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Preface

The Department of Finance first reported on federal tax expenditures in December 1979, and has published estimates and projections of 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 statistical perspective on flow-through shares as well as a paper on the taxation of small businesses in Canada.

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 2013 Report

New tax measures were introduced and others modified in Budget 2013. Changes affecting estimates and projections of tax expenditures are described below.

Personal Income Tax

Adoption Expense Tax Credit

The Adoption Expense Tax Credit (AETC) is a 15% non-refundable tax credit that allows adoptive parents to claim eligible adoption expenses relating to the completed adoption of a child under the age of 18, up to a maximum of $11,669 in expenses per child for 2013. To better recognize that there are costs that adoptive parents must incur prior to being matched with a child, Budget 2013 extended the definition of the adoption period for the purpose of the AETC to better reflect the time at which the adoption period begins. This measure applies to adoptions finalized after 2012.

First-Time Donor’s Super Credit

Budget 2013 introduced the First-Time Donor’s Super Credit (FDSC). The FDSC supplements the Charitable Donations Tax Credit with an additional 25% tax credit for a first-time donor on up to $1,000 of donations. A first-time donor will be entitled to a 40% federal credit on donations of $200 or less, and a 54% federal credit for the portion of donations over $200 but not exceeding $1,000. The FDSC applies to donations made on or after March 21, 2013 and may be claimed only once in the 2013 or a subsequent taxation year before 2018.

Lifetime Capital Gains Exemption

Budget 2013 increased the Lifetime Capital Gains Exemption (LCGE) to $800,000 from $750,000 on dispositions of qualified small business shares and qualified farm and qualified fishing property, effective for the 2014 taxation year. In addition, the LCGE limit will be indexed to inflation for taxation years after 2014.

Labour-Sponsored Venture Capital Corporations Tax Credit

Budget 2013 announced the phase-out of the federal Labour-Sponsored Venture Capital Corporations (LSVCC) tax credit. The federal LSVCC tax credit will remain at 15% when it is claimed for a taxation year that ends before 2015 and will be reduced to 10% for the 2015 taxation year and 5% for the 2016 taxation year. The federal LSVCC tax credit will be eliminated for the 2017 and subsequent taxation years.

Deduction for Safety Deposit Boxes

Budget 2013 announced that the cost of renting a safety deposit box from a financial institution will no longer be deductible as an expense incurred for the purpose of earning business or property income, for taxation years beginning on or after March 21, 2013. For prior taxation years, the tax expenditure associated with this deduction is included under “Deduction of carrying charges incurred to earn income” in Table 1.

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 2013 extended eligibility for the credit for an additional year to flow-through share agreements entered into on or before March 31, 2014. Under the one-year “look-back” rule, funds raised with the benefit of the credit in 2014, for example, can be spent on eligible exploration up to the end of 2015.

Corporate Income Tax

Special Tax Rate for Credit Unions

Budget 2013 announced the phase-out of the additional deduction for credit unions over five years. The additional deduction provides credit unions with access to the small business income tax rate on a preferential basis that is not available to other corporations. Larger credit unions are the primary beneficiary of the additional deduction. 

For 2013, a credit union is permitted to deduct only 80% of the amount of the additional deduction otherwise calculated. The percentage of the additional deduction, otherwise calculated, that a credit union will be permitted to deduct will be 60% for 2014, 40% for 2015 and 20% for 2016. For 2017 and subsequent years, the additional deduction will be eliminated. This measure is prorated to apply only to the portion of the 2013 taxation year that is on or after March 21, 2013 and is also prorated for all taxation years that do not coincide with the calendar year.

Exemption From Tax for International Banking Centres

Budget 2013 announced the elimination of the International Banking Centre rules effective March 21, 2013. These rules exempted prescribed financial institutions from tax on certain income earned through a branch or office in the metropolitan areas of Montréal and Vancouver. 

Goods and Services Tax

Historical Revision to the Canadian System of National Accounts

Some of the GST tax expenditure estimates and projections are generated using data from the Canadian System of National Accounts (CSNA). The CSNA is subject to regular statistical revisions to incorporate the most current information (from censuses, annual surveys, administrative statistics, public accounts, etc.) and improved estimation methods. Periodically, the CSNA undergoes comprehensive historical revisions that are much broader in scope than regular revisions, incorporating conceptual, classification, presentational and other major statistical changes.

The most current input-output tables (for 2009) were historically revised in 2012. The tables now show a more detailed breakdown of service-producing industries, and a less detailed breakdown of goods-producing industries and the commodities they produce. The sectoral detail has also changed: notably, expenditures by non-profit institutions serving households and Aboriginal governments have been removed from the estimate of household final consumption expenditures. The most recent historical revision also includes a new investment category for intellectual property.

Because of the improvements in the economic data and commodity definitions stemming from Statistics Canada’s historical revision, the estimates and projections for GST tax expenditures presented in this report may not be directly comparable to those published in previous years.

For more information about the CSNA historical revision, visit Statistics Canada’s website.

The Tax Expenditures

Tables 1 to 3 provide tax expenditure values for personal income tax, corporate income tax and the GST for the years 2008 to 2013. Values for the years 2008 to 2011 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 2012 and 2013 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 12, 2013 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, a dash means that the tax expenditure is not in effect, and the letter “X” indicates that the estimate or projection is not published for confidentiality reasons. 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 2013 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, the Spouse or Common-Law Partner Credit and the Eligible Dependant 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 19.5% to 19% on January 1, 2009, 18% on January 1, 2010, 16.5% on January 1, 2011, and 15% on January 1, 2012) had the effect of reducing the estimates and projections for most tax expenditures, with a few exceptions such as investment tax credits.
Table 1
Personal Income Tax Expenditures*
millions of dollars
  Estimates Projections
 

  2008 2009 2010 2011 2012 2013
Charitable Donations and Political Contributions            
Charitable Donations Tax Credit
(excluding donations of assets eligible for capital gains exemption)1
2,270 2,020 2,180 2,205 2,170 2,225
Donations of publicly listed securities            
  Charitable Donations Tax Credit 90 98 140 140 125 125
  Non-taxation of capital gains 27 29 48 42 32 32
  Total tax expenditure 117 127 188 182 157 157
Donations of ecologically sensitive land            
  Charitable Donations Tax Credit 9 8 5 7 7 8
  Non-taxation of capital gains 3 3 S S S 3
  Total tax expenditure 12 11 7 9 9 11
Donations of cultural property            
  Charitable Donations Tax Credit 21 20 18 17 18 19
  Non-taxation of capital gains 7 6 6 5 6 6
  Total tax expenditure 28 26 24 22 24 25
Political Contribution Tax Credit2 31 23 21 31 22 24
First-Time Donor’s Super Credit3 20
Culture            
Assistance for artists S S S S S S
Children’s Arts Tax Credit4 32 35 38
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 4 5 4 4 4 4
Education Tax Credit5 220 200 200 200 200 205
Textbook Tax Credit5 36 33 32 32 32 33
Tuition Tax Credit5 255 255 270 285 305 320
Transfer of Education, Textbook and Tuition Tax Credits 485 520 535 565 570 570
Carry-forward of Education, Textbook and Tuition Tax Credits6 540 480 545 615 660 670
Exemption of scholarship, fellowship and bursary income 41 39 40 43 44 44
Registered Education Savings Plans 155 165 160 165 155 145
Student Loan Interest Credit 63 44 41 42 43 45
Employment            
Canada Employment Credit 1,905 1,915 1,935 1,995 2,070 2,130
Child care expense deduction 790 810 850 900 925 955
Deduction for income earned by military and police deployed to high-risk international missions 36 36 37 35 20 20
Deduction of home relocation loans S S S S S S
Deduction of other employment expenses 990 930 945 985 985 1,000
Deduction for tradespeople’s tool expenses 4 3 3 3 3 3
Deduction of union and professional dues 755 755 785 825 860 895
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 760 430 690 740 610 720
Moving expense deduction 125 105 100 100 105 105
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 160 160 160 170 170 175
Overseas Employment Credit9 78 72 73 75 75 65
Tax-free amount for emergency service volunteers 14 14 14 12 12 12
Volunteer Firefighters Tax Credit10 15 15 15
Family            
Adoption Expense Tax Credit S 3 3 3 3 3
Caregiver Credit 90 97 100 105 105 110
Child Tax Credit 1,470 1,470 1,480 1,510 1,555 1,590
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 160 165
Infirm Dependant Credit 5 5 5 5 5 6
Spouse or Common-Law Partner Credit12 1,225 1,385 1,410 1,425 1,485 1,535
Eligible Dependant Credit12 750 785 785 790 805 825
Inclusion of the Universal Child Care Benefit in the income of an eligible dependant13 5 5 5 5
Farming and Fishing            
Lifetime capital gains exemption for farm and fishing property14 385 320 325 385 460 470
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 tickets15 45 -10 -10 70 15 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) 20 15 20 25 11 10
Agri-Québec (farm savings account)16 5 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 Account17            
  Deferral of tax on government contributions S S
  Deferral of tax on bonus and interest income S S
  Taxable withdrawals S S
Federal-Provincial Financing Arrangements            
Logging Tax Credit S S S S S S
Quebec Abatement 3,605 3,415 3,665 3,885 4,035 4,215
Transfer of income tax points to provinces 17,585 16,260 17,385 18,340 19,045 19,905
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 1,200 920 1,005 1,085 1,100 1,165
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 35 20  30  30 30 30
Investment tax credits 20 17 16 18 18 18
Flow-through share deductions 235 190 285 340 210 205
Mineral Exploration Tax Credit for flow-through share investors18 45 65 110 100 45 40
Reclassification of expenses under flow-through shares15 -11 -12 S -7 -10 -7
Partial inclusion of capital gains19 2,995 2,445 3,630 3,800 3,420 3,945
Taxation of capital gains upon realization n.a. n.a. n.a. n.a. n.a. n.a.
Tax-Free Savings Account20 65 165 160 295 410
Small Business            
Lifetime capital gains exemption for small business shares14 620 475 540 590 610 620
Deduction of allowable business investment losses 30 35 35 30 35 35
Deferral through 10-year capital gain reserve S S S S S S
Labour-Sponsored Venture Capital Corporations Credit21 120 125 130 140 150 150
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 5 3 4 4 4
Health            
Children’s Fitness Tax Credit 105 110 110 110 115 115
Disability Tax Credit 635 620 650 675 690 700
Medical Expense Tax Credit22 995 1,000 1,080 1,135 1,200 1,295
Non-taxation of business-paid health and dental benefits23 1,595 1,685 1,780 1,850 1,955 2,065
Income Maintenance and Retirement            
Age Credit24 1,840 2,295 2,410 2,530 2,700 2,830
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 20 20 19 20 21 22
Non-taxation of Guaranteed Income Supplement and Allowance benefits25 175 89 100 115 125 125
Non-taxation of investment income from life insurance policies26 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 benefits27 165 145 155 160 165 170
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 150 135 135 105 100 100
Non-taxation of veterans’ Disability Awards 19 22 32 22 26 32
Non-taxation of workers’ compensation benefits 695 620 625 625 600 595
Registered Disability Savings Plans S S S 3 5 6
Pension Income Credit 990 965 1,010 1,035 1,055 1,085
Pension income splitting 850 865 895 950 1,010 1,090
Registered Pension Plans28            
  Deduction for contributions 9,835 11,945 12,200 12,780 13,255 13,770
  Non-taxation of investment income 6,730 7,145 10,120 10,535 13,415 13,680
  Taxation of withdrawals -6,830 -6,605 -7,140 -7,525 -7,845 -8,335
  Net tax expenditure 9,735 12,485 15,180 15,790 18,825 19,115
Registered Retirement Savings Plans28            
  Deduction for contributions 7,240 7,005 7,245 7,450 7,750 8,005
  Non-taxation of investment income 3,825 4,085 6,755 6,985 8,875 10,430
  Taxation of withdrawals -4,825 -4,375 -4,810 -5,250 -5,190 -5,355
  Net tax expenditure 6,240 6,715 9,190 9,185 11,435 13,080
Supplementary information: present-value of tax-assisted retirement savings plans29 9,105 10,150 10,470 10,945 11,515 12,160
Saskatchewan Pension Plan S S S S S S
Treatment of alimony and maintenance payments 92 93 88 88 86 86
U.S. Social Security benefits30 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 85 87 87 88 90
First-Time Home Buyers’ Tax Credit31 120 105 110 110 115
Home Renovation Tax Credit32 2,265
Non-taxation of capital gains on principal residences33 3,015 3,785 4,105 4,700 4,255 4,005
Non-taxation of income from the Office of the Governor General of Canada34 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 135 140 150 160 165 170
Memorandum Items            
Avoidance of Double Taxation            
Dividend gross-up and credit35 3,405 3,805 3,790 4,145 4,370 4,825
Foreign Tax Credit 750 660 670 740 845 930
Non-taxation of capital dividends n.a. n.a. n.a. n.a. n.a. n.a.
Loss Offset Provisions            
Capital loss carry-overs36 145 230 410 350 310 320
Farm and fishing loss carry-overs 15 11 14 16 16 16
Non-capital loss carry-overs 55 56 49 63 70 75
Social and Employment Insurance Programs            
Canada Pension Plan and Quebec Pension Plan            
  Employee-Paid Contribution Credit 2,875 2,815 2,880 3,070 3,205 3,315
  Non-taxation of employer-paid premiums 4,650 4,520 4,640 4,945 5,150 5,325
Employment Insurance and Quebec Parental
Insurance Plan
           
  Employee-Paid Contribution Credit37 955 960 985 1,065 1,145 1,220
  Non-taxation of employer-paid premiums 1,885 1,870 1,915 2,075 2,230 2,390
Refundable Tax Credits Classified as Transfer Payments38            
Canada Child Tax Benefit39 9,368 9,753 10,013 10,049 10,266 n.a.
Refundable Medical Expense Supplement 120 130 135 135 140 145
Working Income Tax Benefit40 480 1,025 1,055 1,080 1,105 1,125
Other            
Basic Personal Amount41 26,205 27,880 28,350 29,020 30,210 31,220
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 33 39 42 44 44 45
Partial deduction of meals and entertainment expenses 150 175 185 185 185 190
* 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 2013, effective 2013. See the “What’s New in the 2013 Report” section for details.

4  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.

5  These tax expenditures relate to amounts earned and claimed in the year by students (i.e., neither transferred nor carried forward). The methodology used to calculate the Textbook Tax Credit has changed this year, resulting in a downward revision of estimates and projections.

6  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.

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” section of the 2012 edition of this report 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 (indexed for years subsequent to 2012) 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 Budget 2013 increased the Lifetime Capital Gains Exemption (LCGE) to $800,000 from $750,000 effective for the 2014 taxation year.
In addition, the LCGE limit will be indexed to inflation for taxation years after 2014. See the “What’s New in the 2013 Report” section for details.

15 For an explanation of why this tax expenditure may be negative in some years, see the 2010 edition of Tax Expenditures: Notes to the Estimates/Projections.

16 This measure was introduced in Budget 2011, effective 2011.

17 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.

18 This credit was extended in Budget 2013 and is set to expire on March 31, 2014. See the “What’s New in the 2013 Report” section for details.

19 This tax expenditure does not take into account the tax value of current-year capital losses applied against previous-year capital gains.

20 This measure was introduced in Budget 2008, effective January 1, 2009.

21 Budget 2013 announced the phase-out of this measure by 2017. See the “What’s New in the 2013 Report” section for details.

22 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.

23 The methodology used to calculate this tax expenditure was changed to assume that employer-paid health premiums would be eligible for the Medical Expense Tax Credit if they were taxable.

24 Budget 2009 increased the Age Credit amount by $1,000, to $6,408 from $5,408, effective 2009.

25 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).

26 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.

27 The decline in this tax expenditure in 2009 mainly reflects the Budget 2009 increase in the Basic Personal Amount and related amounts.

28 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.

29 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.

30 This measure was changed in Budget 2010, effective January 1, 2010.

31 This measure was introduced in Budget 2009, effective January 28, 2009.

32 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.

33 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.

34 This exemption was ended in Budget 2012, effective 2013. See the “What’s New” section of the 2012 edition of this report for details.

35
The estimates and projections include the revenue impact associated with both the enhanced Dividend Tax Credit and the ordinary Dividend Tax Credit. 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. Budget 2013 introduced changes to the ordinary Dividend Tax Credit and gross-up factor to ensure the appropriate tax treatment of dividend income.

36 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.

37 Effective in 2010, a tax credit is also provided in respect of premiums paid by a self-employed individual under the Employment Insurance Act.

38 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” section of the 2012 edition of this report for details.

39 This tax expenditure is presented on a fiscal year basis as reported in the Public Accounts of Canada (e.g., the amount for 2012 corresponds to the expenditure reported in the Public Accounts of Canada for the 2012–13 fiscal year, ending March 31, 2013).

40 Budget 2009 enhanced this measure, effective 2009.

41 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 of dollars
  Estimates Projections
 

  2008 2009 2010 2011 2012 2013
Charitable Donations, Gifts, Charities and Non-Profit Organizations            
Deductibility of charitable donations1 425 325 395 395 405 415
Donations of publicly listed securities            
  Deductibility of donations2 n.a. n.a. n.a. n.a. n.a. n.a.
  Non-taxation of capital gains 105 36 63 67 58 63
  Total tax expenditure n.a. n.a. n.a. n.a. n.a. n.a.
Donations of ecologically sensitive land            
  Deductibility of donations 4 11 S 5 S 5
  Non-taxation of capital gains 4 10 S S S S
  Total tax expenditure 8 21 3 5 S 6
Donations of cultural property            
  Deductibility of donations 7 4 25 6 35 22
  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) 160 140 125 110 71 89
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 1,725 1,900 2,050 2,440 2,765 2,845
Logging Tax Credit 5 4 8 10 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 gains3 4,810 3,110 3,255 3,790 3,995 4,085
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 60 62 92 63 84 100
  Claimed in current year but earned in prior years 71 24 30 40 86 90
  Earned in current year but carried back to prior years 4 7 18 14 155 11
  Total tax expenditure 135 93 140 117 325 201
Scientific Research and Experimental Development Investment Tax Credit4            
  Earned and claimed in current year 830 840 690 770 795 765
  Claimed in current year but earned in prior years 740 680 740 765 790 795
  Earned in current year but carried back to prior years 175 105 160 45 115 215
  Total tax expenditure 1,745 1,625 1,590 1,580 1,700 1,775
Apprenticeship Job Creation Tax Credit            
  Earned and claimed in current year 60 51 50 53 63 63
  Claimed in current year but earned in prior years 9 9 12 14 19 19
  Earned in current year but carried back to prior years 5 4 6 5 4 4
  Total tax expenditure 74 64 68 72 86 86
Investment Tax Credit for Child Care Spaces S S S S S S
Small Business            
Deduction of allowable business investment losses 20 16 15 27 9 17
Low tax rate for small businesses5 4,575 4,450 4,260 3,880 3,205 2,905
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 X X X X X X
Exemptions from non-resident withholding tax            
  Dividends7 2,130 1,290 1,630 1,975 1,815 1,870
  Interest 1,250 1,635 1,410 1,385 1,470 1,515
  Rents and royalties 290 325 330 350 335 345
  Management fees 125 160 150 170 155 160
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 tickets8 30 -9 -8 42 8 S
Flexibility in inventory accounting n.a. n.a. n.a. n.a. n.a. n.a.
Agricultural co-operatives—patronage dividends paid as shares 7 5 5 8 8 8
AgriInvest (farm savings account) 3 S 3 3 S S
Agri-Québec (farm savings account)9 S S S
Exemption for farmers’ and fishers’ insurers S 5 7 7 10 10
Natural Resources            
Corporate Mineral Exploration and Development Tax Credit10 25 21 24 58 54 37
Deductibility of contributions to a qualifying environmental trust11 S S S 5 S S
Earned depletion 4 S 11 S S S
Flow-through share deductions 74 69 69 81 54 51
Reclassification of expenses under flow-through shares8 -4 -3 S S S S
Other Sectors            
Exemption from branch tax for transportation, communications, and iron ore mining corporations 38 7 44 41 12 29
Special tax rate for credit unions12 83 81 79 64 42 37
Surtax on the profits of tobacco manufacturers X X X X X X
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 65 32 29 43 44 42
Investment income credited to life insurance policies 270 275 260 285 275 270
Tax status of certain federal Crown corporations X X X X X X
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 89 51 185 195 110 110
Refundable taxes on investment income of private corporations            
  Additional Part I tax13 -2,360 -1,780 -1,760 -2,325 -2,780 -2,875
  Part IV tax -4,685 -3,350 -2,785 -3,030 -3,305 -3,360
  Dividend refund 8,160 6,190 5,275 5,615 6,145 6,240
  Net tax expenditure 1,115 1,060 730 260 60 5
Loss Offset Provisions            
Capital loss carry-overs            
  Net capital losses carried back 535 440 295 84 130 125
  Net capital losses applied to current year 420 215 445 460 415 410
Farm and fishing loss carry-overs            
  Farm and fishing losses carried back 14 14 14 11 11 11
  Farm and fishing losses applied to current year3 32 45 49 69 44 49
Non-capital loss carry-overs            
  Non-capital losses carried back 6,200 3,395 2,795 1,950 1,715 1,475
  Non-capital losses applied to current year 3,955 4,575 3,970 4,225 4,415 4,360
Refundable Tax Credits Classified as Transfer Payments14            
Atlantic Investment Tax Credit 13 13 14 14 17 18
Scientific Research and Experimental Development Investment Tax Credit 1,545 1,535 1,500 1,520 1,575 1,590
Canadian Film or Video Production Tax Credit 215 225 210 235 260 265
Film or Video Production Services Tax Credit 99 73 87 105 110 110
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 305 265 270 275 285 285
Patronage dividend deduction 435 350 285 340 245 250
* 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 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.”

3 Changes in the estimates and projections for this tax expenditure from those in last year’s report partly reflect methodological improvements.

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). The total amount of tax assistance provided by this credit is the sum of its non-refundable and refundable components. Changes to this measure were announced in Budget 2012. See the “What’s New” section of the 2012 edition of this report for 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. The reduction in the tax expenditure between 2008 and 2012 primarily reflects the reduction in the general corporate income tax rate.

6 Budget 2013 announced the elimination of the International Banking Centre rules, effective for taxation years that begin on or after March 21, 2013. See the “What’s New in the 2013 Report” section for details.

7 This category includes the tax expenditure attributable to the exemption of estate and trust income distributions, including distributions by income trusts.

8 For an explanation of why this tax expenditure may be negative in some years, see the 2010 edition of Tax Expenditures: Notes to the Estimates/Projections.

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” section of the 2012 edition of this report for details.

11 The measure was expanded in Budget 2011 to include trusts established after 2011 that are required to be established to fund reclamation costs associated with pipelines. 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 phase-out of this measure was announced in Budget 2013. See the "What's New in the 2013 Report" section for details.

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” section of the 2012 edition of this report for details.

 

Table 3
GST Tax Expenditures*
millions of dollars
  Estimates Projections
 

  2008 2009 2010 2011 2012 2013
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 tolls1 15 15 15 15 15 15
Exemption and rebate for legal aid services 20 20 20 20 20 25
Non-taxability of certain importations n.a. n.a. n.a. n.a. n.a. n.a.
Foreign Convention and Tour Incentive Program 10 10 10 15 15 15
Small suppliers’ threshold 130 185 170 175 180 190
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 organizations1
875 890 905 890 910 905
Rebate for poppies and wreaths2 S S S S
Rebate for registered charities 270 260 265 280 290 300
Rebate for qualifying non-profit organizations 70 70 75 70 70 70
Education            
Exemption for educational services (tuition)1 450 485 515 545 565 580
Rebate for book purchases made by qualifying
public institutions
25 25 20 20 20 25
Rebate for colleges 75 80 100 100 105 105
Rebate for schools 360 370 360 375 390 395
Rebate for universities 220 225 260 260 270 275
Health Care            
Exemption for health care services1 535 570 595 650 665 675
Rebate for hospitals 485 515 560 615 635 650
Rebate for specially equipped motor vehicles2 S S S S S S
Zero-rating of medical devices1 260 275 290 300 310 315
Zero-rating of prescription drugs1 635 665 695 715 735 755
Households            
Exemption for child care and personal services1 140 150 160 170 180 185
GST/HST Credit 3,555 3,645 3,760 3,870 3,995 4,115
Travellers’ exemption 130 155 170 190 205 230
Zero-rating of basic groceries1 3,280 3,475 3,580 3,725 3,820 3,925
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 1,285 1,415 1,305 1,360 1,425 1,510
Rebate for new housing 735 585 590 570 590 620
Rebate for new residential rental property 60 50 50 55 55 60
Municipalities            
Exemption for municipal transit1 155 155 165 160 165 170
Exemption for water and basic garbage
collection services1
205 215 235 250 255 265
Rebate for municipalities 1,775 1,895 2,050 2,025 2,090 2,160
Memorandum Items            
Recognition of Expenses Incurred to Earn Income            
Rebate to employees and partners 80 75 75 70 70 70
Other            
Partial input tax credits for meals and entertainment expenses 140 135 135 145 145 155
*  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 is estimated using data from Statistics Canada’s historically revised input-output tables. For more information, see the “What’s New in the 2013 Report” section.

2
This is the first time this measure is included in this report, due to the availability of new data.

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