Report on Federal Tax Expenditures - Concepts, Estimates and Evaluations 2020: part 10

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Gender-Based Analysis Plus of Federal Personal Income Tax Expenditures With Family Components^[1]

1. Introduction

In 2018, the Canadian Gender Budgeting Act introduced new reporting requirements for the Minister of Finance, including the release of an annual report on the impacts in terms of gender and diversity of federal tax expenditures.

Pursuant to this new requirement, the 2019 edition of the Report on Federal Tax Expenditures included the first Gender-based Analysis Plus (GBA+) of existing federal personal income tax (PIT) expenditures. The main objectives of this analysis were to examine the overall impact of the 2016 federal PIT system on the distribution of income between men and women as well as the allocation of individual federal PIT expenditure benefits between genders. The results suggested that the federal PIT system overall reduced inequality of income between genders, as the share of after-tax income held by women was higher than their share of before-tax income. The study also found that men and women benefited relatively more from almost the same number of the 60 tax expenditures examined. These results were based on the assumption that claimants were the sole beneficiaries of tax expenditures. This assumption is conceptually consistent with the design of Canada’s PIT system, where spouses or common-law partners^[2] are required to file separate tax returns and may not have an obligation to share benefits or tax liabilities. However, because several federal tax measures include family components where families are treated differently from unattached individuals, the 2019 study recognized that further analysis on the distribution of benefits from tax expenditures within families would be worth exploring.^[3]

There has been an increased focus on the principles of privacy, independence and equality between spouses in tax matters over the past several decades. Only a few members of the Organisation for Economic Co-operation and Development (OECD), including the United States, have systems of joint taxation in place (i.e., systems that allow using the family instead of the individual as the main unit of taxation). Empirical research has demonstrated that, while joint filing tends to lower the marginal tax rate for the primary earner and generally results in a financial gain for couples, this type of taxation system favours single-earner families over dual-earner families in comparison to individual taxation. In particular, the OECD provided evidence showing that, if the taxation system is progressive, the marginal tax rate for the second earner is higher when spouses are taxed jointly.^[4] This is because the tax rate of the primary earner also applies to the income of the second earner, which increases the marginal tax rates of second earners and the disincentive for them to participate in the labour force. Since women are more likely than men to be secondary earners, joint taxation is often seen as being unfavourable to women’s financial security in comparison to individual taxation.

The Canadian PIT system is mainly an individual taxation system, with some elements of a family-based system for seniors with private pension income (i.e., pension income splitting). However, like many countries with individual taxation systems, the Canadian PIT system includes some joint or family components (i.e., tax relief that can be used by either or both spouses or that is tied to the family situation). In individual-based tax systems, family components are usually introduced to achieve particular policy objectives, such as the recognition of costs that some families incur to earn employment income or raise children. Such components are typically perceived as a cost-efficient means of tackling poverty and income inequality because they allow for a better targeting of families in need. On the other hand, they are also sometimes seen as disadvantageous to specific families or individuals (notably women) because they may create work disincentives for secondary earners, reinforce particular gender roles and alter the bargaining power between spouses. These considerations often require a balance between the policy objectives of reducing inequalities between and within families.

The main objective of the current paper is to examine claiming patterns and the distribution of benefits within families of federal PIT expenditures with family components. After presenting the scope of the analysis (Section 2), the paper provides descriptions of the federal PIT expenditures with family components (Section 3), underlining whether their design includes rules on who must claim in the family or leaves discretion on who can claim. It then examines the profile of the actual claimants of each tax expenditure and assesses whether existing tax rules or other factors lead to some gender biases in the way taxfilers claim them (Section 4). Finally, a sensitivity analysis regarding the allocation of benefits within couples is conducted to test the robustness of the results to alternative benefit-sharing assumptions (Section 5).

2. Scope of the analysis

This paper is primarily based on T1 return data for the 2017 tax year as well as on the 2018-2019 Canada Child Benefit (CCB) and Goods and Services Tax/Harmonized Sales Tax Credit (GST/HST Credit) payments data.^[5] It focuses on federal PIT expenditures for which the claimants and beneficiaries as well as their gender^[6] can be identified in the data.^[7] For the purpose of the current study (i.e., the analysis of claims and benefit patterns of family-related federal PIT expenditures), the tax expenditures considered are only those that include family components.

Table 1 shows that more than 27.8 million individuals—48.4% of which were men and 51.6% women—filed a 2017 tax return. The majority of filers (56.6%) were in couples, 97.4% with a filing spouse and 2.6% with a non-filing spouse. The remaining 43.4% were considered sole filers for tax purposes. About 35% of those with a spouse had dependent children compared to less than 9% of sole filers. The share of lone parents (i.e., sole filers with children) was larger among female than male filers (6.2% versus 1.2%).

Female taxfilers reported a lower proportion of total pre-tax income (41.5%) than the share of taxfilers they represented (51.6%). This was the case for female taxfilers in all family types (Table 2). Among lone parents, women earned the large majority (76.3%) of total pre-tax income. However, this is because most filing lone parents are females (84.4%), not because they earn more, on average, than male lone parents.

When taxfilers are classified according to their family type, women’s average pre-tax income is consistently lower than that of men (Table 3). This is particularly true among couples with children, where the difference in favor of men is of about $36,000. The difference in average pre-tax income between men and women is smaller among sole filers without children (around $5,000).

Table 3 also shows that, among filers in couples with children, men are close to three times more likely than women to be the higher-income spouse (74.5% versus 26.6%). Men are also more likely to be the higher-income spouse in couples without children (71.6% versus 31.6%). Men and women’s earning positions in couples may affect their decisions with respect to who claims tax expenditures, including exemptions, deductions and credits.

3. Federal PIT expenditures with family components

A number of federal PIT expenditures include a family component, meaning that they can be transferred or shared between spouses at filing, or that entitlement depends on the filer’s family circumstances or income. The design of some of these family-related tax expenditures includes rules on which family member is eligible to claim. The design of others includes no requirements on who must claim, leaving this choice at the discretion of filers.

Table 4 provides a list of federal PIT expenditures with a family component for which claims and benefits can be identified using T1 data. It also indicates the nature of each of these family components and specifies whether the design of the tax expenditures includes rules on who must claim in the family.

A total of 18 federal PIT expenditures with a family component are listed in column 1. Most of them are non-refundable credits, but the list also includes one deduction, four refundable credits and one other tax measure.

The family component of these tax expenditures includes three key characteristics (column 2):

• the fact that only taxfilers in certain family circumstances can claim (e.g., the Canada Caregiver Credit (CCC) and Spouse or Common-Law Partner Credit);
• the possibility of sharing or transferring the claim between spouses or family members (e.g., the Adoption Expense Tax Credit and Charitable Donation Tax Credit); and,
• the presence of a family-income test (e.g., the CCB, GST/HST Credit, Refundable Medical Expense Supplement (RMES) and Working Income Tax Benefit (WITB)).^[8]

As column 3 indicates, the design of five of these 18 family-related tax expenditures includes rules on who must claim in the family. For example, the child care expense deduction (CCED) must be claimed, in most cases, by the spouse with the lower net income.

The design of three additional tax expenditures—the CCC, the RMES and the WITB—also includes rules on who must claim in the family, but only for taxfilers in specific circumstances.

• In the case of couples claiming the WITB, the spouse who receives the advance payments–if any–is the person who must claim. For couples jointly claiming advance payments, formal guidance is provided to the effect that the spouse who expects to have the higher working income should generally receive the advance payments. For the small share of couples in which one spouse is eligible for the WITB disability supplement, the CRA advises that this individual should make the claim.
• For the CCC, when the eligible dependant is a spouse, the caring spouse is required to claim the amount. Otherwise (i.e., when the eligible dependant is not a spouse), any caregiver can claim.
• Only workers with eligible medical expenses in relation to the Medical Expense Tax Credit (METC) or the disability supports deduction (DSD) can claim the RMES. In couples, when the RMES is claimed in relation to DSD expenses, the spouse with the disability is required to claim. However, either spouse can claim when the RMES is tied to the METC expenses, because the METC design includes no rules on who must claim eligible medical expenses in the family.

The design of pension income splitting offers discretion to filing couples on how to use the measure. Spouses have to determine jointly–using the form T1032–who will be the pension-income transferor and receiver and what will be the amount to split. When such decisions are made, the elected transferor can claim the deduction for the amounts transferred whereas the elected receiver has to report the amounts of income and tax withholdings received.

For the remaining family-related PIT expenditures listed in Table 4, spouses have discretion to make their own claiming decisions, as the design of the measures does not include rules on who must claim in the family. Claims of these expenditures are the result of intra-family decision processes that are unobservable in tax data. These choices can be driven by a number of factors, including the spouses’ desire to minimize joint tax liabilities or their own personal tax liabilities. In some instances, the selection criteria applied by tax software or professionals can also implicitly determine their choices. These criteria typically aim for a minimization of joint tax liabilities.^[9]

Splitting decisions are also the result of unobserved decision-making processes within families, which are likely influenced by an assessment (conscious or not) of potential economic outcomes. In the absence of specific requirements on who must claim in the family, rules are sometimes available to specify whether claims can be split between spouses and if so, on whether splitting restrictions apply. For example, the design of the First-Time Home Buyers’ Tax Credit specifies that two buying spouses can split the amount, but that the total combined claim must not exceed $5,000.

Table 4
Federal PIT expenditures with family components, nature of the family component and presence of rules on who must claim in the family, 2017

Federal family-related PIT expenditures	Nature of the family component	Presence of rules on who must claim in the family
Deductions
1-Child care expense deduction	Sharable between spouses in certain situations	Yes – Generally, the spouse with the lower net income (even if it is zero) must claim the expenses.*
Non-refundable credits
2-Adoption Expense Tax Credit	Sharable between spouses	No – Either spouse can claim. The two parents can split the amount if the combined claim for eligible expenses for each child is not more than the amount before the split.**
3-Canada Caregiver Credit (CCC)	Only taxfilers caring for a dependant (spouse, common-law partner, child, parent, grandparent, brother, sister, aunt, uncle, niece, nephew) can claim. Some CCC components are also sharable between spouses.	Yes and No – Rules depend on whom the CCC is being claimed for: Only the spouse caring for an eligible spouse can claim the CCC for a spouse or common-law partner. Either spouse caring for an infirm dependant 18+ years of age can claim. This amount can be split with another person supporting the same dependant as long as the combined claim does not exceed the maximum amount allowed for that dependant.** Either spouse caring for infirm children under 18 years can claim in respect of all eligible children or they can each claim separate children, but each child can only be claimed once.
4-Charitable Donation Tax Credit	Sharable between spouses	No – Either spouse can claim charitable donations regardless of who made them.
5-Disability Tax Credit (DTC)–for a dependant	Only taxfilers with a dependant eligible for the DTC other than a spouse can claim this DTC component	No – Either spouse with a dependant eligible for the DTC can claim this credit. Multiple supporting persons can split the amount if the combined claim is not more than the amount before the split.**
6-Eligible Dependant Credit (EDC)	Only taxfilers with a dependant other than a spouse can claim	Yes – The supporting filers who have not claimed a Spouse or Common-Law Partner Credit can claim this credit, as long as the claim is not for a child for whom the individual had to make support payments. The amount cannot be split with another supporting person.
7-First-Time Home Buyers’ Tax Credit	Sharable between spouses	No – Either spouse can claim. Two buying spouses can split the amount, but the total combined claim cannot exceed $5,000.
8-Home Accessibility Tax Credit	Sharable between spouses	No – Either spouse can claim. The claim can be split between the qualifying individual (65+ individual who is eligible for the DTC) and the eligible individual(s) (supporting individual(s) of the qualifying individual).
9-Medical Expense Tax Credit (METC)	Sharable between spouses	No – Either spouse can claim medical expenses regardless of who made them. The 2017 Federal Income Tax and Benefit Guide provides the following tax tip: “Compare the amount you can claim with the amount your spouse or common-law partner would be allowed to claim. It may be better for the spouse or common-law partner with the lower net income (line 236) to claim the allowable medical expenses.”
10-Political Contribution Tax Credit	Sharable between spouses	No – Either spouse can claim political contributions regardless of who made them.
11-Tuition Tax Credit–transferred from a dependant	Only a spouse, common-law partner, parent or grandparent can claim this component of the Tuition Tax Credit	No – A spouse, parent, or grandparent of a student can claim if the student does not have enough income to claim his or her full tuition amount and does not want to carry forward this amount.
12-Spouse or Common-Law Partner Credit	Only taxfilers living in a couple with a dependant spouse can claim	Yes – The supporting*** spouse must claim the credit.
13-Unused credits transferred from a spouse or common-law partner	Only taxfilers living in a couple can claim	Yes – A taxfiler whose spouse does not need to claim all of certain non-refundable tax credits (Age Credit, Pension Income Credit, DTC–for self, Tuition Tax Credit and CCC-for infirm children under 18 years) to reduce their federal tax to zero can claim the unused amount of these credits.
Refundable credits
14-Canada Child Benefit (CCB)	Only taxfilers with children under the age of 18 and a family income below a certain threshold are entitled. CCB amounts depend on family income and circumstances	Yes – Only one person in a family with children can apply for the CCB. When a child resides with a female and male parent, the female parent is automatically considered the parent who is primarily responsible for the care and upbringing of the child and is the parent who receives the benefit. A female parent is required to inform the CRA in writing that the male parent is primarily responsible for the care and upbringing of the child for the male parent to receive the benefit.****
15-Goods and Services Tax/Harmonized Sales Tax Credit (GST/HST Credit)	Only taxfilers with a family income below a certain threshold can claim. GST/HST Credit amounts depend on family income and circumstances	No – Only one spouse can receive the GST/HST Credit. In couples, the credit is paid to the spouse whose tax return is assessed first.****
16-Refundable Medical Expense Supplement (RMES)	Only working taxfilers with a family income below a certain threshold and medical expenses exceeding a particular threshold are entitled. RMES amounts depend on family income and circumstances	Yes and No – Only the working spouse who claimed the METC and/or the disability supports deduction (DSD) can claim the RMES. While either spouse can claim the METC, only the person with the disability can claim the DSD.
17-Working Income Tax Benefit (WITB)	Only taxfilers in working families with a family income below a certain threshold are entitled. WITB amounts depend on family income and circumstances. Couples and single parents are eligible under the more generous family schedule	Yes and No – Among taxfilers with an eligible spouse, either spouse can generally claim the WITB. For spouses who received an advance payment, rules require that they claim the WITB. Informal guidance advises that a person eligible for the WITB disability supplement should also claim the basic WITB.
Other measures
18-Pension income splitting	Only taxfilers living in a couple with private pension income can claim	No – Either spouse with pension income can transfer amounts. Spouses need to jointly determine at filing who will transfer and receive the notional pension income and tax withholdings amounts. Rules then prescribe that: 18a - the transferring spouse claims the deduction for the elected split-pension amount. 18b - the receiving spouse reports the elected split-pension amount as part of his or her total income.
*The higher-income parent may claim a deduction if the lower-income parent is incapable of caring for children because of a mental or physical infirmity, confined to a bed or a wheelchair, in prison or a similar situation for at least two weeks, attending a designated educational institution or secondary school, or living apart due to a breakdown in the relationship for a period of at least 90 days during the year. ** If the claimants cannot agree on the portion each can claim, the Minister of National Revenue affixes the portions. ***The taxfiler supported a spouse or common-law partner with a net income (line 236 of his or her return, or the amount it would be if he or she filed a return) of less than $11,635 in 2017 ($13,785 if he or she is dependent on the taxfiler because of an impairment in physical or mental functions). ****Two eligible individuals can receive amounts in respect of a particular month (CCB) or quarter (GST/HST Credit) if they share custody of a child (i.e., a child lives more or less equally with two individuals who live separately).

4. Claiming patterns of family-related PIT expenditures

This section examines the family type of taxfilers who claimed family-related PIT expenditures in 2017, and discusses whether existing tax rules or other factors led to some gender differences in the way they claimed them.

4.1 Family situation of claiming taxfilers

Table 5 shows that the bulk of family-related PIT expenditures are claimed relatively more by taxfilers in couples. Almost all claimants of the Spouse or Common-Law Partner Credit, unused credits transferred from a spouse and pension income splitting are considered to be in a couple for tax purposes. This is in accordance with the design of these measures, which requires the filers to have a spouse to be eligible.^[10] For other measures, the fact that they include a family component does not necessarily mean that filers need to be part of a couple to claim. Expenditures related to the care of dependants, medical expenses, political contributions and charitable donations do not require having a spouse to be eligible. However, for all these tax expenditures except for the Eligible Dependant Credit (EDC) and the RMES, filers in couples are more likely to claim than those who are unattached. In 2017, between 63.4% and 86.2% of claimants of these expenditures lived as a couple. This was significantly larger than the proportion of individuals who filed as a couple (56.6%).

It is conceivable that filers in couples are more subject to life circumstances that make them eligible to claim particular expenditures. For instance, the likelihood of having dependent children or adoption plans is typically higher among couples than among the unattached, which makes them more likely to claim the CCED or the Adoption Expense Tax Credit. The financial circumstances of couples may also partly explain why filers in couples are relatively more likely to claim some of these expenditures. Couples have potentially two earners rather than one, as is the case for the unattached, making their equivalent-per-person income (i.e., their family income adjusted for family size) generally higher. The comparative economic advantage of filers in couples may be a factor increasing their probability of making political contributions or charitable donations and of benefiting from the associated tax savings. However, this factor appears to be less important in respect of spending decisions for the purchase of a first home, as there is a similar proportion of sole filers and filers in couples claiming the First-Time Home Buyers’ Tax Credit.

Conversely, most refundable credits which target lower-income individuals and families disproportionately accrue to sole filers. In addition unsurprisingly, the EDC is almost entirely claimed by sole filers because of its eligibility criterion requiring that only taxfilers with a dependant, other than a spouse, can claim.^[11] For this family-related measure, negotiation between spouses is not required to determine who will claim.

4.2 Gender profile of claiming sole filers

Table 5 indicates that sole filers who claim family-related PIT expenditures are more likely to be women. In 2017, women represented in general higher proportions of claiming sole filers than their proportion among all sole filers (53.9%). This may be because women are more likely to meet the requirements to claim these tax expenditures (e.g., having a low income, being primarily responsible for the care of children or other dependants or assuming high medical expenses in relation to their income). The GST/HST Credit is also part of the measures claimed more often by female sole filers, but less markedly. The First-Time Home Buyers’ Tax Credit is the only family-related expenditure that is claimed relatively more by male sole filers. The Political Contribution Tax Credit and the WITB represent other exceptions since claims among sole filers are distributed between men and women almost proportionally to the size of each group among all sole filers.

4.3 Gender profile of claiming filers in couples

In general, federal PIT expenditures do not impose claiming requirements according to the gender of a taxfiler. The only exception is the CCB where the female parent is usually considered to be primarily responsible for the care of the child and is therefore the parent who must apply for the credit. As it is consistent with the approach taken under the previous system of child benefits, the CCB female-presumption rule facilitates the delivery of the CCB and reflects that female parents are more likely than male parents to be the primary caregivers when a female parent is present in the family.^[12]

Even in the absence of gender requirements, claiming patterns based on gender may still be observed due to implicit characteristics of men and women and the fact that, sometimes, an optimal allocation of claims between the higher- and lower-income spouse may lead to tax savings for the couple. Notably, Table 6 indicates that, for couples, male spouses tend to claim federal family-related PIT expenditures more often than female spouses. In 2017, 50.2% of filers in couples were men, while the proportions of claims they made were, in most cases, higher. If we assume that couples generally aim for minimizing joint tax liabilities, this result is unsurprising given that men were the higher-income spouse in more than 70% of filing couples.   

Only the CCED was claimed significantly more often by female spouses (70.7%). This result is not surprising given the design of the CCED, which generally requires the lower-income spouse to claim and the fact that women are more often the lower-income spouse in couples. By requiring the lower-income spouse to make the claim, this measure aims to reduce barriers to labour force participation for secondary earners.

The METC is also somewhat more likely to be claimed by female spouses. This pattern is contrary to that observed for all other non-refundable credits. The Federal Income Tax and Benefit Guide includes a tax tip to help couples determine claimants: “Compare the amount you can claim with the amount your spouse or common-law partner would be allowed to claim. It may be better for the spouse or common-law partner with the lower net income (line 236) to claim the allowable medical expenses. You can make whichever claim you prefer.” This may have an impact on the allocation of claims between male and female spouses.

4.4 Impacts of gender and other factors on claiming patterns among couples

In 2018-19, a survey conducted in Quebec and analysed by the Chaire en fiscalité et en finances publiques at the Université de Sherbrooke suggested that several models exist for treating taxation within couples.^[13] The decisions made by couples at filing and after assessment are often related to how they manage their entire budget. According to this survey, spouses who manage income and expenses independently are more likely to file for themselves and assume their own tax liabilities. On the other hand, spouses who pool their income and expenses are more likely to file for both and share liabilities. This survey also indicated that married and or long-term couples are more likely to treat taxation jointly than common-law and new couples. Moreover, it showed that men are more likely to be responsible for filing both spouses’ returns and that most couples rely on tax software or tax professionals to determine which spouse will claim the tax expenditures that include a family component. This survey also pointed out that few couples make in-depth calculations that consider each spouse’s income and expenses when it is time to file tax returns.

While no such survey exists for taxfilers in other provinces and territories, this section attempts to provide a better sense of the family dynamics underlying claiming decisions among couples by first examining which spouse is actually claiming the family-related PIT expenditures, and then by discussing the factors that may have led to such claiming decisions. In addition to breaking down claimants in couples by gender, Table 6 also shows the distribution according to whether they are the lower- or higher-income spouse in the family. This different breakdown provides additional insight into how actual claiming patterns in couples coincide with existing rules and expectations based on the design of tax measures.

Among the family-related tax expenditures considered, two include formal claiming requirements that are tied to the spouses’ relative income position in the couple.

• The Spouse or Common-Law Partner Credit recognizes the impact of having a dependent spouse on the ability of a taxpayer to pay tax, and ensures that a one-earner couple has access to a similar level of basic non-refundable credits as a two-earner couple by providing an equivalent basic amount of tax relief in respect of a dependant. Without this measure, a one-earner couple would pay more tax than a two-earner couple with a similar combined income. Consistent with the design of this measure, almost all claimants (i.e., 97.5%) were the higher-income spouse in the couple—of which 77% were men. Only a small number of claimants were identified as the lower-income spouse. While both spouses are not entitled to claim this credit for each other for the same tax year, 1.1% of claimants did so in 2017. Although it cannot be determined based on T1 data whether double claims were intentional or not, it is possible that the CRA rejected the overlapping claims after its assessment and that some claiming lower-income spouses ultimately did not benefit from the credit. The fact that the earning position of spouses may change depending on the concept of income considered (e.g., net income or taxable income versus the concept of pre-tax income considered in the current study) may also explain why some lower-income spouses claim this credit (and potentially other measures).^[14]
• Under the CCED, in general, lower-income spouses must file the claim. This requirement aims to reduce the disincentive to participate in the labour force by ensuring that tax is not paid on the income used to pay for childcare expenses up to a specific amount. Results in Table 6 show that 93% of CCED claimants in couples were the lower-income spouses–of which 72% were women. The remaining 7% of claims made by higher-income spouses may, in part, be explained by the fact that, in certain circumstances, higher-income spouses are allowed to claim (e.g., when lower-income spouses attend school and are enrolled in part-time or full-time education or are not capable of caring for the children due to physical or mental impairment). The concept of income used in the current study and family dynamics, such as union formation and dissolution during the tax year, may also explain why some CCED claimants are identified as higher-income spouses.

Other family-related PIT expenditures include no formal claiming requirements based on spouses’ relative income position in the couple. However, other characteristics may lead to differences in the way claims are allocated between spouses. Notably, while either spouse in a couple can get the GST/HST Credit, the first-assessed eligible spouse receives the amounts. For the 2017 tax year, amounts were paid to the higher-income spouse in 60% of eligible couples. Interestingly, at equivalent relative income position (i.e., higher- or lower-income), male spouses received the GST/HST Credit payments more often than female spouses (e.g., 61.3% of male higher-income spouses received the credit compared to 48.8% of female higher-income spouses). This gender bias may potentially be the result of who, in couples, is responsible for filing. While tax data indicates whether spouses in couples file on the same date or not (in 2017, this was the case for 83% of taxfilers in couples), it does not identify the filing person.

Some claiming patterns according to the spouses’ income position in the couple are present even in the absence of specific claiming requirements rules. Notably, Table 6 shows that higher-income spouses are significantly more likely to claim most non-refundable credits without explicit rules on who must claim in the family. This result is consistent with expectations that the higher-income spouse would claim non-refundable credits in order to maximize family tax savings. Indeed, contrary to deductions, non-refundable tax credits yield the same tax savings to all claimants, but only among those who have enough federal tax payable (before the application of non-refundable credits) to receive the full value of the credit, a situation that is more prevalent among higher-income taxfilers. For the Charitable Donation Tax Credit, the rate structure provides incentives to pool donations and for only one spouse–the higher-income spouse–to claim, even when both spouses have enough tax payable to benefit from the credit. For other non-refundable credits, the financial advantage for the higher-income spouse to claim is not as straightforward when both spouses have sufficient federal tax payable. However, tax data indicates that, even among couples in this economic situation (i.e., a situation where both spouses can benefit from the same value of non-refundable credits), higher-income spouses are still more likely to claim than lower-income spouses (results not reported).

Interestingly, there are taxfilers who are in couples where both spouses claim the same non-refundable credits. This may be expected given that most of these can be split between spouses. When spouses decide to split, both the higher- and lower-income spouse automatically claim the tax expenditure.

Although the unused credits transferred from a spouse cannot be split by design, there is a non-negligible proportion of couples in which both spouses claim them. This situation can arise when both spouses cannot fully utilize the credits (due to insufficient tax payable) and amounts are automatically transferred by tax software on filing. This situation is especially common in relation to unused amounts of the Age Credit. However, spouses who do not have room to use their own maximum credits will not ultimately benefit from such automatic transfers.

Table 6
Proportion of claimants in couples who are the male and female spouse and who are the lower-(LI) and the higher-income (HI) spouse, 2017

Federal family-related PIT expenditures	The spouse who is expected to claim based on the presence of rules on who must claim in the couple	Claimants in couples
		% who are the male spouse	% who are the female spouse	% who are the LI spouse	% who are the HI spouse
All filers in couples		50.2	49.8	48.7	51.3
Deductions
1-Child care expense deduction	The spouse with lower income R	29.3	70.7	93.0	7.0
Non-refundable credits
2-Adoption Expense Tax Credit	Either spouse *	66.1	33.9	27.8	72.2
3-Canada Caregiver Credit –Total	Either caring spouse *, except when the claim is for a spouse (in which case, the caring spouse has to claim)	64.6	35.4	15.5	84.5
4-Charitable Donation Tax Credit	Either spouse *	62.2	37.8	24.2	75.8
5-Disability Tax Credit–for a dependant	Either spouse *	67.1	32.9	17.1	82.9
6-Eligible Dependant Credit	Almost all claimants are sole filers	X	X	X	X
7-First-Time Home Buyers’ Tax Credit	Either spouse *	63.2	36.8	26.4	73.6
8-Home Accessibility Tax Credit	Either spouse *	67.6	32.4	25.1	74.9
9-Medical Expense Tax Credit	Either spouse *	44.9	55.1	61.3	38.7
10-Political Contribution Tax Credit	Either spouse *	69.4	30.6	31.1	68.9
11-Tuition Tax Credit–transferred from a dep.	Either spouse	64.8	35.2	14.6	85.4
12-Spouse or Common-Law Partner Credit	The spouse with an income-dependent spouse R	75.9	24.1	2.5	97.5
13-Unused credits transferred from a spouse	The spouse of eligible individuals with unused credits	59.6	40.4	25.8	74.2
Refundable credits
14-Canada Child Benefit (CCB)	The female parent	1.9	98.1	72.3	27.7
15-GST/HST Credit	Either spouse can receive the credit but the first-assessed eligible filer will receive the amount	57.2	42.8	40.4	59.7
16-RMES	Either working spouse*, except when the claim is tied to the disability supports deduction expenses (in which case, the spouse with a disability has to claim)	56.7	43.3	23.8	76.2
18-Working Income Tax Benefit	Either spouse, except when a spouse has received advanced payments (in which case, this spouse has to claim)	67.1	32.9	17.4	82.6
Other measures
18-Pension income splitting–Total	Both spouses are required to claim	50.0	50.0	49.9	50.1
18a-Pension income splitting–Receiver	Either spouse	24.2	75.8	85.6	14.4
18b-Pension income splitting–Transferor	Either spouse with private pension income	75.8	24.2	14.3	85.7
Note: “X” statistics not produced due to insufficient number of observations. It is important to note that claiming patterns by spouses’ gender or income position are similar among the subset of taxfilers who are part of two-filer couples in which spouses have a $1,000 or more difference in personal pre-tax income. R Identifies the tax expenditures with formal claiming requirements that are tied to the spouse’s income position in the couple. * Both spouses in a same couple can claim because amounts can be split. Sources: T1 return data, CCB and GST/HST Credit payment data.

Contrary to other non-refundable credits, the METC is claimed more often by lower-income spouses. This is aligned with expectations given that, in certain circumstances, “it may be better for the spouse with the lower net income to claim the allowable medical expenses.” Indeed, the METC can only be claimed for the portion of medical and disability‑related expenses in excess of a given deductible amount. As this deductible increases with personal income (up to a certain level), there can be a fiscal advantage to having a lower-income spouse with sufficient tax liability claim the expenses.

While the person in a couple permitted to claim the RMES is generally tied to who in the couple claimed the METC, lower-income spouses do not represent the majority of RMES claimants, as is the case for the METC. The RMES eligibility condition, requiring that taxfilers report net individual income from employment or self-employment greater than or equal to a minimum earnings threshold, likely explains this pattern. The overrepresentation of higher-income spouses among RMES claimants may be driven by the fact that, in modest-income couples, working spouses typically have higher income than non-working spouses.

Despite the fact that the WITB’s eligibility and amounts are independent of who, in the couple, earns labour income, the vast majority of WITB claimants in couples (82.6%) are also the higher-income spouses. This suggests that, even in absence of requirements on who must claim, most spouses tend to agree that the higher-income spouse (i.e., potentially the one working) should be the one claiming.

Further, as pension income splitting extends or modifies the unit of taxation from the individual to family, both spouses (i.e., the higher and lower-income spouses) are expected to claim the measure. However, a maximization of family benefits from this measure generally requires that the higher-income spouse transfer income to the lower-income spouse. In 2017, 86% of filers who elected to transfer pension income to their spouse were, indeed, the higher-income spouse. The 14% of lower-income spouses who transferred pension income was split equally between men and women.

Overall, the comparison of results in Table 6 suggests that for measures that either spouse can claim, claiming patterns are more greatly influenced by the spouses’ relative income position within the couple, rather than gender. Notably, for most credits, the share of claimants who are higher- or lower-income spouses is generally larger than the share of claimants who are men or women. The relatively high share of higher- or lower-income claiming spouses tend to support the assumption that most spouses make choices to minimize income tax liability for the couples (whether consciously or unconsciously via tax software or professionals). The Political Contribution Tax Credit is the only non-refundable credit for which claiming patterns among couples are not more closely tied to the spouses’ income position than to the spouses’ gender. This is likely partly due to the specific rate structure of the credit, which incentivizes spouses with large amounts of political contributions and sufficient tax payable to split contributions. The Political Contribution Tax Credit is also one of the few family-related tax credits for which claiming decisions among couples do not appear to be independent from gender. Indeed, at equivalent income position in the couple (i.e., when men and women are the higher-/lower-income spouse), male spouses are still more likely than female spouses to claim this credit. This is also true for the Adoption Expense Tax Credit, the Home Accessibility Tax Credit and the WITB (results not reported). Again, these trends may depend on when each spouse files (through a third party or a software), or on who is more likely to file for the family or show up as spouse 1 and 2 in the case of simultaneous tax filing. However, this information is not available in the data. .

5. Impacts of the benefit-sharing assumption among couples on GBA+ results

When filers are in a couple, both spouses are required at the time of filing to make decisions on how to claim family-related PIT expenditures. As discussed in the previous sections, when the design specifies who must claim, spouses follow existing rules. In the absence of requirements, claiming choices tend to be mostly driven by economic incentives (namely, a maximization–conscious or not–of tax benefits/savings for the couple).

The 2019 GBA+ study assumed that individual claimants were the sole potential beneficiaries of tax expenditures because the tax law does not contain requirements with respect to the allocation of after-assessment benefits within couples. However, it is possible that, in practice, many spouses decide to share these benefits, regardless of who made the claim. Multiple scenarios exist regarding the actual sharing of family-related PIT expenditures’ benefits within couples, and available information is insufficient to determine which assumption reflects the reality of taxfilers. The existing literature suggests that gender-based analysis of the impacts of tax measures is sensitive to the assumption used regarding the distribution of benefits within couples.^[15] In the absence of survey information on how Canadian filers actually share the benefits of federal family-related PIT expenditures, it is reasonable to test the sensitivity of the results under different scenarios. This section presents the distribution of PIT expenditures’ benefits between genders based on two contrasting benefit-sharing assumptions:

1. the first assumes, as for the 2019 study, that claimants are the sole beneficiaries of tax expenditures; and,
2. the second assumes that the after-assessment benefits are shared equally (i.e., 50/50) between spouses, regardless of who claimed.^[16]

A PIT expenditure is considered to mostly benefit women (men)^[17] when the ratio of the share of total benefits^[18] received by women (men) filers relative to their share of total pre-tax income^[19] is significantly above 1 (i.e., more than 1.05).^[20] Using such a ratio allows a distinction between the impact of the tax system’s provisions and the impact of pre-existing differences in income earned by men and women (i.e., differences that are independent from the application of the tax system such as employment and earnings).

When no sharing of benefits between spouses is assumed (Assumption 1), women and men are found to benefit relatively more from almost the same number of family-related PIT expenditures (Table 7). In 2017, women benefited relatively more from the CCED, all refundable credits and a few non-refundable credits (i.e., the EDC and the METC). On the other hand, men benefited relatively more from most non-refundable credits and pension income splitting.

However, the conclusions change when an equal sharing of benefits between spouses is assumed (Assumption 2). Notably, some family-related PIT expenditures that are found to be to the advantage of women under Assumption 1 (ratios in bold) appear to be more so under Assumption 2 (all refundable credits but the CCB). Further, all the expenditures that are, under Assumption 1, to the benefit of men (ratio in italics) or to the equal benefit of men and women (ratios in regular font) become to the advantage of women under Assumption 2. Therefore, for all these family-related expenditures, applying an assumption of equal sharing of benefits within couples has the effect of reallocating part of the benefits towards women. This is because male spouses are more likely to claim these measures at filing.

Conversely, because the CCB and the CCED are mainly claimed by female spouses, the proportions of benefits attributed to women are reduced when it is assumed that spouses equally share the benefits from these measures (the ratios fall to 1.53 and 1.29 from 2.30 and 1.68 respectively).^[21] For the same reason, the relative share of METC benefits going to women is also slightly reduced under Assumption 2 (the ratio slightly decreases to 1.36 from 1.39). Despite these decreases, the three expenditures globally remain to the advantage of women.

In sum, conducting sensitivity tests regarding the allocation of benefits from tax expenditures within couples confirms that, most of the time, GBA+ results (i.e., the gender allocation of PIT expenditures’ benefits) change depending on the benefit-sharing assumption used. All tax expenditures considered appear to mostly benefit women under Assumption 2 compared to less than half of them under Assumption 1. Accordingly, if the equal-sharing assumption had been selected for conducting the first GBA+ instead of the no-sharing assumption, more of the PIT expenditures examined would have been found to improve the allocation of income between men and women.

6. Conclusion

Pursuant to the new reporting requirements of the Canadian Gender Budgeting Act, a first GBA+ study was published in 2019. The preparation of this first GBA+ highlighted the limitations presented by existing tax data and the need to make sound methodological choices. For instance, decisions had to be made regarding the attribution of tax expenditures’ benefits between family members. Because the Canadian PIT system uses the individual as the main unit of taxation, it was assumed that individual claimants were the sole beneficiaries of tax expenditures. However, this assumption is questionable, especially in the presence of expenditures with family components, i.e., those for which spouses need to determine at filing who is going to claim and decide thereafter on the allocation of the benefits.

For a better understanding of such decision-making processes within families, the current GBA+ study examines how filers actually used a list of 18 PIT expenditures with a family component in 2017. The analysis of claiming patterns shows that, among sole filers, women were more likely to claim most family-related PIT expenditures. This is mainly because they are more likely than sole men to possess the characteristics required to claim these benefits. The opposite pattern is observed among couples. For couples, male spouses claimed family-related expenditures more often than female spouses. Individual responses to taxation are complex, and an analysis based on tax data does not allow drawing firm conclusions on whether spouses make rational and conscious choices about the allocation of tax measures. However, the analysis pointed out that formal claiming requirements and the spouses’ earning position in couples (i.e., whether they are the higher- or lower-income spouses) are important decision-making factors among couples. The results suggest that existing rules and economic incentives (i.e., the possibility of savings tax when the higher- or lower-income spouses claim) tend to weigh more than the spouses’ gender in the way couples claim family-related PIT expenditures. Due to the inherent characteristics of men and women taxfilers—men are more likely to be the higher-income spouses—these factors may explain some of the observed imbalances in the allocation of claims between genders.

Furthermore, sensitivity analysis indicates that the allocation of after-assessment benefits between men and women may change significantly depending on the selected benefit-sharing assumption among couples. The results of this analysis suggested that if an equal-sharing assumption had been selected for conducting the 2019 GBA+ study, instead of assuming that claimants are the sole beneficiaries, a larger share of the 60 PIT expenditures examined would have been found to improve the distribution of income between men and women.

Bibliography

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¹ The analysis presented in this paper was prepared by Dominique Fleury, Economist, Tax Policy Branch, Department of Finance Canada. Enquiries regarding Department of Finance Canada publications can be sent to finpub@canada.ca

² For simplicity, the term “spouse” will be used in this paper to refer to “spouse or common-law partner”.

³ Department of Finance Canada, Report on Federal Tax Expenditures: Concepts, Estimates and Evaluations 2019, “Gender-Based Analysis Plus of Existing Federal Personal Income Tax Measures,” footnote 26.

⁴ OECD Family Database, OECD – Social Policy Division, Directorate of Employment, Labour and Social Affairs, PF1.4: Neutrality of tax-benefit systems, updated 08-11-16. The OECD Centre for Tax Policy and Administration, 2011, Taxation and Employment, OECD Tax Policy Studies, No. 21, Paris.

⁵ The analysis is based on returns from the 2017 tax year, generally filed by the end of April 2018, and uses the tax parameters that prevailed that year. Tax year 2017 was the most recent year for which full tax data were available when the study was conducted. 2018-2019 CCB and GST/HST Credit payments were determined based on the 2017 T1 return.

⁶ In this analysis, the term “gender” refers to the sex or biological gender attributed at birth based on available data. In the T1 return data, each record is assigned a code, which represents the sex of the tax filer. The Canada Revenue Agency assigns the code by matching the social insurance number (SIN) reported on the tax return to the SIN master file, which includes the sex of every person who has received a SIN.

⁷ More information on data, definition of concepts and the methodology used to identify tax expenditures’ beneficiaries and benefits is available in the 2019 GBA+ study. For instance, the 2019 study indicates that registered plans, such as Registered Pension Plans and Registered Retirement Savings Plans, are excluded from the analysis due to data limitations. While information is available in T1 return data on deductible contributions made to, and taxable withdrawals made from, registered plans, no information is available on investment income earned (which is non-taxable) in such savings plans.

⁸ The Canada Workers Benefit replaced the WITB in 2019.

⁹ For the 2017 tax year, about 8% of all filers (8.1% and 7.7% of male and female filers) filed their tax returns on paper. The rest filed electronically, either by themselves or through someone else (e.g., through NETFILE, EFILE, File my Return or 2D bar code returns).

¹⁰ While taxfilers without spouses are not entitled to claim these expenditures, small percentages of claiming filers are identified as sole filers (less than 1%). This could be due to cases that involve individuals who separate around the end of the tax year or individuals for whom family status might have been subsequently reassessed.

¹¹ While taxfilers in couples are not entitled to claim this credit, 2017 data indicates that 2.1% of claiming filers were in a couple. This result is based on a small number of cases which presumably experienced a separation during the tax year (since the EDC may be claimed if an individual supporting a dependant did not have a spouse or was not living with or being supported by this spouse at any time in the year) or for which family status may have been subsequently reassessed by the CRA. The distribution of claims among this small number of couples is not examined further in this paper.

¹² Statistics Canada’s analysis (2011) of the General Social Survey on the time use of Canadians reported that regardless of the child’s age, women spend more than twice as much time on their care as men do.

¹³ Helène Belleau, Suzie St-Cerny, Antoine Genest-Grégoire and Luc Godbout, Comment les couples abordent la fiscalité : une question commune ou individuelle?, Cahier de recherche 2019/06, Chaire en fiscalité et en finances publiques,  Université de Sherbrooke, April 2019.

¹⁴ If taxable income instead of pre-tax income had been selected for classifying all spouses according to their income position, 6% of the current higher-income spouses would have been classified as the lower-income spouses and vice-versa.

¹⁵ Cottet, Sophie, Marion Monnet and Lucile Romanello. Assessing the Gender Impact of Tax and Benefit Reforms, Institut des Politiques Publiques, IPP Report No. 14, March 2016.

¹⁶ To minimize the complexity of the current analysis, the methodology used to test the robustness of the GBA+ results to a change in the benefit-sharing assumption ignores the fact that some taxfilers who are in a couple live with a same-sex spouse. According to the 2016 Census from Statistics Canada, an equal proportion of men and women in a couple (0.9 per cent-Catalogue No. 98-400-X2016027) were living with a same-sex partner. This proportion was quite similar according to 2017 T1 data (0.8% among both male and female filers in two-filer couples). It can therefore be assumed that a methodology that does not consider the reality of same-sex partners nonetheless provides an accurate picture of the distribution of beneficiaries and benefits by gender.

¹⁷ In other words to “advantage women (men)”.

¹⁸ The “total benefits” refers to the amount of net federal tax saved by tax filers due to the tax expenditure, all else being equal.

¹⁹ As Table 2 indicates, women’s (men’s) share of total pre-tax income in 2017 was 41.5% (58.5%). This compares to 41.6% (58.4%) in 2016.

²⁰ Same ratio and thresholds as in the previous GBA+ study: Department of Finance Canada, Report on Federal Tax Expenditures: Concepts, Estimates and Evaluations 2019, “Gender-Based Analysis Plus of Existing Federal Personal Income Tax Measures,” Section 3.2.

²¹ Although female parents tend to be the primary direct recipients of the CCB, the intent of this benefit is to provide support for children regardless of the parent receiving the payment. Given that the gender split among children is close to even, the distribution of CCB benefits can be considered more gender-balanced overall when taking into account the flow-through of support to the children in the family.

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