Tax Expenditures and Evaluations 2012

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Preface 

The Department of Finance has published tax expenditures for personal and corporate income taxes as well as for the Goods and Services Tax (GST) since 1994. Beginning in 2000, the tax expenditure report has been separated into two documents. This document, Tax Expenditures and Evaluations, is published annually. It provides estimates and projections for broadly defined tax expenditures as well as evaluations and analytical papers addressing specific tax measures. This year’s edition includes a profile of Tax-Free Savings Account holders as well as a methodological paper on the tax expenditures in respect of accelerated deductions of capital costs.

The second document, Tax Expenditures: Notes to the Estimates/Projections, is a reference document which presents the objective of each tax expenditure and explains how the estimates and projections are calculated. This document is published periodically and the 2010 edition is available on the Department of Finance website.

Part 1—Tax Expenditures: Estimates and Projections

Introduction 

The principal function of the tax system is to raise the revenues necessary to fund government expenditures. The tax system can also be used directly to achieve public policy objectives through the application of special measures such as low tax rates, exemptions, deductions, deferrals and credits. These measures are often described as “tax expenditures” because they achieve policy objectives at the cost of lower tax revenue.

To identify and estimate tax expenditures, it is necessary to establish a “benchmark” tax structure that applies the relevant tax rates to a broadly defined tax base—e.g. personal income, business income or consumption. Tax expenditures are then defined as deviations from this benchmark. Reasonable differences of opinion exist about what should be considered part of the benchmark tax system and hence about what should be considered a tax expenditure.

This report takes a broad approach and includes estimates and projections of the revenue loss associated with all but the most fundamental structural elements of the tax system, such as the progressive personal income tax rate structure. This includes not only measures that may reasonably be regarded as tax expenditures but also other measures that may be considered part of the benchmark tax system. The latter are listed separately under “Memorandum Items.” For instance, the Dividend Tax Credit is listed under this heading because its purpose is to reduce or eliminate the double taxation of income earned by corporations and distributed to individuals through dividends. Also included under this heading are measures where data limitations do not permit a separation of the tax expenditure and benchmark components of the measure. This approach provides information on a full range of measures.

A more detailed discussion of how the estimates and projections of the tax expenditures are calculated is available in the 2010 edition of Tax Expenditures: Notes to the Estimates/Projections.

Caveats 

Care must be taken in interpreting the estimates and projections of tax expenditures presented in this document for the following reasons:

• The estimates and projections are intended to indicate the potential revenue gain that would be realized by removing individual tax measures. They are developed assuming that the underlying tax base would not be affected by removal of the measure. However, this is an assumption that is unlikely to be true in practice in some cases, as the behaviour of beneficiaries of tax expenditures, overall economic activity and other government policies could change along with the specific tax provision.
• The cost of each tax measure is determined separately, assuming that all other tax provisions remain unchanged. Many of the tax expenditures do, however, interact with each other such that the impact of several tax provisions at once cannot generally be calculated by adding up the estimates and projections for each provision.
• The federal and provincial income tax systems interact with each other to varying degrees. As a result, changes to tax expenditures in the federal system may have consequences for provincial tax revenues. In this publication, however, any such provincial effects are not taken into account—that is, the tax expenditure estimates and projections address strictly the federal tax system and federal tax revenue.
• The tax expenditure estimates and projections presented in this document are developed using the latest available taxation data. Revisions to the underlying data as well as improvements to the methodology can result in substantial changes to the value of a given tax expenditure in successive publications. In addition, estimates and projections for some tax measures, such as the partial inclusion of capital gains, are particularly sensitive to economic parameters and hence may also differ significantly from one publication to the next.

What’s New in the 2012 Report 

New tax measures were introduced and others modified in Budget 2012. Changes affecting tax expenditures are described below.

Personal Income Tax

Overseas Employment Tax Credit

The Overseas Employment Tax Credit will be phased out over four taxation years, beginning with the 2013 taxation year. During the phase-out period, the factor that is applied to an employee’s qualifying foreign employment income in determining the employee’s Overseas Employment Tax Credit is reduced from 80% to 60% for the 2013 taxation year, 40% for the 2014 taxation year and 20% for the 2015 taxation year. The Overseas Employment Tax Credit will be eliminated for the 2016 and subsequent taxation years.

Mineral Exploration Tax Credit for Flow-Through Share Investors

The Mineral Exploration Tax Credit is a reduction in tax, available to individuals who invest in flow‑through shares, equal to 15% of specified mineral exploration expenses incurred in Canada and transferred to flow-through share investors. The credit was introduced on a temporary basis in 2000 and has generally been extended on an annual basis since then. Budget 2012 extended eligibility for the credit for an additional year to flow-through share agreements entered into on or before March 31, 2013. Under the one-year “look-back” rule, funds raised with the benefit of the credit in 2013, for example, can be spent on eligible exploration up to the end of 2014.

Salary of the Governor General of Canada

Following consultations between the Governor General and the Government, both agreed that the income tax exemption for the Governor General’s salary should end and that the Governor General’s salary paid under the Governor General’s Act should be subject to tax in the same manner as the salary of other Canadians. This measure applies to the 2013 and subsequent taxation years. The tax expenditure for the non-taxation of income from the Office of the Governor General of Canada is therefore eliminated starting in the 2013 taxation year.

Corporate Income Tax

Atlantic Investment Tax Credit

The Atlantic Investment Tax Credit is a 10% credit available for certain investments in new buildings, machinery and equipment used in the Atlantic region and the Gaspé Peninsula. Currently, the credit supports investments in farming, fishing, logging, manufacturing and processing, oil and gas, and mining. Budget 2012 announced the phase-out of the Atlantic Investment Tax Credit for assets primarily used in oil and gas, and mining activities. Subject to certain grandfathering provisions, the credit will be reduced to 5% for such assets acquired in 2014 and 2015 and to 0% for assets acquired after 2015.

Scientific Research and Experimental Development (SR&ED)
Investment Tax Credit

To support the key objectives identified by the Expert Review Panel on Research and Development, Budget 2012 proposed several changes to the SR&ED tax incentive program to make it simpler, as well as more cost-effective and predictable. In particular:

• Capital will be removed from the base of eligible SR&ED expenditures, as it is considered the most complex component of this base. This change will be effective for capital expenditures incurred on or after January 1, 2014.
• The general SR&ED investment tax credit rate will be reduced to 15% from 20% on January 1, 2014.
• The prescribed proxy amount, which taxpayers can elect to use to claim SR&ED overhead expenditures, will be reduced from 65% to 55% of the salaries and wages of employees who are directly engaged in SR&ED activities in Canada. This change will be fully implemented on January 1, 2014.
• The profit element will be removed for arm’s length third-party contracts for the purpose of the calculation of SR&ED investment tax credits. To this end, effective January 1, 2013, only 80% of the amount of a third-party contract is eligible for the credit.

Corporate Mineral Exploration and Development Tax Credit

Budget 2012 announced the phase-out of the Corporate Mineral Exploration and Development Tax Credit. This credit applies to both grass-roots exploration and pre-production mine development expenditures in Canada in respect of diamonds, base and precious metals, as well as industrial minerals that become base or precious metals through refining.

The credit applies at a rate of 10% for pre-production exploration expenses incurred in 2012, and at a rate of 5% for such expenses incurred in 2013. The credit will not be available for pre-production exploration expenses incurred after 2013. For pre-production development expenses, the credit is 10% in 2012 and 2013, 7% in 2014 and 4% in 2015, subject to grandfathering provisions. The credit will not be available for pre-production development expenses incurred after 2015. Assets acquired before 2016, as part of a grandfathered project, will be eligible for the 10% credit rate.

Goods and Services Tax

Travellers’ Exemption Thresholds

To streamline the processing of Canadian residents returning to Canada, the personal duty-free and tax-free exemption limits were increased in Budget 2012 for lengths of absence greater than 24 hours effective June 1, 2012. For lengths of absence between 24 and 48 hours, the exemption limit increased to $200 from $50; for lengths of absence between 48 hours and 7 days, the exemption limit increased to $800 from $400; and for lengths of absence over 7 days, the exemption limit increased to $800 from $750. There remains no exemption for same-day travel.

Reclassifications Reflecting the Adoption of the New Accounting Standard for Tax Revenues

Beginning with the 2012–13 fiscal year, the Government has adopted the new accounting standard regarding tax revenues issued by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Notably, the new standard provides guidance as to whether payments made through the tax system or reductions in taxes payable should be classified as either reductions in tax revenues or as transfer payments. Under the new standard, some tax credits that were previously recorded as a reduction in tax revenues have been reclassified as transfer payments under direct program spending. These include the Working Income Tax Benefit, the Refundable Medical Expense Supplement, the Canadian Film or Video Production Tax Credit, the Film or Video Production Services Tax Credit, and that portion of the Atlantic Investment Tax Credit and the Scientific Research and Experimental Development Investment Tax Credit that is eligible to be refunded.

As a result of this new accounting standard, the tax credits that have been reclassified as transfer payments are no longer considered tax expenditures. However, to facilitate access to information on these credits and comparison with other tax expenditures, estimates and projections for these tax credits will continue to be presented as memorandum items, in a new category “Refundable Tax Credits Classified as Transfer Payments.” The non-refundable portions of the Atlantic Investment Tax Credit and the Scientific Research and Experimental Development Investment Tax Credit are still considered tax expenditures and are shown separately in Table 2.

The Tax Expenditures 

Tables 1 to 3 provide tax expenditure values for personal income tax, corporate income tax and the GST for the years 2007 to 2012. Values for the years 2007 to 2010 are generally based on tax data supplied by the Canada Revenue Agency, or are calculated from data supplied by Statistics Canada and other government departments and agencies. Values for the 2011 and 2012 projections are usually determined from the historical relationship between a tax expenditure and relevant economic variables. These economic variables are generally based on the forecast presented in the November 13, 2012 Update of Economic and Fiscal Projections. See Chapter 1 of the 2010 edition of Tax Expenditures: Notes to the Estimates/Projections for additional details on the methodology.

Tax expenditures in each table are grouped according to functional categories. This grouping is provided solely for presentational purposes and is not intended to reflect underlying policy considerations.

All estimates and projections are reported in millions of dollars. The letter “S” (“small”) indicates that the absolute value of the tax expenditure is less than $2.5 million, “n.a.” signifies that data are not available to support a meaningful estimate/projection, and a dash means that the tax expenditure is not in effect. The inclusion in the report of items for which estimates and projections are not available reflects the intention to provide information on measures included in the tax system even if it is not always possible to provide their revenue impacts. Work is continuing to obtain quantitative estimates and projections where possible.

Changes in the estimates and projections from those in last year’s report, as well as variations from year to year, may result from a number of factors, including legislative changes, changes in the economic variables affecting the tax expenditures, the availability of new data, and methodological improvements. Legislative changes affecting the estimates and projections are described in Tax Expenditures: Notes to the Estimates/Projections, in the “What’s New in the 2012 Report” section of this publication and in the notes to the tables.

Broad-based changes to the tax system may affect tax expenditure estimates and projections to the extent that these changes modify the effective tax rates otherwise faced by taxpayers under the benchmark tax system. A reduction (increase) in the effective tax rate under the benchmark tax system will generally result in lower (higher) tax expenditure estimates and projections. During the period covered by this publication, estimates and projections were affected, to varying degrees, by the following changes:

• For personal income tax expenditures, the introduction or enhancement of broad-based non‑refundable tax credits, including the credit for the Basic Personal Amount, the Age Credit and the Child Tax Credit, had the effect of reducing the estimates and projections for most tax expenditures.
• For corporate income tax expenditures, the recent reductions in the general corporate income tax rate (from 21% to 19.5% on January 1, 2008, 19% on January 1, 2009, 18% on January 1, 2010, 16.5% on January 1, 2011, and 15% on January 1, 2012), as well as the elimination of the 4% corporate surtax (equivalent to a 1.12% corporate income tax rate reduction) on January 1, 2008, had the effect of reducing the estimates and projections for most tax expenditures, with a few exceptions such as investment tax credits.
• For GST expenditures, the reduction in the GST rate from 6% to 5% on January 1, 2008 had the effect of reducing the estimates and projections for most tax expenditures. The GST/HST Credit, however, was not affected by this rate reduction.

Table 1
Personal Income Tax Expenditures*
($ millions)

	Estimates			Projections
	2007	2008	2009	2010	2011	2012
Charitable Donations and Political Contributions
Charitable Donations Tax Credit (excluding  donations of assets eligible for capital gains  exemption)1	2,345	2,270	2,020	2,160	2,250	2,335
Donations of publicly listed securities
Charitable Donations Tax Credit	165	90	98	110	115	120
Non-taxation of capital gains	50	27	29	33	34	35
Total tax expenditure	215	115	130	145	150	155
Donations of ecologically sensitive land
Charitable Donations Tax Credit	6	9	8	5	7	6
Non-taxation of capital gains	S	3	3	S	S	S
Total tax expenditure	8	11	11	7	9	7
Donations of cultural property
Charitable Donations Tax Credit	22	21	20	18	16	16
Non-taxation of capital gains	7	7	6	6	5	5
Total tax expenditure	30	27	26	24	21	21
Political Contribution Tax Credit2	20	31	23	22	32	23
Culture
Assistance for artists	S	S	S	S	S	S
Children’s Arts Tax Credit3	–	–	–	–	35	35
Deduction for artists and musicians	S	S	S	S	S	S
Education
Adult basic education—deduction for  tuition assistance	5	5	5	5	5	5
Apprentice vehicle mechanics’  tools deduction	3	4	5	5	5	5
Education Tax Credit4	210	215	200	205	210	215
Textbook Tax Credit4	41	42	38	39	40	41
Tuition Tax Credit4	250	255	255	270	290	295
Transfer of Education, Textbook  and Tuition Tax Credits	480	485	520	525	540	545
Carry-forward of Education, Textbook  and Tuition Tax Credits5	425	540	480	490	500	505
Exemption of scholarship, fellowship  and bursary income	37	41	39	40	43	44
Registered Education Savings Plans6	170	155	165	160	165	155
Student Loan Interest Credit	71	63	44	45	47	49
Employment
Canada Employment Credit	1,835	1,905	1,915	1,960	2,015	2,085
Child care expense deduction	750	790	810	850	890	935
Deduction for income earned by military  and police deployed to high-risk  international missions	35	36	36	37	38	38
Deduction of home relocation loans	S	S	S	S	S	S
Deduction of other employment expenses	970	990	930	965	1,005	1,045
Deduction for tradespeople’s tool expenses	4	4	3	3	3	4
Deduction of union and professional dues	705	755	755	785	820	860
Deferral of salary through leave of  absence/sabbatical plans	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Disability supports deduction	S	S	S	S	S	S
Employee benefit plans	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Employee stock option deduction7	1,155	760	430	675	755	785
Moving expense deduction	125	125	105	110	115	120
Non-taxation of certain non-monetary  employment benefits	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.
Northern residents deductions8	150	160	160	165	165	165
Overseas Employment Credit9	64	78	72	73	75	75
Tax-free amount for emergency  service volunteers	14	14	14	14	12	12
Volunteer Firefighters Tax Credit10	–	–	–	–	15	15
Family
Adoption Expense Tax Credit	3	S	3	3	3	3
Caregiver Credit	84	90	97	100	105	105
Child Tax Credit	1,445	1,470	1,470	1,495	1,520	1,555
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.
Family Caregiver Tax Credit11	–	–	–	–	–	160
Infirm Dependant Credit	5	5	5	5	5	6
Spouse or Common-Law Partner Credit12	1,240	1,225	1,385	1,410	1,425	1,440
Eligible Dependant Credit12	755	750	785	785	790	800
Inclusion of the Universal Child Care Benefit  in the income of an eligible dependant13	–	–	–	5	5	5
Farming and Fishing
Lifetime capital gains exemption for farm  and fishing property	385	385	320	325	375	385
Cash basis accounting	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral of capital gains through intergenerational  rollovers of family farms, family fishing  businesses and commercial woodlots	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral of income from destruction of livestock	S	S	S	S	S	S
Deferral of income from sale of livestock during  drought, flood or excessive moisture years	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral of income from grain sold through  cash purchase tickets	35	45	-10	-10	65	15
Deferral through 10-year capital gain reserve	S	S	S	S	S	S
Exemption from making quarterly  tax instalments	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
AgriInvest (farm savings account)14	S	20	15	20	25	25
Agri-Québec (farm savings account)15	–	–	–	–	5	5
Flexibility in inventory accounting	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Tax treatment of the Net Income  Stabilization Account16
Deferral of tax on government contributions	S	S	S	–	–	–
Deferral of tax on bonus and interest income	S	S	S	–	–	–
Taxable withdrawals	S	S	S	–	–	–
Federal-Provincial Financing Arrangements
Logging Tax Credit	S	S	S	S	S	S
Quebec Abatement	3,520	3,605	3,415	3,665	3,900	4,090
Transfer of income tax points to provinces	17,450	17,585	16,260	17,385	18,515	19,395
General Business and Investment
$200 capital gains exemption on foreign  exchange transactions	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.
Accelerated deduction of capital costs	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deduction of carrying charges incurred  to earn income	1,270	1,200	920	995	1,105	1,120
Deferral through use of billed-basis accounting  by professionals	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral through five-year capital gain reserve	15	10	S	S	S	5
Investment tax credits	20	20	17	16	17	18
Flow-through share deductions	435	215	165	260	280	290
Mineral Exploration Tax Credit for flow-through  share investors17	150	45	70	110	100	100
Reclassification of expenses under flow-through  shares18	-4	-10	-11	-3	-5	-3
Partial inclusion of capital gains19	5,740	2,995	2,445	3,715	3,975	4,155
Taxation of capital gains upon realization	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Tax-Free Savings Account20	–	–	65	165	155	305
Small Business
Lifetime capital gains exemption for small  business shares	585	620	475	545	595	605
Deduction of allowable business investment  losses	20	30	35	35	35	35
Deferral through 10-year capital gain reserve	S	S	S	S	S	S
Labour-Sponsored Venture Capital  Corporations Credit	120	120	125	130	140	145
Non-taxation of provincial assistance for venture  investments in small businesses	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Rollovers of investments in small businesses	10	10	5	4	5	5
Health
Children’s Fitness Tax Credit	90	105	110	115	115	120
Disability Tax Credit	585	635	620	650	680	705
Medical Expense Tax Credit21	915	995	1,000	1,095	1,190	1,270
Non-taxation of business-paid health and  dental benefits	2,535	2,620	2,810	2,935	3,165	3,390
Income Maintenance and Retirement
Age Credit22	1,810	1,840	2,295	2,360	2,480	2,605
Deferred Profit-Sharing Plans	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	18	20	20	19	21	23
Non-taxation of Guaranteed Income Supplement  and Allowance benefits23	170	175	89	100	120	120
Non-taxation of investment income from life  insurance policies24	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.
Non-taxation of social assistance benefits25	145	165	145	155	160	160
Non-taxation of up to $10,000 of death benefits	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)	S	S	S	S	S	S
Non-taxation of veterans’ disability pensions  and support for dependants	150	150	135	140	140	135
Non-taxation of veterans’ Disability Awards	11	19	22	31	35	39
Non-taxation of workers’ compensation benefits	655	695	620	655	690	630
Registered Disability Savings Plans26	–	S	S	S	3	4
Pension Income Credit	975	990	965	995	1,025	1,055
Pension income splitting	840	850	865	905	955	1,005
Registered Pension Plans27
Deduction for contributions	9,425	9,835	11,945	12,200	12,505	12,750
Non-taxation of investment income	14,865	6,730	7,145	10,190	10,460	10,590
Taxation of withdrawals	-6,795	-6,830	-6,605	-7,395	-7,830	-8,350
Net tax expenditure	17,495	9,735	12,485	14,995	15,135	14,990
Registered Retirement Savings Plans27
Deduction for contributions	7,400	7,240	7,005	7,230	7,420	7,555
Non-taxation of investment income	9,415	3,825	4,085	6,755	6,940	7,295
Taxation of withdrawals	-5,035	-4,825	-4,375	-5,120	-5,235	-5,480
Net tax expenditure	11,780	6,240	6,715	8,865	9,125	9,370
Supplementary information: present-value  of tax-assisted retirement savings plans28	9,080	9,105	10,150	10,500	10,880	11,205
Saskatchewan Pension Plan	S	S	S	S	S	S
Treatment of alimony and maintenance payments	87	92	93	94	95	95
U.S. Social Security benefits29	S	S	S	S	S	S
Other Items
Deduction for certain contributions by individuals  who have taken vows of perpetual poverty	S	S	S	S	S	S
Deduction for clergy residence	82	82	85	86	87	88
First-Time Home Buyers’ Tax Credit30	–	–	120	105	105	110
Home Renovation Tax Credit31	–	–	2,265	–	–	–
Non-taxation of capital gains on principal  residences32	5,285	3,015	3,785	4,140	4,790	4,495
Non-taxation of income from the Office of  the Governor General of Canada33	S	S	S	S	S	S
Non-taxation of income of status Indians  and Indian bands earned on reserve	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
Public Transit Tax Credit	110	135	140	145	150	155
Memorandum Items
Avoidance of Double Taxation
Dividend gross-up and credit34	3,015	3,405	3,805	3,830	4,255	4,240
Foreign Tax Credit	780	750	660	670	725	735
Non-taxation of capital dividends	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Loss Offset Provisions
Capital loss carry-overs35	330	145	230	425	375	380
Farm and fishing loss carry-overs	15	15	11	14	15	15
Non-capital loss carry-overs	70	55	56	56	62	63
Social and Employment Insurance Programs
Canada Pension Plan and Quebec Pension Plan
Employee-Paid Contribution Credit	2,750	2,875	2,815	2,910	3,025	3,150
Non-taxation of employer-paid premiums	4,445	4,650	4,520	4,685	4,895	5,095
Employment Insurance and Quebec  Parental Insurance Plan
Employee-Paid Contribution Credit36	945	955	960	990	1,060	1,140
Non-taxation of employer-paid premiums	1,865	1,885	1,870	1,935	2,075	2,225
Refundable Tax Credits Classified as  Transfer Payments37
Canada Child Tax Benefit38	9,420	9,368	9,753	10,013	10,049	n.a.
Refundable Medical Expense Supplement	110	120	130	135	140	145
Working Income Tax Benefit39	455	480	1,025	1,055	1,075	1,105
Other
Basic Personal Amount40	26,015	26,205	27,880	28,655	29,560	30,740
Deferral through capital gains rollovers	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of lottery and gambling winnings	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of allowances for diplomats  and other government employees posted  abroad	29	33	39	42	44	44
Partial deduction of meals and entertainment  expenses	150	150	175	185	190	190
* The elimination of a tax expenditure would not necessarily yield the full tax revenues shown in the table. See the 2010 edition of Tax Expenditures: Notes to the Estimates/Projections for a discussion of the reasons for this. Notes: 1 The tax expenditures associated with the Charitable Donations Tax Credit on donations of publicly listed securities, ecologically sensitive land and cultural property are presented separately. The estimates and projections presented on this line reflect the Charitable Donations Tax Credit associated with all other donations. The total tax expenditure for the Charitable Donations Tax Credit would take into account all relevant components. 2 The higher levels for this tax expenditure in 2008 and 2011 are due to contributions in respect of the 40th and 41st general elections. 3 This measure was introduced in Budget 2011, effective 2011. The lower value for this tax expenditure relative to the cost presented in Budget 2011 reflects a lower-than-expected take-up of the measure. 4 These tax expenditures relate to amounts earned and claimed in the year by students (i.e., neither transferred nor carried forward). 5 For a given year, this tax expenditure represents the value of Education, Textbook and Tuition Tax Credits earned in past years and used in that year. The tax expenditure does not include the pool of unused Education, Textbook and Tuition Tax Credits that have been accumulated but will be deferred for use in future years. 6 The amount of the tax expenditure for this measure has been adjusted downwards for all years, reflecting improvements in data and methodology. 7 This measure was changed in Budget 2010, effective March 4, 2010. 8 Budget 2008 enhanced this measure, effective 2008. 9 The phase-out of this measure was announced in Budget 2012. See the “What’s New in the 2012 Report” section for details. 10 This measure was introduced in Budget 2011, effective 2011. The decrease in the value of the tax expenditure for the tax-free amount for emergency service volunteers in 2011 reflects the introduction of the Volunteer Firefighters Tax Credit. 11 This measure was introduced in Budget 2011, effective 2012. An enhanced amount of $2,000 can be claimed for an infirm dependant under one of the existing dependency-related credits (i.e., Spouse or Common-Law Partner Credit, Eligible Dependant Credit, Child Tax Credit, Caregiver Credit or Infirm Dependant Credit). 12 Budget 2009 enhanced the credit, effective 2009. 13 This measure was introduced in Budget 2010, effective 2010. 14 This measure was introduced in Budget 2007. In December 2007, agreements were signed with the provinces to implement the program and the disbursement of funds began. 15 This measure was introduced in Budget 2011, effective 2011. 16 The Net Income Stabilization Account (NISA) and the Canadian Farm Income Program were replaced by the Canadian Agricultural Income Stabilization Program, with the effect that government contributions under NISA ceased as of December 31, 2003. All funds in participant accounts were paid out by March 31, 2009. Tax expenditure estimates reflect the wind-down schedule. 17 This credit was extended in Budget 2012 and is set to expire on March 31, 2013. See the “What’s New in the 2012 Report” section for details. 18 The amount of the tax expenditure for this measure is negative for 2007 and subsequent years because the positive tax expenditure associated with new spending in those years is more than offset by the negative tax expenditure resulting from reclassifications that occurred in previous years. 19 This tax expenditure does not take into account the tax value of current-year capital losses applied against previous-year capital gains. 20 The increase in this tax expenditure in 2012 reflects the recovery in equity markets following their relatively poor performance in 2011 as well as the annual increase in the Tax-Free Savings Account contribution room. For more details, refer to the paper “Tax-Free Savings Accounts: A Profile of Account Holders” included in Part 2 of this report. 21 Budget 2010 made expenses incurred for purely cosmetic procedures ineligible for the credit (effective after March 4, 2010). Budget 2011 removed the $10,000 limit on eligible expenses that can be claimed under the Medical Expense Tax Credit in respect of a dependent relative, effective 2011. 22 Budget 2009 increased the Age Credit amount by $1,000, to $6,408 from $5,408, effective 2009. 23 The decline in this tax expenditure in 2009 is mainly explained by the increase in non-tax-paying seniors due to increases in the Basic Personal Amount and other non-refundable credits relevant to seniors (such as the Age Credit). 24 Although this measure provides tax relief for individuals, it is implemented through the corporate income tax system. Tax expenditure amounts are shown under “Investment income credited to life insurance policies” in Table 2. 25 The decline in this tax expenditure in 2009 mainly reflects the Budget 2009 increase in the Basic Personal Amount and related amounts. 26 This measure was introduced in Budget 2007, effective 2008. 27 Estimates and projections vary from those in last year’s report due to changes in estimated levels of assets, contributions, investment income, capital gains/losses and withdrawals. In general, tax expenditure estimates and projections will be higher in years in which assets grow strongly, reflecting the tax forgone on that investment income, and lower in years in which assets grow slowly or decline. 28 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. The present-value estimates do not reflect the potential effect of Tax-Free Savings Accounts on the average tax rate used to calculate the present value of the forgone tax on investment income. 29 This measure was changed in Budget 2010, effective January 1, 2010. 30 This measure was introduced in Budget 2009, effective January 28, 2009. 31 This temporary measure was introduced in Budget 2009 for the 2009 tax year only. See note 46 of Table 1 in the 2010 edition of this report for details. 32 The estimates and projections for this tax expenditure reflect the cyclicality of the housing market and its impact on the number of residence resales and on the average price of residences. Estimates and projections are based on housing market data and resale forecasts provided by Canada Mortgage and Housing Corporation and the Canadian Real Estate Association. Data on major additions and renovations obtained from Statistics Canada are used to estimate the average amount of capital expenditures on principal residences, which reduces the estimated amount of capital gains. 33 This exemption was ended in Budget 2012, effective 2013. See the “What’s New in the 2012 Report” section for details. 34 The estimates and projections include the revenue impact associated with both the enhanced Dividend Tax Credit, mainly applicable to dividends from large businesses, and the basic Dividend Tax Credit applicable to other dividends, mostly from small businesses. Budget 2008 introduced reductions in the enhanced Dividend Tax Credit rate and gross-up factor beginning in 2010 to mirror the general corporate income tax reductions introduced in the 2007 Economic Statement. 35 This tax expenditure represents the revenue impact resulting from the application of prior years’ capital losses against net capital gains realized in the current year. 36 Effective in 2010, a tax credit is also provided in respect of premiums paid by a self-employed individual under the Employment Insurance Act. 37 As a result of the new accounting standard regarding tax revenues issued by the Public Sector Accounting Board, tax credits that have been reclassified as transfer payments under the new standard are no longer considered tax expenditures, but are shown separately as memorandum items. See the “What’s New in the 2012 Report” section for more details. 38 This tax expenditure is presented on a fiscal year basis as reported in the Public Accounts of Canada (e.g., the amount for 2011 corresponds to the expenditure reported in the Public Accounts of Canada for the 2011–12 fiscal year, ending March 31, 2012). 39 Budget 2009 enhanced this measure, effective 2009. 40 The Basic Personal Amount was increased by amounts over and above the inflation protection provided by full indexation in Budget 2009, effective 2009.

 

Table 2
Corporate Income Tax Expenditures*
($ millions)

	Estimates				Projections
	2007	2008	2009	2010	2011	2012
Charitable Donations, Gifts, Charities  and Non-Profit Organizations
Deductibility of charitable donations1,2	455	430	325	390	360	345
Donations of publicly listed securities
Deductibility of donations3	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of capital gains	55	107	36	63	65	55
Total tax expenditure	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Donations of ecologically sensitive land
Deductibility of donations	3	4	13	S	5	6
Non-taxation of capital gains	22	4	13	S	S	5
Total tax expenditure	25	8	26	3	5	10
Donations of cultural property
Deductibility of donations	8	7	4	25	6	12
Non-taxation of capital gains	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Total tax expenditure	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deductibility of gifts of medicine	S	S	S	S	S	S
Deductibility of gifts to the Crown	S	S	S	S	S	S
Non-taxation of registered charities	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-taxation of non-profit organizations  (other than registered charities)2	175	150	130	140	125	75
Culture
Non-deductibility of advertising expenses  in foreign media	S	S	S	S	S	S
Federal-Provincial Financing Arrangements
Income tax exemption for certain provincial  and municipal corporations	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Transfer of income tax points to provinces	2,070	1,725	1,900	2,050	2,405	2,480
Logging Tax Credit	18	5	4	9	10	10
General Business and Investment
Accelerated deduction of capital costs	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Capital Gains
Deferral through five-year capital gain reserve	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Partial inclusion of capital gains	5,450	4,670	2,990	3,540	4,520	4,640
Taxation of capital gains upon realization	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Non-Refundable Investment Tax Credits
Atlantic Investment Tax Credit4
Earned and claimed in current year	100	60	70	90	80	95
Claimed in current year but earned in    prior years	170	75	25	30	75	110
Earned in current year but carried back    to prior years	3	S	7	28	12	11
Total tax expenditure	273	137	102	148	167	216
Scientific Research and Experimental  Development Investment Tax Credit4
Earned and claimed in current year	880	805	815	840	885	910
Claimed in current year but earned    in prior years	965	720	730	805	850	875
Earned in current year but carried back    to prior years	95	170	100	105	110	110
Total tax expenditure	1,940	1,695	1,645	1,750	1,845	1,895
Apprenticeship Job Creation Tax Credit
Earned and claimed in current year	51	60	52	50	58	58
Claimed in current year but earned    in prior years	3	9	10	11	14	14
Earned in current year but carried back    to prior years	3	5	4	6	4	4
Total tax expenditure	57	74	66	67	76	76
Investment Tax Credit for Child Care Spaces	S	S	S	S	S	S
Small Business
Deduction of allowable business  investment losses2	13	18	17	17	29	27
Low tax rate for small businesses5	4,050	4,365	4,305	4,140	3,835	2,935
Non-taxation of provincial assistance for  venture investments in small businesses	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
International
Exemption from 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.
Exemption from tax for international  banking centres6	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Exemptions from non-resident  withholding tax
Dividends7	1,345	2,290	1,300	1,750	1,850	1,905
Interest	2,070	1,300	1,675	1,450	1,535	1,580
Rents and royalties	295	295	320	340	360	370
Management fees	110	125	160	150	160	160
Non-taxation of life insurance companies’  foreign income	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Tax treatment of active business income  of foreign affiliates of Canadian corporations  and deductibility of expenses incurred to  invest in foreign affiliates	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.
Deferral of income from destruction of livestock	S	S	S	S	S	S
Deferral of income from sale of livestock  during drought, flood or excessive  moisture years	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deferral of income from grain sold through  cash purchase tickets2	26	30	-9	-7	40	16
Flexibility in inventory accounting	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Agricultural co-operatives—patronage  dividends paid as shares	3	7	5	4	9	9
AgriInvest (farm savings account)8	–	3	S	3	3	3
Agri-Québec (farm savings account)9	–	–	–	–	S	S
Exemption for farmers’ and fishers’ insurers	4	S	5	7	7	7
Natural Resources
Corporate Mineral Exploration and  Development Tax Credit10	24	23	21	24	60	38
Deductibility of contributions to a qualifying  environmental trust11	S	S	S	S	5	S
Earned depletion	5	3	S	11	S	4
Flow-through share deductions	120	75	70	70	70	60
Reclassification of expenses under  flow‑through shares12	-3	-4	-3	S	S	S
Other Sectors
Exemption from branch tax for transportation,  communications, and iron ore mining  corporations	6	38	6	44	41	28
Low tax rate for credit unions	73	83	79	74	62	47
Surtax on the profits of tobacco  manufacturers6	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Other Items
Deductibility of countervailing and  anti-dumping duties	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deductibility of earthquake reserves	S	S	S	S	S	S
Deferral through use of billed-basis  accounting by professional  corporations	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Holdback on progress payments  to contractors	59	63	32	29	38	36
Investment income credited to life  insurance policies	280	270	275	260	285	280
Tax status of certain federal Crown  corporations6	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Memorandum Items
Avoidance of Double Taxation—Integration  of Personal and Corporate Income Tax
Investment corporation deduction	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Refundable capital gains for investment  and mutual fund corporations	435	89	51	185	185	185
Refundable taxes on investment income  of private corporations
Additional Part I tax13	-2,155	-2,345	-1,790	-1,775	-2,465	-2,865
Part IV tax	-3,080	-4,680	-3,265	-2,735	-3,140	-3,365
Dividend refund	6,095	8,165	6,115	5,240	5,875	6,295
Net tax expenditure	860	1,140	1,060	730	270	65
Loss Offset Provisions
Capital loss carry-overs
Net capital losses carried back	210	535	430	280	86	115
Net capital losses applied to current year2	810	385	215	440	435	430
Farm and fishing loss carry-overs
Farm and fishing losses carried back	13	14	17	14	12	10
Farm and fishing losses applied to    current year2	35	34	50	53	63	53
Non-capital loss carry-overs
Non-capital losses carried back	2,165	6,170	3,425	2,700	1,935	1,480
Non-capital losses applied to    current year2	4,770	3,895	4,625	4,000	4,285	3,985
Refundable Tax Credits Classified as  Transfer Payments14
Atlantic Investment Tax Credit	12	12	12	14	15	15
Scientific Research and Experimental  Development Investment Tax Credit	1,365	1,545	1,535	1,600	1,700	1,745
Canadian Film or Video Production  Tax Credit	210	220	225	225	235	245
Film or Video Production Services  Tax Credit	95	100	85	95	100	105
Other
Deferral through capital gains  rollovers	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Deduction for intangible assets	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Partial deduction of meals and  entertainment expenses	340	305	265	255	260	260
Patronage dividend deduction	475	435	345	290	375	345
* The elimination of a tax expenditure would not necessarily yield the full tax revenues shown in the table. See the 2010 edition of Tax Expenditures: Notes to the Estimates/Projections for a discussion of the reasons for this. Notes: 1 This tax expenditure excludes the deductibility of charitable donations of ecologically sensitive land and cultural property. The estimates and projections presented on this line reflect the deductibility of all other charitable donations. The total tax expenditure for the deductibility of charitable donations would take into account all relevant components. 2 Changes in the estimates and projections for this tax expenditure from those in last year’s report partly reflect methodological improvements. 3 There are no data available that allow this tax expenditure to be separated from the “deductibility of charitable donations” category. Therefore, the value of this tax expenditure is included under “deductibility of charitable donations.” 4 Estimates and projections of the tax expenditure in respect of the refundable portion of this credit are shown separately under “Refundable tax credits classified as transfer payments” (see note 14). These amounts were included in the line “Earned and claimed in current year” in previous editions of this report. The total amount of tax assistance provided by this credit is the sum of its non-refundable and refundable components. Estimates and projections for these two components are preliminary. Changes to this measure were announced in Budget 2012. See the “What’s New in the 2012 Report” section for more details.  5 The amount of this tax expenditure reflects the impact of Budget 2009, which increased the amount of small business income eligible for the lower tax rate, and the 2007 Economic Statement, which accelerated the rate reduction announced in Budget 2006. The reduction in the tax expenditure between 2008 and 2012 partly reflects the reduction in the general corporate income tax rate. 6 For confidentiality reasons, estimates and projections for this tax expenditure are not published. 7 This category includes the tax expenditure attributable to the exemption of estate and trust income distributions, including distributions by income trusts. 8 This measure was introduced in Budget 2007. In December 2007, agreements were signed with the provinces to implement the program and the disbursement of funds began. 9 This measure was introduced in Budget 2011. See the “What’s New” section of the 2011 edition of this report for details. 10 The phase-out of this measure was announced in Budget 2012. See the “What’s New in the 2012 Report” section for more details. 11 The measure was expanded in Budget 2011 to include trusts that are required to be established to fund reclamation costs associated with pipelines, applicable to trusts established after 2011. No impact on the tax expenditure is anticipated from these changes until 2015. See the “What’s New” section of the 2011 edition of this report for details. 12 The amount of the tax expenditure for this measure is negative for 2007 and subsequent years because the positive tax expenditure associated with new spending in those years is more than offset by the negative tax expenditure resulting from reclassifications that occurred in previous years. 13 This item includes the additional 6⅔% refundable tax on investment income as well as the Part I tax paid on investment income in excess of the benchmark rate. 14 As a result of the new accounting standard regarding tax revenues issued by the Public Sector Accounting Board, tax credits that have been reclassified as transfer payments under the new standard are no longer considered tax expenditures, but are shown separately as memorandum items. See the “What’s New in the 2012 Report” section for more details. The estimates and projections for the Atlantic Investment Tax Credit and the Scientific Research and Experimental Development Investment Tax Credit are preliminary.

 

Table 3
GST Tax Expenditures*
($ millions)

	Estimates				Projections
	2007	2008	2009	2010	2011	2012
Status Indians and Aboriginal Self-Governments
Non-taxation of personal property of status Indians  and Indian bands on reserve	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Refunds for Aboriginal self-governments	5	5	5	5	5	5
Business
Exemption for domestic financial services	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Exemption for ferry, road and bridge tolls	20	15	15	20	20	20
Exemption and rebate for legal aid services	25	20	25	25	25	25
Non-taxability of certain importations	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Rebate for foreign visitors1	20	–	–	–	–	–
Rebate for foreign conventions and tour packages1	5	10	10	10	10	10
Small suppliers’ threshold	180	155	150	160	165	170
Zero-rating of agricultural and fish products  and purchases	S	S	S	S	S	S
Zero-rating of certain purchases made by exporters	S	S	S	S	S	S
Charities and Non-Profit Organizations
Exemption for certain supplies made by charities  and non-profit organizations	845	755	775	800	825	850
Rebate for registered charities	295	270	260	255	265	280
Rebate for qualifying non-profit organizations	70	70	70	70	70	75
Education
Exemption for educational services (tuition)	510	450	480	505	530	555
Rebate for book purchases made by qualifying  public institutions	25	25	25	20	20	20
Rebate for colleges	85	75	80	100	100	100
Rebate for schools	415	360	370	360	360	360
Rebate for universities	245	220	225	260	260	260
Health Care
Exemption for health care services	585	545	570	600	630	660
Rebate for hospitals	525	485	515	560	560	555
Zero-rating of medical devices	190	170	180	185	195	205
Zero-rating of prescription drugs	720	645	675	705	735	770
Households
Exemption for child care and personal services	135	120	130	135	140	150
GST/HST Credit	3,490	3,555	3,645	3,775	3,865	4,180
Travellers’ exemption2	105	125	150	170	190	200
Zero-rating of basic groceries	3,540	3,105	3,290	3,390	3,535	3,690
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.
Exemption for residential rent (long-term)	1,295	1,195	1,230	1,265	1,305	1,345
Rebate for new housing	850	735	620	620	585	625
Rebate for new residential rental property	60	60	55	55	50	55
Municipalities
Exemption for municipal transit	165	150	155	160	165	170
Exemption for water and basic garbage  collection services	240	220	230	235	240	250
Rebate for municipalities	1,805	1,745	1,890	2,070	2,000	1,985
Memorandum Items
Recognition of Expenses Incurred to Earn Income
Rebate to employees and partners	95	80	75	70	75	80
Other
Partial input tax credits for meals  and entertainment expenses	150	130	130	135	140	145
* The elimination of a tax expenditure would not necessarily yield the full tax revenues shown in the table. See the 2010 edition of Tax Expenditures: Notes to the Estimates/Projections for a discussion of the reasons for this. Notes: 1 The Visitors’ Rebate Program was replaced by the Foreign Convention and Tour Incentive Program effective April 1, 2007. The estimate for the rebate for foreign visitors does not include amounts credited by suppliers at the point of sale. 2 This is the first time this measure is included in this report. The measure was modified in Budget 2012. See the “What’s New in the 2012 Report” section for details.

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