Territorial Formula Financing

Territorial Formula Financing (TFF) is the largest federal transfer to the three territorial governments.

• Territorial Formula Financing is an annual unconditional transfer from the Government of Canada to the three territorial governments to enable them to provide their residents a range of public services comparable to those offered by provincial governments, at comparable levels of taxation.
• TFF helps territorial governments fund essential public services in the North, such as hospitals, schools, infrastructure and social services, and recognizes the high cost of providing public services in the North as well as the challenges the territorial governments face in providing these services to a large number of small, isolated communities. 

• TFF is comprised of three separate gap filling formulas to recognize the unique circumstances of each of the territories. Each territory's grant is based on the difference between a proxy of its expenditure needs (the Gross Expenditure Base, or GEB) and its capacity to generate revenues (eligible revenues).
• Each territory's GEB is adjusted annually to ensure that territorial spending can grow in line with provincial-territorial and local government spending, adjusted for changes in relative population growth between the territories and Canada.
• Similar to Equalization, eligible revenues are based on a measure of fiscal capacity, which represents the revenues a territory could raise if it were to tax at the national average rate. There are nine revenue categories for which fiscal capacity is independently measured: personal income taxes, business taxes, consumption taxes (excluding excise taxes), tobacco taxes, gasoline taxes, diesel fuel taxes, alcoholic beverages revenues, payroll taxes and property taxes and miscellaneous revenues. TFF includes incentives for the territories to increase their own revenues and develop their economies by excluding 30 per cent of territories' measured revenue capacity from the calculation.
• A single estimate and payment system ensures the predictability and stability of TFF grants.
• Natural resource revenues are not part of territorial eligible revenues for the purposes of TFF calculations. The treatment of natural resource revenues is negotiated separately with each territory as part of overall negotiations on the devolution of the federal responsibility for the administration and control of onshore natural resources to the territorial governments. The Yukon and Northwest Territories Governments have completed devolution and resource revenue sharing agreements. Negotiations with the Government of Nunavut are ongoing.