Non-capital losses, including farm and fishing non-capital losses, may be carried back or forward and deducted against all sources of income. For losses incurred in or after 2006, the carry-back period is three years and the carry-forward period 20 years.

Personal (including trusts) and corporate income tax

Businesses

Timing preference

Income Tax Act, subsection 111(1)

• 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.

To assess tax liability over a multi-year period

This measure supports businesses and investors by reducing the risk associated with investment, and provides tax relief for cyclical businesses (Budget 1983; Budget 2004; Budget 2006).

Structural tax measure

This measure is considered part of the benchmark tax system, and therefore is not a tax expenditure.

Business – other

70499 - Economic affairs - Economic affairs not elsewhere classified

Programs within the mandates of Global Affairs Canada, Public Services and Procurement Canada, and the regional development agencies (among other federal organizations) also offer support to Canadian businesses in various manners. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Personal income tax: T1 Income Tax and Benefit Return and T3 Trust Income Tax and Information Return

Corporate income tax: T2 Corporation Income Tax Return

Personal income tax: T1 and T3 micro-simulation models. For individuals, the estimate for a given year represents the tax relief associated with the carry-forward to that year of losses incurred in prior years. Data on losses carried back to a previous year is not available. For trusts, the estimate for a given year represents the tax relief associated with the carry-forward to that year of losses incurred in prior years, as well as the carry-back to that year of losses incurred in subsequent years. Data on amounts carried back are preliminary.

Corporate income tax: The estimate for a given year represents the tax relief associated with both the carry-forward to that year of losses incurred in prior years and the carry-back to prior years of losses incurred in that year. The estimate is equal to the amount of losses carried over multiplied by the tax rate applicable in the year in which the losses are applied.

Personal income tax: T1 micro-simulation model in the case of individuals. Projections for trusts are based on projected growth for corporations.

Corporate income tax: The cost of this measure is projected to grow in line with corporate taxable income.

About 56,000 individuals, 4,400 trusts and 490,000 corporations made use of this measure in 2021 (not counting individuals that carried back losses only).

Expenses for advertising in non-Canadian newspapers and periodicals or on non-Canadian broadcast media cannot generally be deducted for income tax purposes if the advertising is directed primarily to a market in Canada. This treatment results in a negative tax expenditure, since the deductibility of expenses incurred to earn business income is considered to be part of the benchmark tax system.

Personal (including trusts) and corporate income tax

Businesses that advertise in foreign media

Other

Income Tax Act, sections 19 to 19.1

• 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.

To achieve an economic objective - other

This measure is intended to ensure that control of periodicals and newspapers remains in the hands of Canadians and supports the continued existence of a viable and original Canadian magazine industry (House of Commons Debates, vol. 3, 1965; Department of Finance Canada news release, June 19, 1995).

Non-structural tax measure

This measure disallows the deduction of an expense that is incurred to earn business income.

Business – other

70499 - Economic affairs - Economic affairs not elsewhere classified

Programs within the mandates of Global Affairs Canada, Public Services and Procurement Canada, and the regional development agencies (among other federal organizations) also offer support to Canadian businesses in various manners. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Personal income tax: No data is available on expenses incurred by unincorporated businesses to advertise in non-Canadian media.

Corporate income tax: T2 Corporation Income Tax Return

Personal income tax: No estimate is available.

Corporate income tax: T2 micro-simulation model

Personal income tax: No projection is available.

Corporate income tax: The cost of this measure is projected to grow in line with nominal gross domestic product.

About 300 corporations reported non-deductible advertising expenses in 2021. No data is available for unincorporated businesses.

Diplomats and other government employees posted abroad can claim an exemption for the allowances received to cover the additional costs associated with living outside Canada.

Personal income tax

Diplomats and other government employees posted abroad

Exemption

Income Tax Act, subparagraph 6(1)(b)(iii)

• Introduced in 1943.

To recognize expenses incurred to earn employment income

This measure recognizes the additional costs incurred by diplomats and other government personnel employed outside Canada.

Structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Employment

70412 - Economic affairs - General economic, commercial, and labor affairs - General labor affairs

Programs within the mandate of Employment and Social Development Canada also support employment. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Global Affairs Canada and National Defence data

The value of this tax expenditure is estimated by multiplying total exempt allowances by the estimated marginal tax rates of recipients.

The projection for 2023 is based on partial year data and historical growth. Projections for 2024 and 2025 are not provided as the value of this measure cannot be reliably forecast for these years.

More than 8,800 individuals received non-taxable allowances in 2021.

Elected members of provincial and territorial legislative assemblies and of incorporated municipalities, elected officers of municipal utilities boards, commissions, corporations, or similar bodies, and members of public or separate school boards may receive allowances for expenses incident to the discharge of their duties. Such allowances were not included in income so long as they did not exceed half of the salary or other remuneration received in that capacity in the year. This exemption was repealed as of the 2019 tax year.

Personal income tax

Members of provincial and territorial legislative assemblies and of incorporated municipalities; elected officers of municipal utilities boards, commissions, corporations, or similar bodies; and members of public or separate school boards

Exemption

Income Tax Act, subsections 81(2) and (3)

• 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.

To recognize expenses incurred to earn employment income

This measure recognizes the additional costs incurred by members of legislative assemblies and certain municipal officers in the course of their duties.

Structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Employment

70412 - Economic affairs - General economic, commercial, and labor affairs - General labor affairs

Programs within the mandate of Employment and Social Development Canada also support employment. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return and T4 Statement of Remuneration Paid

Allowances reported on T4 slips are matched against T1 returns and incremental tax is calculated on the basis of the individual's taxable income with and without the allowance.

The cost of this measure is projected to grow in line with allowances.

About 26,000 individuals received non-taxable allowances in 2018.

Employer-paid benefits for private health and dental plans are deductible business expenses but are not a taxable employee benefit. In the case of self-employed individuals, they can claim a deduction in computing income from a business for amounts paid under a private health services plan for the benefit of the individual, the individual's spouse or common-law partner and members of the individual's household, subject to certain restrictions.

Personal income tax

Employees and self-employed individuals

Exemption (for employer-paid benefits); deduction (for self-employed individuals)

Income Tax Act,subparagraph 6(1)(a)(i), section 18 and section 20.01

• 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.

To achieve a social objective

This measure improves access to supplementary health and dental benefits (Budget 1998).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

This measure provides tax recognition for an expense that is not incurred to earn income.

Health

7072 - Health - Outpatient services

Programs within the mandates of Health Canada, the Canadian Food Inspection Agency, the Canadian Institutes of Health Research, the Public Health Agency of Canada and Veterans Affairs Canada also support health-related objectives. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Canadian Life and Health Insurance Association Inc., Health Insurance Benefits in Canada and Premium & Retail Tax on Life & Health Insurance

Conference Board of Canada, Benefits Benchmarking

The value of this tax expenditure is calculated as the tax revenue forgone from the non-taxation of employer-provided health related insurance premiums and benefits. These amounts are estimated using statistics provided by the Canadian Health and Life Insurance Association, in conjunction with survey information from the Conference Board of Canada. The estimated number of policy holders, along with the average value of benefits, is imputed into the T1 model using survey information from Statistics Canada to reflect estimated coverage by family type and income level. If these employer-paid amounts were taxable benefits, they would be eligible expenses under the Medical Expense Tax Credit; this interaction is taken into account in the estimation of the tax expenditure.

T1 micro-simulation model

It is estimated that about 14.0 million individuals received employer-paid health or dental benefits in 2020.

A private corporation may distribute the balance of its capital dividend account to its shareholders in the form of a capital dividend. Where the corporation elects to pay this dividend from its capital dividend account, the dividend is received tax-free by the corporation's shareholders who are resident in Canada. At any time, the capital dividend account balance generally includes the total of the excess of the non-taxable portion of capital gains over the non-deductible portion of capital losses, the non-taxable portion of gains resulting from the disposition of eligible capital property, the net proceeds of certain life insurance policies received by the corporation, and the aggregate of capital dividends received by the corporation, less the aggregate of capital dividends paid by the corporation.

Personal (including trusts) and corporate income tax

Individual and corporate investors

Exemption

Income Tax Act, subsections 83(2) and 89(1)

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

To prevent double taxation

This measure maintains the non-taxable treatment of certain amounts received by individuals through private corporations, similar to the treatment of those amounts received directly by the individuals.

Structural tax measure

This measure is considered part of the benchmark tax system, and therefore is not a tax expenditure.

Savings and investment

70499 - Economic affairs - Economic affairs not elsewhere classified

n/a

No data is available.

No estimate is available.

No projection is available.

No data is available.

Certain objects certified by the Canadian Cultural Property Export Review Board as being of cultural importance to Canada are exempt from capital gains tax when disposed of by sale or donation within 24 months of certification to a cultural institution, such as a museum or art gallery, designated under the Cultural Property Export and Import Act. Recipient cultural institutions are required to hold the cultural property for at least 10 years. Such donations are also eligible for the Charitable Donation Tax Credit (for individuals) or deduction (for corporations).

Personal (including trusts) and corporate income tax

Individual and corporate donors

Exemption

Income Tax Act,subsections 118.1(1) and 110.1(1) and paragraph 39(1)(a)(i.1)

• 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 enhanced tax incentives for donations of cultural property. The change applies to donations made on or after March 19, 2019.

To achieve a social objective

This measure preserves Canada's artistic, historic and scientific heritage by encouraging the donation of cultural property determined to be of outstanding significance to Canada's national heritage to designated Canadian institutions, such as museums and art galleries (Budget 1998).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Donations, gifts, charities and non-profit organizations

Arts and culture

70829 - Recreation, culture, and religion - Cultural services

Many federal government entities provide direct funding to registered charities, non-profit organizations and international development associations through various programs. Programs within the mandate of Canadian Heritage also support arts and culture. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Personal income tax: Data from the Canadian Cultural Property Export Review Board and T1 Income Tax and Benefit Return.

Corporate income tax: No data is available.

Personal income tax: The value of this measure is estimated by multiplying the exempt capital gains by the capital gains inclusion rate and an assumed marginal tax rate.

Corporate income tax: No estimate is available.

Personal income tax: Future donations of Canadian cultural property are projected based on a historical average.

Corporate income tax: No projection is available.

The Canadian Cultural Property Export Review Board issued approximately 376 certificates in respect of donations of cultural property to individuals and 27 to corporations in 2020-21.

A zero inclusion rate applies to capital gains arising from a donation of ecologically sensitive land (including a conservation easement, covenant or, in the province of Quebec, a personal servitude the rights to which the land is subject and which has a term of not less than 100 years, or a real servitude on such land) to a public conservation charity (other than a private foundation) or certain other qualified donees if the fair market value of the land is certified by the Minister of the Environment. These donations are also eligible for the Charitable Donation Tax Credit (for individuals) or deduction (for corporations).

Personal (including trusts) and corporate income tax

Individual and corporate donors

Exemption

Income Tax Act, subsections 110.1(1), 118.1(1) and 38(a.2), and section 207.31

• 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).

To achieve a social objective

This measure encourages Canadians to protect ecologically sensitive land, including areas containing habitats for species at risk, by donating such property to conservation charities and certain other qualified donees (Budget 2000; Budget 2006).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Donations, gifts, charities and non-profit organizations

Environment

70549 - Environmental protection - Protection of biodiversity and landscape

Many federal government entities provide direct funding to registered charities, non-profit organizations and international development associations through various programs. Programs within the mandates of Environment and Climate Change Canada, the Impact Assessment Agency of Canada, Parks Canada and Natural Resources Canada also support environment-related objectives. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Personal income tax: Data from Environment and Climate Change Canada's Ecological Gifts Program

Corporate income tax: T2 Corporation Income Tax Return

Personal income tax: The value of this measure is estimated by multiplying the exempt capital gains by the capital gains inclusion rate and an assumed marginal tax rate.

Corporate income tax: T2 micro-simulation model

Personal income tax: Future donations of ecologically sensitive land are projected based on historical growth.

Corporate income tax: Projections are based on the average of the last three historical years. The tax expenditure is projected to grow in line with nominal gross domestic product.

This measure provided tax relief to a small number of corporations (fewer than 20) in 2021. The number of individuals and trusts who obtained tax relief is unknown; however, fewer than 100 individuals made donations of ecologically sensitive land in that year.

A zero inclusion rate applies to capital gains arising from a donation of publicly listed securities made to a qualified donee, which effectively exempts such gains from income tax. Donations of publicly listed securities are also eligible for the Charitable Donation Tax Credit (for individuals) or deduction (for corporations).

Personal (including trusts) and corporate income tax

Individual and corporate donors

Exemption

Income Tax Act, paragraphs 38(a.1) and (a.4), sections 38.3 and 38.4

• 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.

To achieve a social objective

This measure was introduced to facilitate the transfer of certain publicly listed securities to charities to help them respond to the needs of Canadians (Budget 1997).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Donations, gifts, charities and non-profit organizations

705 - Environmental protection; 706 - Housing and community amenities; 707 - Health; 708 - Recreation, culture, and religion; 709 - Education; 710 - Social protection; Other various codes

Many federal government entities provide direct funding to registered charities, non-profit organizations and international development associations through various programs.

Personal income tax: T1 Income Tax and Benefit Return

Corporate income tax: T2 Corporation Income Tax Return

Personal income tax: The value of this measure is estimated by multiplying the exempt capital gains on publicly listed shares by the capital gains inclusion rate and the top marginal tax rate.

Corporate income tax: T2 micro-simulation model

Personal income tax: Projections for publicly listed securities are made based on historical donation levels and projected growth in capital gains.

Corporate income tax: Projections are based on the average of the last three historical years. The tax expenditure is projected to grow in line with nominal gross domestic product.

This measure provided tax relief to about 2,075 corporations in 2021. The number of individuals and trusts who obtained tax relief is unknown; however, about 9,200 individuals made donations of publicly listed shares in that year.

This measure provides an exemption from tax in respect of all or a portion of a capital gain from the sale of a principal residence of an individual or eligible trust. In general, certain property of an individual or eligible trust may be designated as a principal residence for a taxation year where the property was ordinarily inhabited in the year by the taxpayer or a particular beneficiary of the trust or by the spouse or common-law partner, former spouse or common-law partner, or child of the taxpayer or the particular beneficiary of the trust. Properties that may be designated as a principal residence of an individual or trust are a housing unit, a leasehold interest in a housing unit, and in certain circumstances, shares of the capital stock of a cooperative housing corporation owned by the individual or trust. The exempt portion of the capital gain from the sale of a principal residence is generally determined in proportion to the fraction where one plus the number of years after 1971 that the property was owned by and designated as the principal residence of the individual or trust while resident in Canada is divided by the number of years after 1971 that the property was owned by the individual or trust.

Personal income tax (including trusts)

Individual homeowners

Exemption

Income Tax Act, paragraph 40(2)(b), definition of "principal residence" in section 54

Income Tax Regulations, sections 2300 and 2301

• 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.

To achieve a social objective

To achieve an economic objective – other

This measure recognizes that principal homes are generally purchased to provide basic shelter and not as an investment, and increases flexibility in the housing market by facilitating the movement of families from one principal residence to another in response to their changing circumstances (Summary of 1971 Tax Reform Legislation, 1971; Budget 1981).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Housing

70619 - Housing and community amenities - Housing development

Programs within the mandate of the Canada Mortgage and Housing Corporation, Indigenous Services Canada and Crown-Indigenous Relations and Northern Affairs Canada are intended to promote the construction, repair and renewal of affordable and safe housing. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return and data from the Multiple Listing Service

The value of this tax expenditure is estimated by multiplying total net exempt capital gains by the marginal tax rate on capital gains. Total net exempt capital gains are estimated using administrative data on claims (proceeds of disposition, year of acquisition). In determining net capital gains, adjustments are made to account for capital improvements (e.g., additions and renovations), acquisition costs (e.g., land transfer taxes, legal fees), and disposition costs (sales commissions). The breakdown of the estimates between individuals and trusts is not available.

Projections are based on data for residential resales and average selling prices provided by the Canada Mortgage and Housing Corporation/Multiple Listing Service.

About 540,000 individuals claimed this exemption in 2021. 

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

• goods, other than prescribed goods (e.g., alcohol and tobacco products, certain books and periodicals), valued at not more than $20 and sent from other countries by mail or courier (other than by courier from Mexico or the United States) to residents of Canada;
• goods, other than prescribed goods, valued at not more than $40 and imported by courier from Mexico or the United States;
• 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;
• goods for emergency use, such as personal protective equipment (PPE) e.g. masks and gloves.

Goods and Services Tax

Households, businesses, foreign diplomats, settlers

Other

Schedule VII to the Excise Tax Act

Non-Taxable Imported Goods (GST/HST) Regulations

Goods for Emergency Use Remission Order

• 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:
• In accordance with the Canada—United States—Mexico Agreement (CUSMA), GST relief is provided for goods, other than prescribed goods, valued at not more than $40 and imported by courier from Mexico or the United States, applicable on or after July 1, 2020;
• Budget 2012 announced a measure to provide GST relief on foreign-based rental vehicles temporarily imported by Canadian residents, applicable on or 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).

To reduce administration or compliance costs

To prevent double taxation

To achieve an economic objective - other

This measure is intended to simplify administration, prevent double taxation, promote tourism and ensure compliance with international convention precedents.

Structural tax measure

The non-taxation of goods that will be consumed in Canada is a deviation from a broadly defined value-added tax base.

International

70499 - Economic affairs - Economic affairs not elsewhere classified

n/a

No data is available.

No estimate is available.

No projection is available.

No data is available.

Fringe benefits provided to employees by their employers are not taxed when it is not administratively feasible to determine the value of the benefit. Examples include subsidized recreational facilities offered to all employees and scramble parking.

Personal income tax

Employees

Exemption

Administrative concession

• Administrative positions have evolved over time.

To reduce administration or compliance costs

This measure recognizes the significant administrative and compliance costs that would be incurred in taxing certain non-monetary employment benefits.

Structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Employment

70412 - Economic affairs - General economic, commercial, and labor affairs - General labor affairs

Programs within the mandate of Employment and Social Development Canada also support employment. Additional information on the relevant government programs is provided in the table at the end of Part 3.

No data is available.

No estimate is available.

No projection is available.

No data is available.

A number of benefits paid to veterans and Canadian Armed Forces members are tax free. These include the War Veterans Allowance, Disability Pensions, the Canadian Forces Income Support Benefit, the Caregiver Recognition Benefit, Rehabilitation Services and Vocational Assistance, certain benefits payable under the Compensation and Benefits Instructions, education expense reimbursement for ill and injured members, and certain other amounts payable under the Pension Act (as well as pension payments from allied countries that grant similar relief), the Civilian War-related Benefits Act, the Gallantry Awards Order and section 9 of the Aeronautics Act.

Personal income tax

Veterans, members of the Canadian Armed Forces and their families

Exemption

Income Tax Act, paragraphs 81(1)(d), (d.1) and (e)

• 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.
• Amendments introduced in Budget 2023 clarified the treatment of Rehabilitation Services and Vocational Assistance, certain benefits payable under the Compensation and Benefits Instructions, and education expense reimbursement for ill and injured members.

To provide income support or tax relief

This measure recognizes that these benefits provide a basic level of support to veterans of Canada's military engagements and their families (Budget 1942; New Veterans Charter, 2006).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Income support

70219 - Defense - Military defense

Programs within the mandates of Employment and Social Development Canada and Veterans Affairs Canada also support income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Data from Veterans Affairs Canada

The value of this tax expenditure is estimated by multiplying actual expenditures on exempt veterans' benefits by estimates of the marginal tax rates applicable to recipients.

Projections for this tax expenditure are based on forecasted expenditures on exempt veterans' benefits.

About 91,000 individuals did not include these amounts in income in 2022-23.

The Guaranteed Income Supplement is an income-tested benefit payable to low-income seniors as part of the Old Age Security program. There is also an income-tested Allowance that is provided to an eligible spouse, common-law partner, widow or widower aged 60 to 64. The Guaranteed Income Supplement and Allowance benefits are effectively non-taxable. Although these benefits must be included in income, an offsetting deduction from net income is provided. This approach ensures that such payments are taken into account in determining other income-tested credits and benefits.

Personal income tax

Low-income seniors

Exemption

Income Tax Act, paragraph 110(1)(f)

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

To provide income support or tax relief

This measure recognizes that these income-tested payments provide a basic level of support to elderly Canadians with little income other than the Old Age Security pension (Budget 1971).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Income support

Retirement

71029 - Social protection - Old age

Programs within the mandates of Employment and Social Development Canada and Veterans Affairs Canada also support income security. Programs within the mandate of Employment and Social Development Canada also support retirement income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return

T1 micro-simulation model

T1 micro-simulation model

Of the approximately 2.5 million beneficiaries of the Guaranteed Income Supplement and Allowance benefits in 2021, it is estimated that about 655,000 additional individuals would have been in a taxable position in the absence of this measure.

Income earned by members of the Canadian Armed Forces and police officers deployed on international operational missions must be included in income for tax purposes, but an offsetting deduction from net income is provided. This approach effectively exempts such income from taxation, while ensuring that it is taken into account in determining income-tested credits and benefits.

Personal income tax

Members of the Canadian Armed Forces and police officers deployed on international operational missions

Exemption

Income Tax Act, subparagraph 110(1)(f)(v)

• 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).

To achieve a social objective

This measure is intended to provide special recognition for Canadian Armed Forces personnel and police serving their country on international operational missions (Budget 2004; National Defence news release NR-04.028, April 14, 2004; National Defence news release, May 18, 2017).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Employment

70219 - Defense - Military defense

70319 - Public order and safety - Police services

Programs within the mandate of Employment and Social Development Canada also support employment. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Data from National Defence, the Royal Canadian Mounted Police, and the Canada Revenue Agency.

The value of this measure is estimated by multiplying total exempt earnings by an estimate of the marginal tax rate of the individuals that benefit from this measure. The estimates and projection are calculated based on administrative data from the Canada Revenue Agency and National Defence.

Outer-year projections are not provided as the value of this measure cannot be reliably forecast for these years.

About 7,800 individuals received tax-deductible income in respect of international operational missions in 2021. 

Amounts received in respect of damages for personal injury or death, as well as awards paid pursuant to the authority of criminal injury compensation laws, are not taxable. In addition, investment income earned on personal injury awards is excluded from income until the end of the year in which the person reaches the age of 21.

While the benchmark definition of income excludes amounts received as damages for personal injury or death (since they compensate taxpayers for a personal loss), it includes investment income earned on these amounts as part of this benchmark tax base. Thus, the non-taxation of investment income earned on these awards for those under age 22 is considered to be a tax expenditure.

Personal income tax

Individuals

Exemption

Income Tax Act, paragraphs 81(1)(g.1) and (g.2)

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

To provide income support or tax relief

This measure provides assistance to young persons receiving personal injury awards.

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Income support

71099 - Social protection - Social protection not elsewhere classified

Programs within the mandates of Employment and Social Development Canada and Veterans Affairs Canada also support income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

No data is available.

No estimate is available.

No projection is available.

No data is available.

The income earned by a life insurer resident in Canada from an insurance business carried on in a country other than Canada is not subject to federal income tax in Canada.

Corporate income tax

Life insurance corporations

Exemption

Income Tax Act, subsection 138(2)

Income Tax Regulations, sections 2400 to 2412

• 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.

To provide relief for special circumstances

To prevent double taxation

In recognition that other jurisdictions do not necessarily tax life insurance companies on the same basis as Canadian tax rules, this measure helps ensure that Canadian multinational life insurance companies are not adversely affected in foreign insurance markets by exempting their foreign income from tax in Canada (Budget 1977).

Structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

International

70499 - Economic affairs - Economic affairs not elsewhere classified

n/a

No data is available.

No estimate is available.

No projection is available.

No data is available.

Lottery and gambling winnings are generally not subject to income tax unless, in the case of gambling winnings, the amounts are earned by the taxpayer through carrying on a business.

Personal income tax

Individuals with lottery or gambling winnings

Exemption

Income Tax Act, section 3, paragraph 40(2)(f) and subsection 52(4)

• 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.

To implement intergovernmental tax arrangements

This measure reflects the agreement by the federal government to not tax this revenue in favour of the provinces.

Structural tax measure

This measure is considered part of the benchmark tax system, and therefore is not a tax expenditure.

Intergovernmental tax arrangements

n/a

n/a

No data is available.

No estimate is available.

No projection is available.

No data is available.

A non-profit organization that is a club, society or association that is not a charity and that is organized and operated exclusively for social welfare, civic improvement, pleasure or for any other purpose except profit, qualifies for an exemption from income tax if it meets certain conditions. To be eligible, it is generally required that no part of the income of the organization be payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder of the organization. The exemption applies to both incorporated and unincorporated organizations. A tax expenditure results to the extent that the organization has income that would otherwise be taxable, such as investment income or profits from commercial activities.

Personal (including trusts) and corporate income tax

Non-profit organizations

Exemption

Income Tax Act, paragraph 149(1)(l)

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

To achieve a social objective

This measure provides tax relief for non-profit organizations in recognition of the important role they play in Canadian society.

Non-structural tax measure

This measure exempts from tax certain taxpayers.

Donations, gifts, charities and non-profit organizations

705 - Environmental protection; 706 - Housing and community amenities; 707 - Health; 708 - Recreation, culture, and religion; 709 - Education; 710 - Social protection; Other various codes

Many federal government entities provide direct funding to registered charities, non-profit organizations and international development associations through various programs.

T1044 Non-Profit Organization (NPO) Information Return

T2 Corporation Income Tax Return

Net income of non-profit organizations is estimated based on a presumed market rate of return on the organization's net assets. It is assumed that that income, in the absence of the tax exemption, would be subject to the same average effective tax rates as those of typical taxable corporations. This represents a lower bound estimate.

The cost of this measure is projected based on the estimated growth of nominal gross domestic product and the average yield on 10-year benchmark bonds.

About 31,800 non-profit organizations with positive net assets filed a non-profit organization information return in 2020.

The Disability Award provides injured Canadian Armed Forces members or veterans with an award for an injury or illness resulting from military service. The Critical Injury Benefit is a lump-sum award that addresses the immediate impacts of the most severe and traumatic service-related injuries or diseases sustained by Canadian Armed Forces members. Starting in 2019, the Pain and Suffering Compensation and the Additional Pain and Suffering Compensation are payments for life to recognize pain and suffering caused by a service-related disability. All these payments are exempt from income tax, as they are analogous to amounts received in respect of damages for personal injury. The benchmark definition of income excludes amounts received as damages since they compensate taxpayers for a personal loss.

Personal income tax

Veterans, members of the Canadian Armed Forces and their families

Exemption

Income Tax Act, paragraph 81(1)(d.1)

• 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).

Other

This measure recognizes that these benefits provide a basic level of support to veterans of Canada's military engagements and their families (New Veterans Charter, 2005).

Structural tax measure

This measure is considered part of the benchmark tax system, and therefore is not a tax expenditure.

Other

71012 - Social protection - Sickness and disability - Disability

70219 - Defense - Military defense

n/a

Data from Veterans Affairs Canada

The value of this tax expenditure is estimated by multiplying actual expenditures on veterans' Disability Awards and Critical Injury Benefits by estimates of the marginal tax rates applicable to recipients.

Projections for this tax expenditure are based on forecasted expenditures on veterans' Disability Awards and Critical Injury Benefits.

In 2022-23, there were about 38,000 Pain & Suffering beneficiaries and 26,000 Additional Pain & Suffering beneficiaries.

Section 87 of the Indian Act exempts the personal property of status Indians and Indian bands from direct taxation if that property is situated on a reserve.

Courts have held that the term "personal property" includes income. Determining whether income is situated on a reserve requires an examination of the factors that connect it to a reserve. Such connecting factors include the location (on or off a reserve) of the residence of the status Indian, the location at which the employment duties were performed and the location of other income-earning activities.

In respect of the GST, the exemption applies if a status Indian makes a purchase of a good or service on a reserve, or if goods are purchased off-reserve by a status Indian and are delivered to a reserve by the vendor or vendor's agent.

Personal income tax

Goods and Services Tax

Status Indians and Indian bands on reserve

Exemption

Indian Act, section 87

Income Tax Act, paragraph 81(1)(a)

• 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.

Other

This measure reflects provisions under section 87 of the Indian Act.

Non-structural tax measure

This measure exempts from tax certain taxpayers.

Other

n/a

n/a

No data is available.

No estimate is available.

No projection is available.

No data is available.

As a general rule, a taxpayer receiving government assistance (such as a provincial tax credit) for the purchase of an asset would need to either: (i) reduce the adjusted cost base of the asset such that when the asset is disposed of at a profit, taxes are payable on the portion of the gain that originates from the government assistance; or (ii) include the amount of the provincial assistance in income. This measure, however, ensures that a taxpayer who receives assistance from a provincial government to purchase the shares of a prescribed venture capital corporation is not subject to either of these income inclusion provisions.

Personal and corporate income tax

Individual and corporate investors

Exemption

Income Tax Act, paragraph 12(1)(x)

Income Tax Regulations, sections 6700, 6702 and 7300

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

To encourage or attract investment

This measure supports investments in prescribed venture capital corporations that provide small businesses with capital and professional management support.

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Business - small businesses

70499 - Economic affairs - Economic affairs not elsewhere classified

Programs within the mandate of Innovation, Science and Economic Development Canada also support small businesses. Additional information on the relevant government programs is provided in the table at the end of Part 3.

No data is available.

No estimate is available.

No projection is available.

No data is available.

Pension payments or compensation received in respect of an injury, disability or death associated with the service of a member in the Royal Canadian Mounted Police (RCMP) are exempt from tax.

Personal income tax

RCMP members and their families

Exemption

Income Tax Act, paragraph 81(1)(i)

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

To provide income support or tax relief

This measure recognizes that these benefits represent, to a large extent, compensation to members of Canada's national police force and their families for a loss suffered by members in the course of their duties.

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Income support

Employment

71011 - Social protection - Sickness and disability - Sickness

71012 - Social protection - Sickness and disability - Disability

71039 - Social protection - Survivors

Programs within the mandates of Employment and Social Development Canada and Veterans Affairs Canada also support income security. Programs within the mandate of Employment and Social Development Canada also support employment. Additional information on the relevant government programs is provided in the table at the end of Part 3.

Public Accounts of Canada

The value of this measure is estimated based on amounts paid to compensate members of the RCMP for injuries received in the performance of duty, as reported in the Public Accounts.

The projection is based on the historical trend in the value of payments.

More than 22,000 individuals did not include these amounts in income in 2022-23.

Registered charities, both incorporated and unincorporated, are exempt from income tax. Registered charities include charitable organizations, public foundations and private foundations. A tax expenditure results to the extent that the charity has income that would otherwise be taxable, such as investment income or profits from certain commercial activities.

Personal (including trusts) and corporate income tax

Registered charities

Exemption

Income Tax Act, paragraph 149(1)(f)

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

To achieve a social objective

This measure provides tax relief for registered charities in recognition of the important role they play in Canadian society (The Tax Treatment of Charities, Discussion Paper, June 23, 1975).

Non-structural tax measure

This measure exempts from tax certain taxpayers.

Donations, gifts, charities and non-profit organizations

705 - Environmental protection; 706 - Housing and community amenities; 707 - Health; 708 - Recreation, culture, and religion; 709 - Education; 710 - Social protection; Other various codes

Many federal government entities provide direct funding to registered charities, non-profit organizations and international development associations through various programs.

No data is available.

No estimate is available.

No projection is available.

No data is available.

Social assistance payments generally must be included in income for tax purposes, but an offsetting deduction from net income is provided. This approach effectively exempts such benefits from taxation, while ensuring that they are taken into account in determining income-tested credits and benefits. Some other forms of benefits (e.g., payments to foster parents, benefits in kind) are not included in income, and are therefore exempt from taxation. If an individual lived with a spouse or common-law partner when the payments were received, the person with the higher net income must report all of the payments.

Personal income tax

Low-income individuals

Exemption

Income Tax Act, paragraph 110(1)(f)

• 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.

To provide income support or tax relief

This measure recognizes the nature of social assistance as a payment of last resort (Budget 1981).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Income support          

71099 - Social protection - Social protection not elsewhere classified

Programs within the mandates of Employment and Social Development Canada and Veterans Affairs Canada also support income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return

T1 micro-simulation model. The estimates do not include the non-taxation of social assistance benefits that are not included in income.

T1 micro-simulation model

Of the approximately 1.6 million individuals who reported having received social assistance payments in 2021, it is estimated that 410,000 individuals would have had an increase in net tax owing in the absence of this measure.

Most payments of the type commonly referred to as strike pay that are received from a member's union are not taxable.

Personal income tax

Union members

Exemption

Strike pay is not a source of income under the Income Tax Act.

• 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).

To implement a judicial decision

Strike pay is non-taxable by virtue of the Supreme Court of Canada's determination that it is not income from a source.

Structural tax measure

This measure is considered part of the benchmark tax system, and therefore is not a tax expenditure.

Employment

70412 - Economic affairs - General economic, commercial, and labor affairs - General labor affairs

Programs within the mandate of Employment and Social Development Canada also support employment. Additional information on the relevant government programs is provided in the table at the end of Part 3.

No data is available.

No estimate is available.

No projection is available.

No data is available.

Up to $10,000 of the total death benefit paid by a deceased person's employer or former employer in respect of the deceased person's employment service is exempt from tax in the hands of recipient individuals. The excess must be included in the recipients' income.

Personal income tax (including trusts)

Individuals receiving death benefits

Exemption

Income Tax Act, subparagraph 56(1)(a)(iii) and subsection 248(1), definition of "death benefit"

• 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.

To achieve a social objective

To provide income support or tax relief

This measure alleviates the hardship faced by dependants upon the death of a supporting individual (Budget 1959).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Families and households

Income support

71039 - Social protection - Survivors

Programs within the mandates of Employment and Social Development Canada and Indigenous Services Canada also support Canadian families and households. Programs within the mandates of Employment and Social Development Canada and Veterans Affairs Canada also support income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T4A Statement of Pension, Retirement, Annuity, and Other Income

An estimate of forgone tax revenue is calculated by multiplying the exempt portion of death benefits paid in a year by the average marginal tax rate of individuals receiving such amounts. The estimates do not cover death benefits accruing to trusts.

The projection assumes no growth in exempt death benefit amounts.

About 8,100 death benefits were paid in 2021. The number of individuals who benefited from the non-taxation of a portion of the death benefit in that year is unknown.

Compensation received under the employees' or workers' compensation law of Canada or a province in respect of an injury, disability or death must generally be included in income, but an offsetting deduction for the purposes of the calculation of taxable income is provided. This approach effectively exempts such benefits from taxation, while ensuring that they are taken into account in determining income-tested credits and benefits.

Personal income tax

Employees

Exemption

Income Tax Act, subparagraph 110(1)(f)(ii)

• 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.

To provide income support or tax relief

This measure provides assistance to workers suffering on-the-job injuries.

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Income support

Employment

71012 - Social protection - Sickness and disability - Disability

71099 - Social protection - Social protection not elsewhere classified

Programs within the mandates of Employment and Social Development Canada and Veterans Affairs Canada also support income security. Programs within the mandate of Employment and Social Development Canada also support employment. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return

T1 micro-simulation model

T1 micro-simulation model

About 616,000 individuals reported having received workers' compensation benefits in 2021.

Individuals residing in prescribed areas in Canada for a specified period may claim the Northern Residents Deductions. Two different deductions can be claimed: a residency deduction of up to $22 a day, and a deduction for two vacation trips per year and unlimited medical travel. Residents of the Northern Zone are eligible for the full deductions, while residents of the Intermediate Zone are eligible for half of the deductions.

Personal income tax

Individuals residing in prescribed areas in the North

Deduction

Income Tax Act, section 110.7

Income Tax Regulations, sections 7303.1 and 7304

• 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.
• Budget 2021 allowed northerners without employer-provided travel benefits to claim up to $1,200 in eligible travel expenses.

To encourage employment

This measure assists in drawing skilled labour to northern and isolated communities (Budget 1986; Budget 2008).

Non-structural tax measure

This measure provides tax recognition for an expense that is not incurred to earn income.

Employment

70412 - Economic affairs - General economic, commercial, and labor affairs - General labor affairs

Programs within the mandate of Employment and Social Development Canada also support employment. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return

T1 micro-simulation model

T1 micro-simulation model

About 269,000 individuals claimed these deductions in 2021.

The deductibility of meals and entertainment expenses in computing business income for income tax purposes is limited to 50% of the expenses incurred. This limit is increased to 80% in the case of meal expenses incurred by long-haul truck drivers. Similarly, 50% of the GST paid by businesses on meals and entertainment, increased to 80% in the case of meals consumed by long-haul truck drivers, can be claimed as input tax credits by GST registrants.

Personal (including trusts) and corporate income tax

Goods and Services Tax

Businesses

Deduction; input tax credit

Income Tax Act, section 67.1

Excise Tax Act, section 236

• 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.

n/a

n/a

Structural tax measure

Meals and entertainment expenses that are incurred by businesses for the purpose of earning business income may be viewed as also having an element of personal consumption. A tax expenditure would arise to the extent that a deduction is granted for the personal consumption portion of meals and entertainment expenses, or that an input tax credit is granted for the GST paid in respect of that portion. However, the personal consumption portion of meals and entertainment expenses cannot be determined, therefore it is not known the extent to which the partial deduction and input tax credits for meals and entertainment expenses depart from the benchmark tax system.

Business – other

70499 - Economic affairs - Economic affairs not elsewhere classified

Programs within the mandates of Global Affairs Canada, Public Services and Procurement Canada, and the regional development agencies (among other federal organizations) also offer support to Canadian businesses in various manners. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return

T2 Corporation Income Tax Return

The estimates are based on actual expenses incurred by individuals (not including trusts) and businesses. The estimates are an upper bound, as they assume that all meal and entertainment expenses are incurred for personal consumption.

The personal income tax component of this measure is projected using the T1 micro-simulation model; the corporate income tax component is projected to grow in line with corporate taxable income. The GST component is projected based on the income tax projections.

This measure provided tax relief to about 772,000 individuals and 906,000 corporations in 2021.

Only half of net realized capital gains are included in income.

Personal (including trusts) and corporate income tax

Individuals and corporations

Exemption

Income Tax Act, section 38

• 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).

To encourage or attract investment

To encourage savings

To support competitiveness

This measure provides incentives to Canadians to save and invest, and ensures that Canada's treatment of capital gains is broadly comparable to that of other countries (Proposals for Tax Reform, 1969; The White Paper: Tax Reform 1987; Budget 2000; 2000 Economic Statement and Budget Update).

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Savings and investment

70499 - Economic affairs - Economic affairs not elsewhere classified

n/a

Personal income tax: T1 Income Tax and Benefit Return and T3 Trust Income Tax and Information Return

Corporate income tax: T2 Corporation Income Tax Return

Personal income tax: T1 and T3 micro-simulation models. The tax expenditure accruing to trusts is estimated under the assumption that the repeal of this measure would cause the same proportion of the simulated taxable capital gains as the actual taxable capital gains to be paid out to beneficiaries.

Corporate income tax: T2 micro-simulation model

Personal income tax: T1 micro-simulation model in the case of individuals. Projections for trusts are based on projected growth for individuals.

Corporate income tax: Projections are based on the Department of Finance Canada's forecast for the growth of capital gains.

About 3.6 million individuals and 311,100 corporations reported capital gains in 2021. In addition, about 42,000 trusts are estimated to have benefited from this measure in 2021.

Individuals who are resident in Canada and receiving U.S. Social Security benefits since before 1996 (and their surviving spouses and common-law partners who are eligible to receive survivor benefits) can deduct 50% of those benefits in computing income. Other recipients of U.S. Social Security benefits can deduct 15% of the benefits received.

Personal income tax

Seniors

Exemption

Income Tax Act, section 110(1)(h)

Canada-United States Tax Convention, article XVIII, paragraph 5(a)

• 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.

To provide income support or tax relief

This measure increases from 15% to 50% the percentage of U.S. Social Security payments that Canadian residents who have received such benefits since before January 1, 1996 can exclude from their taxable income in order to exempt the same proportion of U.S. Social Security benefits that the U.S. exempted before 1996.

Non-structural tax measure

This measure exempts from tax income or gains that are included in a comprehensive income tax base.

Retirement

71029 - Social protection - Old age

Programs within the mandate of Employment and Social Development Canada also support retirement income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

No data is available.

No estimate is available.

No projection is available.

No data is available.

While patronage dividends not in respect of consumer goods and services are generally taxable when received, members of an agricultural cooperative are permitted to defer paying tax on a patronage dividend paid by the cooperative in the form of an eligible share until the disposition (or deemed disposition) of the share. In addition, when an eligible agricultural cooperative pays a patronage dividend to a member in the form of an eligible share, the withholding obligation in respect of the patronage dividend is deferred until the share is redeemed.

In general terms, in order to issue eligible shares, agricultural cooperatives must be established in Canada and have as their principal business activity farming or the provision of goods or services required for farming in Canada. In order to be an eligible share, the share must be issued after 2005 and before 2026, and generally must not be redeemable or retractable within five years of its issue.

Personal (including trusts) and corporate income tax

Members of agricultural cooperatives

Timing preference

Income Tax Act, section 135.1

• 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.
• The 2020 Fall Economic Statement extended this measure to apply to eligible shares issued before 2026.

To encourage or attract investment

The objective of this measure is to aid the capitalization of agricultural cooperatives (Budget 2005).

Non-structural tax measure

This measure permits the deferral of the recognition of income or gains for income tax purposes.

Business - farming and fishing

70421 - Economic affairs - Agriculture, forestry, fishing, and hunting - Agriculture

Programs within the mandates of Agriculture and Agri-Food Canada and Fisheries and Oceans Canada also support the farming and fishing sectors. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T2 Corporation Income Tax Return

This tax expenditure is calculated by multiplying the reported amount of patronage dividends paid as shares by agricultural cooperatives by the average marginal personal income tax rate for farmers.

The cost of this tax expenditure is fairly stable; as such no growth is assumed over the projection period.

This measure provided tax relief to about 40 corporations in 2021. No data is available for unincorporated agricultural cooperatives.

The Pension Income Credit is a non-refundable credit that provides tax relief to taxpayers receiving eligible pension income. The value of the credit is calculated by applying the lowest personal income tax rate to the first $2,000 of eligible pension income. Any unused portion of the credit may be transferred to a spouse or common-law partner.

Eligible pension income is generally limited to certain types of income from registered plans, such as a lifetime pension from a Registered Pension Plan and, for individuals who are age 65 or over, income from a Pooled Registered Pension Plan, a Registered Retirement Savings Plan annuity, a Registered Retirement Income Fund or a Life Income Fund. Variable benefits payments from a defined contribution Registered Pension Plan are also eligible for individuals who are age 65 or over. Veterans' Retirement Income Security Benefit payments and Income Replacement Benefit payments are also eligible for the credit.

Personal income tax

Seniors and pensioners receiving eligible pension income

Credit, non-refundable

Income Tax Act, subsections 118(3) and (7)

• 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.

To provide income support or tax relief

To achieve a social objective

This measure was introduced to provide additional protection against inflation for the retirement income of elderly Canadians (Budget November 1974).

Non-structural tax measure

Tax credits are treated as deviations from the benchmark tax system.

The tax benefit from this measure is transferable between spouses or common-law partners.

Retirement

71029 - Social protection - Old age

Programs within the mandate of Employment and Social Development Canada also support retirement income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return

T1 micro-simulation model

T1 micro-simulation model

About 5.7 million individuals claimed this credit in 2021.

Canadian residents receiving income that qualifies for the Pension Income Credit can allocate up to one-half of that income to their resident spouse or common-law partner for income tax purposes. Income that is eligible for the Pension Income Credit and pension income splitting is generally limited to certain types of income from registered plans, such as a lifetime pension from a Registered Pension Plan and, for individuals who are age 65 or over, income from a Pooled Registered Pension Plan, a Registered Retirement Savings Plan annuity, a Registered Retirement Income Fund or a Life Income Fund. Variable benefits payments from a defined contribution Registered Pension Plan are also eligible only for individuals who are age 65 or over. Income from a Retirement Compensation Arrangement (which is not eligible for the Pension Income Credit), as well as veterans' Retirement Income Security Benefit payments and Income Replacement Benefit payments, also qualify for pension income splitting for individuals who are age 65 or over, subject to specified conditions.

Personal income tax

Seniors and pensioners receiving eligible pension income

Other

Income Tax Act, section 60.03

• 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.

To provide income support or tax relief

To extend or modify the unit of taxation

This measure recognizes the special challenges of planning and managing retirement income, and provides targeted assistance to pensioners (Tax Fairness Plan, 2006).

Non-structural tax measure

This measure extends the unit of taxation.

Retirement

71029 - Social protection - Old age

Programs within the mandate of Employment and Social Development Canada also support retirement income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return

T1 micro-simulation model

T1 micro-simulation model

About 1.4 million couples split pension income in 2021.

Individuals (including testamentary trusts) who make monetary contributions to a registered party, a registered association or a candidate as defined in the Canada Elections Act can claim the Political Contribution Tax Credit in respect of their contributions. This non-refundable credit is calculated as 75% of the first $400 contributed, 50% of the next $350 contributed, and 33⅓% of the next $525 contributed. The maximum credit available is $650.

Personal income tax (including trusts)

Individuals

Credit, non-refundable

Income Tax Act, subsection 127(3)

• 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.

To achieve a social objective

This measure encourages broad citizen participation in the electoral process.

Non-structural tax measure

Tax credits are treated as deviations from the benchmark tax system.

Social

70111 - General public services - Executive and legislative organs, financial and fiscal affairs, external affairs - Executive and legislative organs

Programs within the mandates of Canadian Heritage, Immigration, Refugees and Citizenship Canada, Transport Canada and Public Safety Canada (among other departments) also support various other social objectives. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T1 Income Tax and Benefit Return

T3 Trust Income Tax and Information Return

Data from Elections Canada

T1 micro-simulation model. The estimates do not cover political contributions made by testamentary trusts.

Projections for this measure for individuals are derived using Elections Canada data and a T1 micro-simulation model. These projections take into account observed trends in political donations around federal election years.

This measure provided tax relief to about 186,000 individuals in 2021. The number of trusts having claimed this credit in 2021 is not disclosed due to confidentiality restrictions.

A Pooled Registered Pension Plan (PRPP) is a type of pension plan that is similar to a defined contribution Registered Pension Plan. A deferral of tax is provided on savings in a PRPP in order to encourage and assist Canadians to save for retirement. Contributions to a PRPP are deductible from income, the investment income is not taxed as it accrues in the plan, and withdrawals and benefit payments are included in income for tax purposes. Contributions to PRPPs must be made within a PRPP member's available Registered Retirement Savings Plan contribution limit.

Personal income tax

Individuals with available RRSP contribution room

Timing preference

Income Tax Act, section 147.5

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

To encourage savings

Consistent with tax assistance provided on savings in Registered Pension Plans and Registered Retirement Savings Plans, this measure encourages and assists Canadians to arrange for their financial security in later years.

Non-structural tax measure

This measure permits the deferral of the recognition of income or gains for income tax purposes.

Retirement

Savings and investment

71029 - Social protection - Old age

Programs within the mandate of Employment and Social Development Canada also support retirement income security. Additional information on the relevant government programs is provided in the table at the end of Part 3.

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No data is available.

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 combined taxable capital employed in Canada of the CCPC and its associated corporations is between $10 million and $50 million, and is zero if it is $50 million or greater, for taxation years that end on or after April 7, 2022.
• 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.

Corporate income tax

Small Canadian-controlled private corporations

Preferential tax rate

Income Tax Act, section 125

• 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.
• Budget 2022 extended the range over which the annual small business limit is reduced based on the combined taxable capital employed in Canada of the CCPC and its associated corporations. The new range is $10 million to $50 million (rather than $10 million to $15 million), for taxation years that end on or after April 7, 2022.

To encourage or attract investment

To support business activity

This measure allows small businesses to retain more of their earnings to reinvest and create jobs (Budget 2015).

Non-structural tax measure

The applicable tax rate departs from the benchmark tax rate.

Business - small businesses

70499 - Economic affairs - Economic affairs not elsewhere classified

Programs within the mandate of Innovation, Science and Economic Development Canada also support small businesses. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T2 Corporation Income Tax Return

T2 micro-simulation model

The cost of this measure is projected to grow in line with corporate taxable income. A rate of 9% is used for projection years.

This measure provided tax relief to about 891,300 corporations in 2021.

The federal government provides an abatement of personal income tax to taxpayers residing in Quebec equal to 16.5% of Basic Federal Tax payable. The abatement represents compensation to the Province of Quebec for opting out of certain federal transfer programs established in the 1960s.

Personal income tax (including trusts)

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Other

Federal-Provincial Fiscal Arrangements Act, Part VI

Federal Provincial Fiscal Revision Act, 1964

• 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.

To implement intergovernmental tax arrangements

This measure reflects the election by the Province of Quebec to receive part of the federal program contribution in the form of a tax abatement.

Structural tax measure

This measure is considered part of the benchmark tax system, and therefore is not a tax expenditure.

Intergovernmental tax arrangements

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Canada Revenue Agency, Tax Sharing Statements

The value of the Quebec Abatement is calculated by multiplying Basic Federal Tax for Quebec residents by 0.165.

Projections for this measure are based on forecasted growth of Basic Federal Tax.

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Zero-emission technology manufacturers may apply reduced tax rates on eligible zero-emission technology manufacturing and processing income of:

• 7.5%, where that income would otherwise be taxed at the 15% general corporate tax rate; and
• 4.5%, where that income would otherwise be taxed at the 9% small business tax rate.

This measure applies in respect of income from specified zero-emission technology manufacturing or processing activities, such as the manufacturing of certain renewable energy equipment (solar, wind, water, or geothermal), nuclear energy equipment, electrical energy storage equipment, or zero-emission vehicles; and the production of nuclear fuels, heavy water, hydrogen by electrolysis of water, or solid, liquid, and gaseous biofuels from specified waste material.

The reduced tax rates apply to taxation years that begin after 2021. The reduced rates will be gradually phased out starting in taxation years that begin in 2032 and fully phased out for taxation years that begin after 2034.

Corporate income tax

Businesses that undertake eligible zero-emission manufacturing and processing activities

Preferential tax rate

Income Tax Act, section 125.2

• Announced in Budget 2021. Effective for taxation years that begin after 2021.
• Budget 2022 announced the inclusion of manufacturing of air-source heat pumps used for space or water heating as an eligible zero-emission technology manufacturing or processing activity.
• Budget 2023 announced an extension to the availability of the reduced rates by another three years, such that the reduced tax rates would no longer be in effect for taxation years starting after 2034, subject to a phase-out starting in 2032.
• Budget 2023 also announced an extension to the eligibility for the reduced rates to include the manufacturing of nuclear energy equipment and the processing and recycling of nuclear fuels and heavy water, effective for taxation years beginning after 2023.

To encourage or attract investment

To support competitiveness

To support business activity

These proposed tax rate reductions will enhance Canada's competitiveness in attracting investment in zero-emission technology manufacturing, while also supporting existing businesses in the sector (Budget 2021).

Non-structural tax measure

This measure applies tax rates that depart from the benchmark tax rates.

Environment

Business – other

70433 - Economic affairs - Fuel and energy - Nuclear fuel

70434 - Economic affairs - Fuel and energy - Other fuels

70435 - Economic affairs - Fuel and energy - Electricity

70436 - Economic affairs - Fuel and energy - Non-electric energy

70439 - Economic affairs - Fuel and energy - Fuel and energy not elsewhere classified

70442 - Economic affairs - Mining, manufacturing, and construction - Manufacturing

Programs within the purview of Environment and Climate Change Canada; Natural Resources Canada; and Innovation, Science and Economic Development Canada also support environment-related objectives. Programs within the regional development agencies (among other federal organizations) also offer support to Canadian businesses in various manners. Additional information on the relevant government programs is provided in the table at the end of Part 3.

T2 Corporation Income Tax Return

T2 micro-simulation model and information on expected major investments

The cost of this measure is projected to grow in line with the growth in zero-emission manufacturing and processing activities.

No data is available.