Report on Federal Tax Expenditures - Concepts, Estimates and Evaluations 2020: part 6

• The ability to carry forward non-capital losses was introduced in 1942 and the ability to carry back non-capital losses was introduced in 1944.
• Budget 2006 extended the carry-forward period to 20 years from 10 years for non-capital losses arising in and after 2006.

• Introduced in Budget 1965. Effective for expenses in respect of advertising in non-Canadian newspapers and periodicals made after December 31, 1965.
• This measure was broadened to cover advertising on non-Canadian broadcast media, effective after September 21, 1976.
• Following the 1999 Canada-U.S. Agreement on Magazines, expenses incurred to advertise in periodicals published after May 2000 are fully deductible if the periodicals contain at least 80% original editorial content. If the periodicals contain less than 80% original editorial content, then 50% of advertising expenses are deductible.

• Introduced in 1943.

• The exemptions for members of provincial and territorial legislative assemblies and for other municipal officers were introduced in 1947 and 1949 respectively.
• Budget 2017 announced the repeal of this measure, effective for the 2019 and subsequent taxation years.

• The exemption of employee health plans was introduced in 1948.
• The deduction for self-employed individuals was introduced in Budget 1998, applicable to amounts paid or payable in a fiscal period beginning after 1997.

• Introduced in Budget 1985. Effective for home relocation loans received after May 23, 1985.
• Budget 2017 announced the repeal of this measure, effective for the 2018 and subsequent taxation years.

• Introduced in Budget 1971. Effective for the 1972 and subsequent taxation years.

• Introduced in 1977.
• Budget 1998 extended the holding period for certified cultural property from 5 to 10 years, effective February 23, 1998.
• Budget 2019 amended the Income Tax Act and the Cultural Property Export and Import Act, removing the requirement that property be of “national importance” in order to qualify for the ehanced tax incentives for donations of cultural property. The change applies to donations made on or after March 19, 2019.

• Budget 1995 eliminated the net income limit for donations of ecologically sensitive land eligible for the tax credit.
• Budget 2000 reduced by half the normal inclusion rate applicable to capital gains arising in respect of gifts of ecologically sensitive land and related easements, covenants and servitudes.
• Budget 2006 further reduced the inclusion rate to 0%.
• Budget 2014 extended the carry-forward period for donations of ecologically sensitive land from 5 to 10 years.
• Budget 2017 removed private foundations as eligible recipients of donations of ecologically sensitive land, and introduced a number of administrative measures designed to better protect such gifts and broaden slightly the types of gifts which qualify (i.e., certain personal servitudes in Quebec).

• Budget 1997 introduced a temporary reduction of half the normal inclusion rate applicable to capital gains arising from a donation of publicly listed securities to a registered charity that is not a private foundation. This measure was made permanent in Budget 2001.
• Budget 2006 reduced the inclusion rate to 0%.
• Budget 2007 extended the zero inclusion rate to capital gains arising on donations of publicly listed securities to private foundations.
• Budget 2008 extended the zero inclusion rate to donations of unlisted exchangeable securities if exchanged for publicly listed securities and donated within 30 days of the exchange.

• Introduced as part of the 1972 Tax Reform.
• Amended in Budget 1981 so that, for years after 1981, a family may only treat one property as its principal residence for a taxation year.
• Amended on October 3, 2016 to require the reporting of dispositions (and introduce an indefinite reassessment period for unreported dispositions) and to limit the types of trusts that are eligible to designate a property as a principal residence for a taxation year beginning after 2016.

Goods imported into Canada are generally taxable. However, a number of goods do not attract GST upon importation, including:

• goods, other than certain books and periodicals, valued at not more than $20 and sent from other countries by mail or courier to residents of Canada;
• goods imported by foreign diplomats or by settlers to Canada;
• Canadian goods re-entering Canada and on which GST has already been paid;
• goods imported on a temporary basis, such as tourists’ baggage and foreign-based conveyances (ships, airplanes, trains, trucks) used in the international transportation of people or goods.

• This measure has been in effect since the inception of the GST in 1991.
• The list of non-taxable importations has been periodically amended. Most recently:
• Budget 2012 announced a measure to provide GST relief on foreign-based rental vehicles temporarily imported by Canadian residents, applicable after June 1, 2012; and
• regulations codifying the treatment of Canadian goods re-entering Canada were released on April 8, 2014, generally applicable retroactively to the inception of the GST (Department of Finance Canada news release 2014-051).

• Administrative positions have evolved over time.

• Introduced in Budget 1942. Effective for pensions being administered on July 31, 1942.
• Extended to the Canadian Forces Income Support Benefit in 2005, effective April 1, 2006.
• Extended to the Family Caregiver Relief Benefit in 2015 (renamed the Caregiver Recognition Benefit in 2017), effective for the 2015 and subsequent taxation years.

• Introduced in Budget 1971. Effective for the 1971 and subsequent taxation years.

• The deduction was introduced in Budget 2004 for high-risk operational missions. Effective for the 2004 and subsequent taxation years.
• On April 14, 2004, the Government announced that the deduction would be extended to moderate-risk missions (National Defence news release NR-04.028, April 14, 2004).
• On May 18, 2017, the Government announced that the deduction would be extended to all international operational missions, effective for the 2017 and subsequent taxation years (National Defence news release, May 18, 2017). The maximum deduction was increased to the pay level of a Lieutenant-Colonel (General Services Officer).

• Introduced in Budget 1972. Effective for the 1972 and subsequent taxation years.

• Introduced in 1954.
• Amended in 2001, effective for taxation years ending after 1999, to clarify that only the gross investment revenue derived by the insurer from “designated insurance property” is included in the exempt income.

• Canadian courts have generally held that lottery and gambling winnings are not considered to be a “source” of income for tax purposes, unless in the case of gambling winnings they were earned through the carrying on of a business. They have therefore generally not been taxed under the Canadian income tax system.
• Paragraph 40(2)(f) and subsection 52(4) were introduced in 1972 as part of the 1971 Tax Reform and confirm the non-taxation of lottery and gambling winnings.

• Non-profit organizations have been exempt from federal income tax since the inception of the federal income tax in 1917.

• The Disability Award was made tax-free when it was introduced in 2005 as part of the New Veterans Charter.
• The Critical Injury Benefit was made tax-free when it was introduced in 2015 (Veterans Affairs Canada news release, March 30, 2015).
• The Pain and Suffering Compensation and the Additional Pain and Suffering Compensation were made tax-free when introduced as of April 1, 2019 (Veterans Affairs Canada, news release, December 20, 2017).

• The first tax exemption available to status Indians was enacted in 1850, later being replaced by the Indian Act in 1876.
• The current wording of section 87 of the Indian Act was added in 1951 and has not changed materially since then.
• Court decisions continue to have an important role in defining the scope of the exemption under section 87.

• Introduced in 1986. Effective for shares acquired on or after May 23, 1985.

• Introduced in 1958. Effective for the 1958 and subsequent taxation years.

• Charities have been exempt from federal income tax since the inception of the federal income tax in 1917.

• To be consistent with the treatment of payments made under the Guaranteed Income Supplement, Budget 1981 made social assistance payments includable in income and deductible in computing taxable income, effective for the 1982 and subsequent taxation years.

• The Supreme Court confirmed a longstanding administrative position that strike pay is non-taxable in a 1990 court case (Wally Fries v. The Queen, [1990] 2 CTC 439, 90 DTC 6662).

• The exemption of up to $10,000 of a death benefit was introduced in Budget 1959, applicable to amounts received on or after the death of an employee that occurred after April 9, 1959.

• The first Workers’ Compensation Boards were established in 1915, and workers’ compensation benefits have been non-taxable since the inception of the income tax in 1917.
• Prior to 1982, workers’ compensation payments were excluded from income. From 1982 onward, workers’ compensation benefits have been included in total income and deductible in computing taxable income.

• Introduced in Budget 1986. Effective for the 1987 and subsequent taxation years.
• The current design of the Northern Residents Deductions was introduced in 1990 (Department of Finance Canada news release, December 7, 1990).
• Budget 2008 increased the maximum daily residency deduction by 10%, from $15.00 to $16.50.
• Budget 2016 increased the maximum daily residency deduction by 33%, from $16.50 to $22.00.

• Introduced in Budget 1979 as a 50% deduction of foreign employment income, up to a maximum deduction of $50,000. Effective for the 1980 and subsequent taxation years.
• Budget 1983 replaced the deduction with a non-refundable credit equal to the federal income tax otherwise payable on 80% of foreign employment income, effective as of 1984.
• Budget 2012 announced the phase-out of this credit over the 2013-2015 period. The share of qualifying foreign employment income on which the credit is calculated was reduced from 80% to 60% for 2013, to 40% for 2014 and to 20% for 2015. The credit was fully eliminated in 2016.

• The 1987 Tax Reform limited the deductibility of meals and entertainment expenses to 80% of the expenses incurred.
• Budget 1994 reduced the deductibility limit from 80% to 50%.
• Budget 2007 increased the deductibility limit to 80% for expenses incurred by long-haul truck drivers.
• The rule limiting input tax credits for these expenses has been in place since the inception of the GST. The allowable amount is periodically amended, concurrently with the income tax rules.

• Introduced in Budget 1971. Effective for the 1972 and subsequent taxation years.
• The 1987 Tax Reform increased the capital gains inclusion for the 1988 and subsequent taxation years. In general terms, the inclusion rate increased to two-thirds from one-half for 1988 and 1989, and to three-quarters from two-thirds for the 1990 and subsequent taxation years.
• The capital gains inclusion rate was reduced to two-thirds from three-quarters effective February 28, 2000 (Budget 2000), and reduced again to one-half from two-thirds, effective October 18, 2000 (2000 Economic Statement and Budget Update).

• From 1984 to 1996, under the Canada-United States Tax Convention, Canada had the sole right to tax U.S. Social Security benefits of Canadian residents. However, the Convention also required that half of these benefits be tax-exempt in Canada. This exemption was introduced to take into account how the benefits would have been taxed in the U.S. if paid to U.S. residents. Before 1996, the U.S. exempted up to 50% of U.S. Social Security benefits.
• The 1995 Protocol to the Canada-United States Tax Convention granted the United States the exclusive right to tax the benefits of Canadian residents, effective for 1996 and 1997.
• Under the 1997 Protocol, Canada regained exclusive taxing jurisdiction over U.S. Social Security benefits of Canadian residents, generally effective retroactively to January 1, 1996. Concurrently, 15% of those benefits became tax-exempt because the U.S. was exempting up to 15% of U.S. Social Security benefits since 1996.
• Budget 2010 reinstated the 50% exemption for all Canadians and their spouses and common-law partners who have been in receipt of benefits since before January 1, 1996, effective for benefits received on or after January 1, 2010.

• Introduced in Budget 2005. Effective in respect of eligible shares issued after 2005 and before 2016.
• Budget 2015 extended this measure to apply in respect of eligible shares issued before 2021.

• Introduced as part of the 1987 Tax Reform, effective for the 1988 and subsequent taxation years, to replace the previous pension deduction.
• The maximum amount of income eligible for the Pension Income Credit was doubled from $1,000 to $2,000 in Budget 2006.
• Veterans’ Retirement Income Security Benefit payments became eligible for the Pension Income Credit as of the 2015 taxation year and veterans’ Income Replacement Benefit payments are eligible for the credit as of the 2019 taxation year.

• Introduced as part of the 2006 Tax Fairness Plan. Effective for the 2007 and subsequent taxation years.
• Income from a Retirement Compensation Arrangement became eligible for pension income splitting, subject to specified conditions, as of the 2013 taxation year.
• Subject to specified conditions, veterans’ Retirement Income Security Benefit payments became eligible for pension income splitting as of the 2015 taxation year and veterans’ Income Replacement Benefit payments are eligible for pension income splitting as of the 2019 taxation year.  

• Introduced as part of the Election Expenses Act of 1974.
• In 2003, the amount to which the 75% credit applies was extended to $400, effective January 1, 2004.
• Corporations were prohibited from making political contributions in 2007, following the adoption of the Federal Accountability Act. 

• The income tax rules for PRPPs came into force on December 14, 2012 (Department of Finance Canada news release 2012-165, December 14, 2012).

• The first $500,000 of annual income earned by a Canadian-controlled private corporation (CCPC) from an active business carried on in Canada is taxed at a preferential federal corporate income tax rate of 9% (as of January 1, 2019). The $500,000 annual small business limit must be shared by a CCPC with other CCPCs with which it is associated. In order to target the preferential tax rate to small businesses, the annual small business limit is gradually reduced when:
• The taxable capital of the CCPCs that are part of the same associated group is between $10 million and $15 million, and is zero if the taxable capital of the associated group is $15 million or greater.
• The investment income of the CCPCs that are part of the same associated group is between $50,000 and $150,000, and is zero if the investment income of the associated group is $150,000 or greater.
• The annual small business limit is the lesser of the two reduced amounts.

• A lower federal corporate tax rate was introduced in Budget 1949 to assist smaller corporations. In general terms, a low 10% rate applied to business income up to $10,000 while additional income was taxed at a 33% rate. All corporations were eligible for this lower rate, regardless of size; however, only one corporation in a controlled corporate group could claim that lower rate.
• Eligibility rules to this lower rate were modified as part of the 1972 Tax Reform to limit access to CCPCs and provide for the sharing of the small business limit among associated corporations.
• Budget 1994 introduced rules to phase out the preferential tax rate for CCPCs with taxable capital of at least $10 million.
• The annual business limit was increased in stages from $200,000 in 2002 to $300,000 in 2005. It was increased to $400,000 effective 2007.
• The 2007 Economic Statement reduced the preferential tax rate from 12% to 11% effective 2008 (compared to the general corporate income tax rate of 19.5% in 2008). The federal corporate surtax (equivalent to 1.12 percentage points of tax) was also eliminated for all corporations as of 2008.
• Budget 2009 increased the annual income limit to $500,000 (from $400,000), effective 2009.
• Budget 2015 announced a series of reductions to the preferential tax rate, including a reduction from 11% to 10.5% in 2016.
• Budget 2016 introduced a change to prevent the small business deduction from applying to income earned from sales to another corporation, or related persons, that have a direct or indirect interest in the selling corporation.
• On October 16, 2017 the Government announced a further reduction in the preferential tax rate to 10% as of January 1, 2018, and to 9% as of January 1, 2019.
• Budget 2018 announced that the small business business limit would be reduced on a straight-line basis for CCPCs having between $50,000 and $150,000 of investment income, for tax years beginning after 2018.
• Budget 2019 introduced a change to allow the income from sales of farming and fishing products by a CCPC to any arm’s length corporation to count for the small business deduction.

• Introduced in Budget 2006. Effective July 1, 2006 and subsequent taxation years.
• Budget 2007 extended the credit to innovative fare products like electronic fare cards and weekly passes when used on an ongoing basis.
• Budget 2017 announced the elimination of this measure, effective for transit use occurring after June 30, 2017.

• During the 1960s, the federal government offered provinces opting-out arrangements for certain federal-provincial programs, such as hospital care and social welfare. Under the arrangements—which only Quebec opted to use—the federal government abated personal income tax by 13.5 percentage points while Quebec increased its personal income taxes by an equivalent amount. In order to ensure that Quebec would not receive federal transfer payments for health and social programs and (unlike other provinces) also the tax abatement, this abatement was originally deducted from transfer payments to Quebec. The abatement was rolled into the Canada Health and Social Transfer in 1995, and then into the Canada Health Transfer and Canada Social Transfer in 2004. In 2012, the Federal-Provincial Fiscal Arrangements Act was revised to clarify that the recovery is no longer linked to the Canada Health and Social Transfer or its successor programs (the Canada Health Transfer and Canada Social Transfer).
• In 1964, the federal government introduced the Youth Allowances Program. Quebec had a similar program at the time and, wishing to continue it, obtained an abatement of three personal income tax points. The Youth Allowances Program was dismantled in 1974; however, in order to minimize disruption to Quebec’s tax structure, an arrangement was made to maintain the three-point abatement. The value of the corresponding reduction is currently recovered through bi-annual payments made by the Province of Quebec to the Receiver General for Canada.