In 1977, the Government of Canada agreed to transfer 13.5 percentage points of Personal Income Tax (PIT) and 1 percentage point of Corporate Income Tax (CIT) to the provinces and territories as part of the federal government’s on-going contribution for health and post-secondary education.
Since tax points are worth more in some provinces than others, the federal government agreed to equalize the tax points on an on-going basis.
The annual amount paid to equalize these tax points (approximately $1 billion in 2013-14) is called Associated Equalization – because it is the Equalization amount ‘associated’ with the tax point transfer.
The amounts are calculated and paid through the Equalization program; however, they are intended to support health, post-secondary education and social assistance and social services and as such are included in the Canada Health Transfer (CHT) and the Canada Social Transfer (CST).
Why are total transfer levels adjusted to take into account Associated Equalization?
Since Associated Equalization payments are part of the Government of Canada’s on-going contribution for health, post-secondary education and social assistance and social services, the payments are considered to be part of the CHT/CST.
CHT/CST tax points of $24.1 billion in 2013-14 thus include $1 billion of Associated Equalization.
The Associated Equalization is also accounted for in the Equalization program, since these amounts are calculated and paid out through the Equalization system.
Equalization entitlements of $16.1 billion in 2013-14 also include the $1 billion of Associated Equalization.
In calculating total transfers, including Equalization, CHT and CST, the total is adjusted to avoid double-counting since Associated Equalization is part of all three transfer programs.