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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