovers of investments in small businesses	3	4	4	5	5	4	4	4
Health
Children’s fitness tax credit26	–	–	–	–	–	155	160	165
Disability tax credit27	350	365	390	420	430	420	435	445
Medical expense tax credit28	635	700	795	815	855	870	945	1,005
Non-taxation of business-paid health   and dental benefits	1,875	2,010	2,155	2,135	2,310	2,480	2,605	2,725
Refundable medical expense supplement29	64	68	76	90	105	110	115	120
Income Maintenance and Retirement
Age credit30	1,360	1,440	1,490	1,385	1,745	1,690	1,800	1,840
Deferred profit-sharing plans	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of certain amounts received   as damages in respect of personal   injury or death	10	12	13	13	14	15	16	17
Non-taxation of Guaranteed Income    Supplement and Allowance benefits31	265	295	295	240	175	140	160	150
	Estimates			Projections
	2002	2003	2004	2005	2006	2007	2008	2009
	($ millions)
Non-taxation of investment income   on life insurance policies32	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 benefits33	225	220	205	155	145	83	86	75
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)34	4	4	3	3	S	S	S	S
Non-taxation of veterans’ disability pensions   and support for dependants35	140	145	150	140	150	160	165	165
Non-taxation of veterans’ Disability Award35	–	–	–	–	–	14	18	17
Non-taxation of workers’ compensation benefits	700	630	630	635	685	685	740	795
Registered Disability Savings Plan36	–	–	–	–	–	–	S	S
Pension income credit37	415	430	440	410	790	895	930	945
Pension income splitting38	–	–	–	–	–	665	700	730
Registered pension plans39
Deduction for contributions	5,325	6,615	7,740	8,415	9,420	9,750	10,100	10,455
Non-taxation of investment income	5,060	7,525	10,385	12,465	13,700	13,975	14,250	14,535
Taxation of withdrawals	-6,370	-6,575	-7,090	-7,180	-7,360	-6,770	-7,095	-7,370
Net tax expenditure	4,015	7,560	11,030	13,700	15,755	16,950	17,255	17,620
Registered retirement savings plans39
Deduction for contributions	5,915	6,000	6,410	6,760	7,230	7,705	8,210	8,740
Non-taxation of investment income	2,345	4,075	5,785	7,160	7,915	8,072	8,235	8,400
Taxation of withdrawals	-3,510	-3,670	-4,010	-4,155	-4,405	-4,545	-4,855	-5,155
Net tax expenditure	4,755	6,410	8,190	9,765	10,740	11,235	11,595	11,985
Supplementary information:   Present value of tax assistance for   retirement savings plans40	5,850	6,820	7,450	8,340	9,250	10,100	10,620	11,210
Saskatchewan Pension Plan	S	S	S	S	S	S	S	S
Treatment of alimony and maintenance  payments	115	115	105	105	105	110	110	105
Other Items
Deduction related to vows of perpetual poverty	S	S	S	S	S	S	S	S
Deduction for clergy residence	74	70	67	68	69	69	71	73
Non-taxation of capital gains on principal residences41
Partial inclusion rate	1,405	1,830	2,605	3,405	4,000	4,200	4,285	4,370
Full inclusion rate	2,810	3,655	5,210	6,805	8,000	8,400	8,570	8,740
	Estimates			Projections
	2002	2003	2004	2005	2006	2007	2008	2009
	($ millions)
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
Public transit tax credit42	–	–	–	–	100	210	240	255
Memorandum Items
Avoidance of Double Taxation
Dividend gross-up and tax credit43	1,260	1,330	1,480	1,695	2,185	2,280	2,380	2,445
Foreign tax credit	665	580	615	625	635	640	655	665
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 deduction44	535	535	570	570	735	770	780	790
Deduction of carrying charges incurred   to earn income	730	725	775	870	1,060	1,105	1,160	1,225
Deduction of union and professional dues	575	600	615	635	660	680	705	725
Disability supports deduction   (attendant care deduction)45	S	S	S	5	5	8	10	12
Moving expense deduction	88	82	88	90	93	95	98	100
Loss Offset Provisions
Capital loss carry-overs46	91	165	250	300	330	330	340	345
Farm and fishing loss carry-overs	15	10	14	14	14	14	14	14
Non-capital loss carry-overs	82	62	62	62	63	63	65	66
Social and Employment Insurance Programs
Canada Pension Plan and Québec Pension Plan
Employee-paid contribution credit	2,245	2,455	2,570	2,505	2,670	2,720	2,855	2,975
Non-taxation of employer-paid premiums47	3,400	3,730	3,835	3,950	4,175	4,420	4,605	4,810
Employment Insurance
Employment Insurance contribution credit	1,075	1,050	1,020	965	930	900	900	935
Non-taxation of employer-paid premiums	2,140	2,085	1,990	1,990	1,900	1,895	1,965	1,985
Other
Basic personal amount48	21,085	21,705	22,860	23,275	24,205	25,480	25,975	27,575
Deduction of farm losses for   part-time farmers	61	61	59	57	58	59	60	61
Deduction of other employment expenses	775	825	870	900	935	965	995	1,025
Deduction of resource-related expenditures	175	270	370	415	485	485	485	485
	Estimates			Projections
	2002	2003	2004	2005	2006	2007	2008	2009
	($ millions)
Reclassification of flow-through shares49	31	35	54	53	56	48	48	48
Non-taxation of lottery and gambling winnings50	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	10	10	9	9	9	9	9	9
Partial deduction of meals and   entertainment expenses51	72	76	62	62	63	81	91	100
* 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 reflects the elimination in that year of capital gains tax on donations to public charities of both publicly listed securities and ecogifts. The further increase in 2007 reflects Budget 2007’s announcement of an extension to private foundations of the elimination of capital gains tax on donations of listed securities. 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 $5 million to $47 million between 2002 and 2009. 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 $37 million to $205 million between 2002 and 2009, as shown below (in millions of dollars):

2002	2003	2004	2005	2006	2007	2008	2009
37	50	82	74	122	205	205	205

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 $15 million between 2002 and 2009. 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 $13 million to $77 million between 2002 and 2009, as shown below (in millions of dollars):

2002	2003	2004	2005	2006	2007	2008	2009
22	77	29	13	23	25	25	25

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

³

The increase in the tax expenditure in 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 39^th general election were spread over the two calendar years. It is assumed that the next general election will be held in October 2009, the fixed date established by legislation.

⁴

This tax expenditure relates to amounts earned in the year and claimed by the student himself or herself (i.e. neither transferred nor carried forward).

⁵

This measure was introduced in Budget 2006, effective 2006.

⁶

For a given year, the tax expenditure represents the value of education, tuition and textbook tax credits earned in past years, and used in that year. The tax expenditure does not include the pool of unused education, tuition and textbook tax credits that have been accumulated but will be deferred for use in future years. For example, in taxation year 2007, it is projected that taxpayers will defer $42 million of education, tuition and textbook tax credits (tax value) accumulated in past years, for use in 2008 and future taxation 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, fellowship and bursary income, which were introduced in Budget 2006.

⁷

The tax expenditure for the transfer of education, tuition and textbook tax credits for 2006 and beyond increases substantially due to the impact of the textbook tax credit and the full exemption of scholarship, fellowship 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. Budget 2007 extended this treatment to elementary and secondary school students, effective 2007. All other scholarships, fellowships and bursaries receive a tax exemption on the first $500.

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 educational assistance payment or accumulated income payment) from RESPs. Projections are lower than in last year’s report due to revised administrative data from Human Resources and Social Development Canada. The projections also include the impact of the Budget 2007 announcement of an enhancement of RESPs, effective 2007 (see the "What’s New in the 2007 Report" section for details).

¹⁰

This measure was introduced in Budget 2006. Because this measure started in July 2006, the maximum amount on which the credit is calculated for the 2006 taxation year was $250. For 2007, the maximum amount on which the credit is calculated is increased to $1,000. This maximum amount will be indexed in subsequent years.

¹¹

This measure was introduced in Budget 2004, effective 2004. In prior years’ publications, tax expenditure estimates for this credit were based on the original cost estimate for the measure. As of this publication, the estimate for 2004 is based on actual tax information and projections have been modified to incorporate actual tax information and detailed administrative data supplied by the Department of National Defence. This tax expenditure declined in 2005, largely as a result of the reduction in the Canadian component of the NATO-led Stabilization Force (SFOR) mission in Bosnia-Herzegovina. The growth in the Canadian Forces presence in Afghanistan is largely responsible for the tax expenditure increase for 2006 and beyond.

¹²

In last year’s report, this tax expenditure was projected to decline from 2004 to 2005, partly due to expectations that changes to the accounting treatment of stock options starting in 2005 would have resulted in a reduced use of this form of compensation. However, tax return data indicate that this tax expenditure increased in 2005 and again in 2006.

¹³

This measure was introduced in Budget 2006, effective May 2, 2006.

¹⁴

This measure was announced in Budget 2007, effective 2007 (see the "What’s New in the 2007 Report" section for details).

¹⁵

This measure was introduced in Budget 2005, effective 2005.

¹⁶

This measure was announced in Budget 2007, effective 2007 (see the "What’s New in the 2007 Report" section for details).

¹⁷

Budget 2007 and the 2007 Economic Statement enhanced the spouse or common-law partner credit, effective 2007 (see the "What’s New in the 2007 Report" section for details). At the same time, however, pension income splitting reduces the value of this credit starting in 2007 (see footnote 38 for details). Also, Universal Child Care Benefit (UCCB) payments are included in the net income of the lower-income spouse or common-law partner, thus reducing the value of this credit. UCCB payments started in July 2006, and 2007 is the first full year for these payments.

¹⁸

Budget 2007 enhanced the eligible dependant credit, effective 2007 (see the "What’s New in the 2007 Report" section for details).

¹⁹

Budget 2006 extended the lifetime capital gains exemption (LCGE) to qualifying fishing property, effective May 2, 2006. Budget 2007 increased the LCGE to $750,000 from $500,000, effective March 19, 2007 (see the "What’s New in the 2007 Report" section).

²⁰

The tax expenditure in 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 is reported in 2005, resulting in a negative tax expenditure for that year.

²¹

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.

²²

The data for the Net Income Stabilization Account (NISA) program are observed values up to 2004. Since the Canadian Agricultural Income Stabilization (CAIS) program has replaced NISA, tax expenditure projections reflect wind-down provisions. It should also be noted that CAIS does not result in a tax expenditure.

²³

The estimates and projections have been revised to reflect recent data and the Budget 2007 announcement of the extension of the credit to flow-through share agreements entered into on or before March 31, 2008. The net negative figures for 2008 and 2009 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 2007 included in 2008 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.

²⁴

Recent data indicate that capital gains realizations continued to increase substantially in 2005 and 2006. This is consistent with the strong performance of equity and real estate markets in these years. Much slower growth in capital gains realizations is assumed for years after 2006. These projections do not reflect the increased value of capital losses carried back and applied against capital gains in previous years or carried forward and applied against capital gains in subsequent years under a 100-per-cent inclusion rate.

²⁵

The projections of this tax expenditure for 2005 and 2006 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 2006.

²⁶

This measure was introduced in Budget 2006, effective 2007. Budget 2007 enhanced this measure for children with disabilities (see the "What’s New in the 2007 Report" section for details).

²⁷

Budget 2005 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.

²⁸

The increase in the projected tax expenditure reflects enhancements to the credit announced in the 2003, 2004 and 2005 budgets.

²⁹

The increase in the projected tax expenditure reflects enhancements to the credit announced in the 2005 and 2006 budgets. Specifically, Budget 2005 increased the maximum amount of the supplement from $571 to $750 per year, effective 2005, and Budget 2006 subsequently increased the maximum amount from $767 to $1,000, effective 2006.

³⁰

The age credit amount was increased by $1,000, from $4,066 to $5,066, in the Tax Fairness Plan (announced October 31, 2006, and confirmed in Budget 2007), effective 2006.

³¹

The projected decline in this tax expenditure is mainly explained by increases to the basic personal amount and other non-refundable credits relevant to seniors (such as the age credit and the pension income credit).

³²

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 estimates and projections of this tax expenditure.

³³

The decline in this tax expenditure reflects increases in the basic personal amount, reductions in the lowest personal income tax rate and increases in the spouse or common-law partner amount as implemented in Budget 2000 (the Five-Year Tax Reduction Plan), the 2000 Economic Statement and Budget Update, Budget 2005, Budget 2006, Budget 2007 and the 2007 Economic Statement.

³⁴

This tax expenditure is based on data received from Veterans Affairs Canada. As part of the New Veterans Charter, in 2006 the Canadian Forces Income Support Benefit was established as a tax-free amount for eligible low-income veterans.

³⁵

This tax expenditure is based on data received from Veterans Affairs Canada. As of 2006, the new Disability Award has replaced the Veterans Disability Pension for eligible new applicants (current disability pensioners have been grandfathered).

³⁶

This measure was implemented in Budget 2007, effective 2008 (see the "What’s New in the 2007 Report" section for details).

³⁷

Budget 2006 increased the maximum amount that can be claimed under the pension income credit from $1,000 to $2,000 for the 2006 and subsequent taxation years. The introduction of pension income splitting in 2007 will increase the number of individuals claiming the pension income credit and thus increase the value of this tax expenditure (see footnote 38).

³⁸

This measure, announced on October 31, 2006, in the Tax Fairness Plan and confirmed in Budget 2007, allows a Canadian resident to allocate up to one-half of eligible pension income to his or her resident spouse or common-law partner, effective 2007.

Pension income splitting has an impact on other tax expenditures starting in 2007. This measure reduces the effective tax rate on registered pension plan (RPP) benefits and withdrawals from registered retirement savings plans (RRSPs) and registered retirement income funds, thus increasing the net value of the RPP/RRSP tax expenditures. Also, since eligible pension income allocated to a lower-income spouse or common-law partner retains its character, some couples will be able to receive a second pension income tax credit where previously only one was available. This increases projections for the pension income credit tax expenditure. At the same time, since eligible pension income allocated to a lower-income spouse or common-law partner will raise his or her net income, projections for the spouse or common-law partner credit tax expenditure are lower than they would be in the absence of pension income splitting.

³⁹

Estimates and projections vary from those in last year’s report due largely to a methodological change in the calculation of the tax expenditure associated with the non-taxation of investment income. This tax expenditure was previously calculated on an accrual basis, which usually overstated the tax expenditure associated with the non-taxation of capital gains, since only realized capital gains would be taxable if the tax deferral on registered pension plans (RPPs) and registered retirement savings plans (RRSPs) were removed. This year’s estimates and projections are based on realized capital gains, based on observed data from trusteed pension plans. The revised figures for 2002–2004 reflect this methodological change. This has the effect of smoothing the tax expenditure associated with the non-taxation of investment income. Still, tax expenditure estimates will typically be higher in years when assets grow strongly, reflecting the tax forgone on that investment income, and lower in years when assets grow slowly or decline. In addition, pension income splitting decreases the tax rates on withdrawals for 2007 and beyond, thereby increasing net tax expenditures for RPPs and RRSPs.

⁴⁰

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.

⁴¹

Projected tax expenditures reflect anticipated increases in home resales and resale housing prices. Values 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.

⁴²

This measure was introduced in Budget 2006, effective July 1, 2006. Budget 2007 extended the credit to electronic fare cards and weekly passes used on an ongoing basis (see the "What’s New in the 2007 Report" section for details).

⁴³

Budget 2006 enhanced the gross-up and dividend tax credit for eligible dividends (generally those paid by large corporations), effective 2006.

⁴⁴

Prior to 2006, 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.

⁴⁵

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

⁴⁶

In last year’s report, this tax expenditure was projected to decline after 2004. Preliminary data for 2005 indicate that it increased from 2004 to 2005.

⁴⁷

Self-employed individuals may deduct the employer share of their Canada/Québec Pension Plan contributions paid for their own coverage. This is included in the tax expenditure for the non-taxation of employer-paid premiums.

⁴⁸

During this period, the basic personal amount has been increased by amounts over and above the inflation protection provided by full indexation (due to changes legislated in Budget 2005, Budget 2006 and the 2007 Economic Statement).

⁴⁹

This tax expenditure applies to a subset of resource-related deductions. Data is available for 2002 to 2004 on the volume of reclassified shares and are used to calculate these estimates. Projections after 2004 are based on observed and forecast growth rates in the oil and gas industry.

⁵⁰

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.

It is also important to note 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.

⁵¹

The most recent data indicate that deductions of meals and entertainment expenses declined in 2004. This also affects the projected tax expenditure in 2005 and 2006. Budget 2007 increased the deductible portion of the cost of food and beverages consumed by long-haul truck drivers during eligible periods of travel. Thus, the projected tax expenditure increases starting in 2007.

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