Report on Federal Tax Expenditures - Concepts, Estimates and Evaluations 2021: part 9

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Gender-Based Analysis Plus of Federal Personal Income Tax Measures: Impacts by Identity Factors other than Gender^{Footnote 1}

1. Introduction

The Canadian Gender Budgeting Act was passed by Parliament in December 2018, enshrining the Government’s commitment to decision-making that takes into consideration the impact of policies on all types of Canadians. Among other things, the Act legislated a commitment that the Minister of Finance make available to the public analyses on the gender and identity impacts of tax expenditures. Pursuant to this requirement, the 2019 and 2020 editions of the Report on Federal Tax Expenditures (RFTE) included Gender-based Analysis Plus (GBA+) studies of existing personal income tax (PIT) expenditures. The main objectives of the 2019 study were to examine the overall impact of the federal PIT system on the distribution of income between men and women as well as the allocation of individual federal PIT expenditure benefits by gender and intersecting identity factors. The 2020 study complemented the first GBA+ by looking at how male and female spouses actually claim tax expenditures with family components – tax reliefs that can be used by either or both spouses or that are tied to the family situation – and how the selected benefit-sharing assumptions within couples impacts GBA+ results.

While the focus of the 2019 and 2020 GBA+ studies was on the impacts of the PIT system by gender, this year’s study focuses on differential impacts by other identity factors. It looks at the intergenerational, income distribution and interregional impacts of federal PIT measures independently of gender. In particular, the study examines whether the global PIT system and a set of individual tax expenditures benefit certain taxfilers more than others based on age group, income group, family type and area of residence.^{Footnote 2}

The study is organized as follows. Section 2 presents details on data and scope of the analysis, describes the methodology used and discusses the identity factors considered with a statistical profile of taxfilers. Section 3 presents detailed results of the analysis by age group, income group, family type and area of residence and ends by providing a summary table of the results. Section 4 concludes the paper.

Background

2.1 Data and Scope of Analysis

This year’s GBA+ is primarily based on 2018 T1 return data, the most recent complete personal income tax dataset. It also uses Canada Child Benefit (CCB) and Goods and Services Tax/Harmonized Sales Tax (GST/HST) Credit 2019-2020 payment information, which is based on the income that filers reported in their 2018 tax returns. A merge with Statistics Canada’s Postal Code Conversion File (PCCF) was also performed to determine the area of residence of 2018 filers. By merging the postal codes reported on the identification box of 2018 tax returns with the PCCF, November 2019, information on their geographical location could be obtained (i.e., the standard 2016 Census geographic areas where their postal codes belonged – inside or outside census metropolitan areas (CMAs^{Footnote 3})).^{Footnote 4}

The list of PIT expenditures under review includes those for which the main beneficiaries are identifiable in 2018 T1 return data and for which a breakdown based on identity factors can be performed. Registered plans were excluded from the analysis due to incomplete information.^{Footnote 5} Tax expenditures that mainly benefit taxpayers who are not resident individuals (e.g., non-profit organizations, other levels of government, non-residents) were also excluded due to the impossibility of identifying the sociodemographic characteristics of these beneficiaries.

The group of expenditures that has been retained for the analysis is essentially the same as the one studied in the 2019 GBA+, which was based on 2016 data. New expenditures in the analysis include the Canada Caregiver Credit, which was introduced in 2017, and the Investment Tax Credits, which had previously been excluded due to the difficulty of breaking down the variety of credits available (e.g., the Mineral Exploration Tax Credit, Apprenticeship Job Creation Tax Credit and Investment Tax Credit for Child Care Spaces^{Footnote 6}). The Tuition Tax Credit^{Footnote 7} was also split in two parts, i.e., the part claimed for tuition incurred by a taxpayer and the part transferred from a dependant. The most recent data was also detailed enough to allow the inclusion of four additional employment expense deductions^{Footnote 8}:

• Apprentice vehicle mechanics’ tools deduction;
• Deductibility of certain costs incurred by musicians;
• Deductibility of expenses by employed artists;
• Partial deduction of and partial input tax credits for meals and entertainment.

Measures that have been replaced or repealed since 2016 are not part of the current analysis (e.g., the Children's Arts Tax Credit).^{Footnote 9}

2.2 Methodology

As in the 2019 GBA+, this study will first focus on the overall impact of the federal PIT system on the redistribution of income across filers of different age groups, income levels, family types and areas of residence. Second, it will examine whether a selected set of individual PIT expenditures provide a relatively higher benefit to taxfilers in these specific identity groups.^{Footnote 10}

To examine whether the global federal PIT system redistributes income between groups, it begins by comparing various concepts of income and tax payable. In order to have a redistributive impact toward a specific identity group, the federal PIT system has to:

• reduce – through adjustments, exemptions and deductions – the share of total taxable income that filers of this specific group hold in comparison to their share of total pre-tax income; or
• lower – through the progressive tax rate structure, non-refundable and refundable credits – the share of net tax payable owed by this group relative to those owed by the other groups.

It then examines the impacts of individual PIT expenditures by calculating statistics on the number of beneficiaries as well as on the total amount of benefits received for each of the tax expenditures considered by age group, income group, family type, and area of residence.

• The “number of beneficiaries” refers to the number of taxfilers who, in the absence of a particular tax expenditure, would have had to pay a higher amount of net federal tax, all else being equal (or, in other words, assuming no behavioural change by taxfilers^{Footnote 11}).
• The “total amount of benefits” refers to the amount of net federal tax saved by taxfilers due to the tax expenditure, all else being equal.^{Footnote 12}

In order to control for pre-existing income inequality between identity groups (i.e., before the application of the federal tax system), ratios of the share of total benefits received by each group relative to their share of total pre-tax income were derived. These ratios identify the proportion of total benefits of a tax measure that goes to a particular group of taxfilers in relation to the proportion of total pre-tax income reported by this group. Drawing conclusions based on these ratios allows a distinction between the impact of the tax system and the impact of pre-existing differences in income earned by the different identity groups. It is worth noting that ratios were derived based on the assumption that tax expenditures benefit only taxfilers who claim them on their income tax return.

2.3 Identity Factors under Review

Table 1 shows the identity factors under review in this analysis and provides details on their categorization. The GBA+ analytical framework published in Budget 2018 suggests taking into account intersecting identity factors that go beyond biological differences (sex) such as race, ethnicity, sexual orientation or gender identity.^{Footnote 13} However, tax data does not allow such distinctions to be made.^{Footnote 14} The current impact analysis is limited to sociodemographic characteristics that are available in tax data.

Among the 58 measures retained for the current study, a minority of them specifically target some of the identity groups under review. Table 2 identifies 17 measures that target some of these groups. For instance, five measures aim to benefit seniors or pensioner filers, namely the non-taxation of Guaranteed Income Supplement and Allowance benefits, Age Credit, Home Accessibility Tax Credit, Pension Income Credit and pension income splitting. Therefore, it will not be surprising to observe that these measures particularly benefit these groups of filers.

2.4 Profile of Filers

Table 3 provides an overview of the distribution of 2018 taxfilers by gender and the four identity factors considered in this study. More than 28 million individuals filed a 2018 Canadian PIT return, of which 48.5% were men and 51.5% were women. About 40.2% of them were aged 55 years or more while 27.8% were under the age of 35. The remaining 32.0% were between 35 and 54 years. A fifth of them (bottom quintile) reported an adjusted pre-tax family income below $17,823 whereas the adjusted pre-tax family income of another fifth of them (top quintile) was above $82,246. More than half of all filers (56.3%) lived in a couple that year. Of them, 34.8% had children under 18 in their family. In comparison, 8.2% of filers who were not in a couple had children under 18 in their family. While a majority of filers lived in urban areas (inside CMAs), close to 30% of filers resided in remote areas (outside CMAs).

It is important to mention that the four identity groups under review are not mutually exclusive. The probability of filers being in a given group does affect the probability that they are part of other identity groups. For instance, Table 3 indicates that filers under 35 years of age are considerably less likely to be living in a couple. They also have a significantly lower family income on average and they are slightly less likely to reside in a remote area.^{Footnote 15}

Since the descriptive statistics presented in this study do not control for the interplay between these characteristics, it will be important to keep in mind that this interdependence may play a role in explaining some of the results obtained.

Results: Differential Impacts by Identity Factors other than Gender

3.1 Age Group

In 2018, individuals aged under 35 years represented 27.8% of all filers but reported 18.2% of total pre-tax income (Table 4). In contrast, filers aged 35-54 and 55+ years reported larger proportions of total pre-tax income (39.9% and 41.9% respectively) than the proportions of filers they represented (32.0% and 40.2%).

Table 4 suggests that the 2018 federal PIT system was globally redistributive toward younger filers since the share of total after-tax income held by filers aged under 35 years (19.1%) is higher than the share of total pre-tax income they reported (18.2%).

A comparison between various concepts of income and tax payable indicates that refundable credits are the main contributor of income redistribution toward younger filers. Filers aged under 35 years reported 18.9% of taxable income while their share of net tax payable after the payment of refundable credits was 7.9%. The tax rate structure also contributed to this trend but to a lesser extent.

Although the various income adjustments applied for tax purposes (i.e., exemptions, deferrals and deductions) especially benefit older filers, the proportion of net tax payable considering refundable credits that this age group had to pay (47.7%) was much higher than their proportion of taxable income (41.0%).

Table 5 identifies the individual PIT expenditures that contributed or not to this global income redistribution effect toward younger filers. For each of the selected tax expenditures, it presents the share of benefits received by each age group in comparison to the share of pre-tax personal income they reported. Resulting ratios enabled us to classify them in the following three categories:

• Especially benefit younger filers (aged under 35 years);
• Especially benefit middle-age filers (aged between 35 and 54 years);
• Especially benefit older filers (aged 55 years or more).

Overall, the ratios show that a similar number of measures (among the 58 federal PIT expenditures examined in this study) provide a relatively higher benefit to each age group. Indeed, between 25 and 27 measures especially benefit younger, middle-age and older filers. The ratios also indicate an important overlap between the measures that mostly benefit younger and middle-age filers. Among the 37 measures that benefit proportionally more either younger or middle-age filers, 17 of these measures benefit both age groups. Ten exclusively advantage younger filers while a smaller number (6) exclusively advantage middle-age filers. In comparison, measures that especially benefit older filers are much more likely to exclusively advantage this age group (21 out of 25 measures).

Interestingly, even if filers of all age groups are equally likely to claim the credit for the Basic Personal Amount (BPA), the ratios indicate that the BPA is especially benefiting younger filers. Because the BPA is the same for everyone, it represents a higher ratio of pre-tax income for groups with lower pre-tax income such as younger filers. Similarly, some credits granted in recognition of costs related to employment, such as the Canada Employment Credit and the credits for Canada Pension Plan/Quebec Pension Plan (CPP/QPP) contributions and Employment Insurance/Quebec Parental Insurance Plan (EI/QPIP) premiums, are also of slightly greater benefit to younger filers, although younger filers do not necessarily work more than middle-age taxfilers. 

The ratios also highlight important differences in the types of expenditures that especially benefit each age group. As an illustration, Table 6 identifies the top five PIT expenditures for younger and older filers as per the ratios presented in Table 5 regardless of the total cost of each tax expenditure. While none of the top five measures for younger filers specifically target this population, they are all intended to compensate for the cost of activities that are typically performed in the early stage of adulthood, such as completing post-secondary education and getting a first home. Conversely, four of the five top measures for older filers are measures that directly target this population (i.e., the Age Credit, non-taxation of Guaranteed Income Supplement and Allowance benefits, Pension Income Credit and pension income splitting). Although the unused credits transferred from a spouse or common-law partner are not entirely directed to this age group, two of the five credits that can be transferred are (the Age and Pension Income Credits). By disaggregating the total benefits of this last measure, it can be observed that these two last credits make up the largest part of the claims, probably because older filers are more likely to be living in family types and income circumstances that allow for such types of transfers.

The Charitable Donation and Political Contribution Tax Credits are also part of the tax expenditures that are not directly targeted to older filers but still especially benefit them. This is also the case of the tax expenditures associated with:

• capital accumulation (e.g., Lifetime Capital Gains Exemption, partial inclusion of capital gains, capital and non-capital loss carry-overs),
• investments (e.g., dividend gross-up and tax credit, deduction of interest and carrying charges incurred to earn investment income and Investment Tax Credits), and,
• health-related costs recognition (e.g., disability supports deduction, Disability Tax Credit, Home Accessibility Tax Credit and Medical Expense Tax Credit).

3.2 Income Group

Table 7 aggregates total amounts of different concepts of income and tax payable by filers’ family income categories. The first category, called first or bottom quintile, includes the 20% of filers with the lowest family income adjusted for family size. The last category, called fifth or top quintile, includes the 20% of filers with the highest adjusted family income.

The distribution of total personal pre-tax income by quintile shows considerable income inequalities between these income groups. Filers in the bottom quintile reported 4.2% of total pre-tax income in 2018 in comparison to 49.0% for those in the top quintile. However, a comparison with other types of income and tax concepts suggests that the federal PIT system is globally redistributive toward lower-income filers.

Comparing the distribution of taxable income (a concept of income derived for tax purposes, i.e., after the application of exemptions, deferrals and deductions) to that of pre-tax income, the results show slight decreases in the shares of income held by the first two quintiles as well as by the top quintile. These changes reduce the portions of taxes payable by members of these quintiles as opposed to what they would have paid if tax rates had been applied to pre-tax income. In contrast, these changes increase the portions of taxes payable by members of the third and fourth quintiles.

The progressive tax rate structure and existing credits, in particular refundable credits, are especially important drivers of the federal PIT system’s income redistribution impact. The shares of tax payable by members of the top quintile before and after the application of refundable credits (66.4% and 84.9% respectively) are significantly higher than the share of taxable income they report (47.7%). In contrast, the shares of tax payable by members of the first three quintiles are all lower than their shares of reported income. As an example, members of the bottom quintile reported 3.7% of taxable income in 2018 while their tax liabilities represented only 1% of all taxes payable before the application of refundable credits. When refundable credits are taken into account, the amount of credits they receive is even greater than the amount of taxes they owe, which increases the share of after-tax income they hold relative to their share of pre-tax income. Such a trend is especially important for members of the first income quintile and is also true for quintiles two and three, but to a lesser extent.

On the other hand, the shares of before- and after-tax income held by members of quintile four are very similar (22.6% and 22.5%), and this trend is completely reversed for members of the top quintile; i.e., the proportion of after-tax income held by the fifth quintile is lower than its proportion of pre-tax income (45.8% versus 49.0%). All this suggests that the global income redistribution impact of the federal PIT system comes mainly from quintile 5 toward quintiles 1, 2 and 3. As noted earlier, changes in income for tax purposes generally advantage members of the top quintile, which likely attenuates the observed redistributive impact.

Among existing individual PIT expenditures, some are explicitly targeted to lower income filers to achieve particular policy objectives. Other are notionally available to all filers but, in practice, only result in tax savings for those with high enough taxable income. It is thus interesting to examine the extent to which individual PIT expenditures influence the income of filers based on their family income situation. In order to shed some light on how individual PIT expenditures contributed to the global income redistribution trends observed in Table 7, the total benefits associated with the list of 58 PIT expenditures previously established have been broken down by adjusted family income quintile. Each PIT expenditure was then classified as especially benefiting filers in one or several of the five income quintiles.

PIT expenditures that especially benefit lower-income filers relative to their share of income are considered progressive since they contribute to income redistribution from the top to the bottom of the income distribution. In contrast, expenditures that especially benefit higher-income filers are considered regressive as they contribute to increased income inequalities between these two groups.

The classification in Table 8 first shows that few measures especially benefit individual quintiles. Most of them especially benefit members of two or more quintiles at a time. However, certain trends are observed depending on the type of tax expenditure considered. Notably, Table 8 suggests that individual PIT expenditures in the form of exemptions, deferrals and deductions are more likely to especially benefit members of higher quintiles (Q4 and Q5) and, therefore, to be regressive. Among all measures considered of this type, only two especially benefit members of lower income quintiles. These are the two expenditures aiming to exempt from tax income received via income support programs available to low-income individuals, namely the non-taxation of Guaranteed Income Supplement and Allowance benefits and the non-taxation of social assistance benefits. Two others are neither regressive nor progressive since they especially benefit taxfilers located in the middle of the income distribution. These are the non-taxation of workers' compensation benefits and the Apprentice vehicle mechanics' tools deduction. The remaining 21 PIT expenditures of this type are found to advantage higher-income taxfilers, and among these, ten especially benefit filers in the top quintile only. These include measures concerning:

• the accumulation of capital gains (Lifetime Capital Gains Exemption, partial inclusion of capital gains, capital gains loss carry-overs),
• investments (deduction of allowable business investment losses, deduction of interest and carrying charges incurred to earn investment income, non-capital loss carry-overs, rollovers of investments in small businesses, employee stock option deduction), and
• some employment-related expenses (partial deduction of and partial input tax credits for meals and entertainment).

An opposite trend is observed with respect to refundable credits. Most refundable credits especially benefit members of lower income quintiles – which was expected given the eligibility criteria of these measures – and thus contribute to reduce income inequalities between filers at the top and bottom of the income distribution. This is notably the case of the Canada Child Benefit (CCB), Goods and Services Tax/Harmonized Sales Tax Credit (GSTC), Refundable Medical Expense Supplement (RMES) and Working Income Tax Benefit (WITB). Among refundable credits, the Teacher and Early Childhood Educator School Supply Tax Credit and other refundable credits (includes the refund of the investment tax credit, the rebate to employees and partners, and the Part XII.2 trust tax credit) do not contribute to this trend since they especially benefit members of quintiles 4 and 5 respectively. It is interesting to note that, among refundable credits that contribute to income redistribution, the CCB and the GSTC provide a relatively higher benefit to members of the first three income quintiles while the RMES especially benefits members of the first two quintiles only. In comparison, WITB benefits are concentrated more narrowly at the bottom of the income distribution; only members of the first income quintile especially benefited from this PIT expenditure in 2018.

Patterns are more nuanced with regard to non-refundable credits. Of the 26 non-refundable credits under review, five are neither progressive nor regressive since they especially benefit filers in the middle of the income distribution (Q2, Q3 and Q4). These include the Disability Tax Credit, First-Time Home Buyers’ Tax Credit, Pension Income Credit, Student Loan Interest Credit and Volunteer Firefighters Tax Credit. Of the 21 remaining non-refundable credits, seven are progressive while twice as many (14) are more regressive. Table 9 suggests that the Investment Tax Credits and the foreign tax credit for individuals are among the most regressive non-refundable credits. More than 95% of the benefits associated with these credits went to members of the top two family income quintiles in 2018.

Table 8 also shows that pension income splitting does not globally contribute to income redistribution toward lower-income filers given that the measure especially benefits filers in the third and fourth family income quintiles.

Among all the individual PIT expenditures examined, a larger share appears to especially benefit higher-income filers. This may seem counterintuitive relative to the global redistributive impact found in Table 7. However, this can be explained by the fact that individual PIT expenditures especially benefiting lower-income filers globally provide larger tax relief than those especially benefiting higher-income filers. As an illustration, Table 9 indicates that the benefits associated with (or in other words, the costs associated with) the top five PIT expenditures for lower-income filers are considerably higher than those associated with the top five PIT expenditures for higher-income filers, mainly because of the CCB.^{Footnote 16}

3.3 Family Type

As the 2020 GBA+ study pointed out, there are a number of federal PIT expenditures that include a family component, meaning that they can be transferred or shared between spouses at filing, or that entitlement depends on filers’ family circumstances or income.^{Footnote 17} It is thus interesting to examine whether individual PIT expenditures influence the income of filers differently based on their family circumstances. As Table 10 shows, filers without a spouse (sole filers and sole parents) represent a larger proportion of filers (43.7%) than the proportion of pre-tax income they report (33.8%), while the opposite is true for filers in couples (with or without children).

Overall, the federal PIT system has a small income redistribution impact between family types. In 2018, the system globally reduced by one percentage point the share of income held by filers in couples without children, while it slightly increased that of all other family types, especially sole parents (0.7 percentage points). The various concepts of income and tax payable compared in Table 10 suggest that all major components of the federal tax system have a positive overall income redistribution impact toward sole parents. On the other hand, it shows that only refundable credits generate a positive income redistribution impact toward filers in couples with children, and that all components other than refundable credits have a small positive impact toward sole filers.

In order to observe the redistributive impact between family types of the selected 58 individual tax expenditures, Table 11 classifies them in one or several of the following four family categories:

• Especially benefits sole filers (S);
• Especially benefits sole parents (SC);
• Especially benefits filers in a couple without children (C); or
• Especially benefits filers in a couple with children (CC).

Again, with this classification, it can be observed that a majority of PIT expenditures especially benefit more than one family type (33 out of 58). Four expenditures predominantly benefit sole filers only. These are the non-taxation of Guaranteed Income Supplement and Allowance benefits (which is the federal PIT expenditure benefiting sole filers the most according to Table 12), the apprentice vehicle mechanics’ tools deduction, the credit for the Basic Personal Amount and the Tuition Tax Credit – for self. A similar number of PIT expenditures especially benefit filers in a couple with children only, including the deduction of other employment expenses, moving expense deduction, partial deduction of and partial input tax credits for meals and entertainment, Volunteer Firefighters Tax Credit and other refundable credits. By comparison, only one expenditure exclusively benefits sole parents relatively more, namely the Eligible Dependant Credit. This measure is identified as the top federal PIT expenditure for sole parents in Table 12. This is consistent with the nature of this credit since only taxfilers who support a dependant and do not have a spouse or common-law partner can claim it.

However, a larger number of PIT expenditures (15) are found to advantage only filers in a couple without children. While the most important measure is pension income splitting, other tax expenditures also significantly benefit these filers, including the Lifetime Capital Gains Exemption, capital loss carry-overs, and the deduction of interest and carrying charges incurred to earn investment income. With the exception of the Search and Rescue Volunteers Tax Credit, which tends to especially benefit younger filers, PIT expenditures that are found to predominantly benefit filers in a couple without children are also measures that especially benefit older filers. The three PIT expenditures that more than proportionally benefit filers in a couple without children and sole filers (the non-taxation of workers’ compensation benefits, partial inclusion of capital gains and Age Credit) are also measures that especially benefit older filers. This makes sense given that living in a childless couple or being unattached are the most prevalent family circumstances of older filers. In 2018, 67.9% of filers aged 55 years or more lived in a couple without children and 35.6% lived without a spouse and children. In comparison, the proportions of filers aged 35 to 54 years who lived in similar family situations were 25.0% and 23.7% respectively.

PIT expenditures targeted to lower-income filers are also found to especially benefit sole filers (with or without children). This may be due to the fact that persons who do not live in a couple are more likely to have a low family income.^{Footnote 18} The expenditures that especially benefit filers who do not live in a couple include a number of measures that also especially benefit younger filers (i.e., those under 35 years), two-thirds of whom were sole filers in 2018 (66.0%). This is notably the case of the credit for the Basic Personal Amount, of some credits for education expenses (Student Loan Interest Credit and the Tuition Tax Credit – for self) and for the purchase of a first home.

The Spouse or Common-Law Partner Credit is among the PIT expenditures that especially benefit filers in a couple (with or without children). This is expected given that only filers living in a couple can claim this credit. Only filers living in a couple can also claim the unused credits transferred from a spouse or common-law partner. However, this measure especially benefits filers in a couple without children only. This is likely because of the age restriction associated with some of the credits that can be transferred (i.e., the Age and Pension Income Credits). Some PIT expenditures that are not specifically targeted to filers in couples also predominantly benefit filers in this family type, including the deduction of allowable business investment losses, the employee stock option deduction and the Tuition Tax Credit – transferred from a dependant. While this last measure targets parents, Table 11 indicates that both couples with and without children especially benefit from it because many claimants of this measure only have children aged 18 years or more.^{Footnote 19} 

Table 11 also indicates that some measures especially benefit filers with children, whether they are in a couple or not. As expected, the Child Care Expense Deduction and the CCB, which are both directly targeted to families with children, appear as the top two federal PIT expenditures for couples with children in Table 13. However, this is also true for several measures that do not directly target families with children, including the Disability Tax Credit, the Northern Residents Deductions and several employment-related measures (e.g., deduction of union and professional dues and measures related to CPP/QPP and EI contributions). In most cases, those expenditures also especially benefit filers aged under 55 years.

Results in Tables 11, 12 and 13 confirm that the type of family in which filers find themselves can influence the share of benefits they obtained from the various individual PIT expenditures, whether these are directly targeted at certain types of families or not. However, they also demonstrate the important interdependence that exists between filers’ age, family situation, position in the family income distribution and the share of benefits they received from various PIT expenditures.

3.4 Area of Residence

The examination of tax expenditures’ benefits by area of residence based on T1 return data is not as straightforward as the examination by filers’ age, income group and family type. As explained in Section 2.1, this was made possible by merging T1 return data with the PCCF data. While this technique requires the exclusion of some filers (about 1.9% of them in 2018) due to data unavailability or inconsistencies, it allowed a reasonably good identification of filers’ main area of residence based on their reported postal codes.^{Footnote 20}

In 2018, residents of remote areas (outside CMAs) represented 29.1% of filers whose areas of residence could be identified. These filers reported 25.9% of total pre-tax income.

Overall, Table 14 indicates that the 2018 federal PIT system slightly reduced income inequalities that existed between remote and urban areas. Indeed, the share of after-tax income held by residents of remote areas (26.4%) was 0.5 percentage points higher than their share of income before the application of the tax system (25.9%). Among the main tax system components, the progressive tax rate structure had the largest redistributive impact toward remote areas (result not reported).

To examine the income redistribution impact of individual PIT expenditures by area of residence, a regional breakdown of the share of benefits received by each group in comparison to their share of pre-tax personal income was calculated. Resulting ratios were used to classify each expenditure in the following three categories (Table 15):

• Especially benefits residents of remote areas (outside CMAs);
• No significant interregional impact; or
• Especially benefits residents of urban areas (inside CMAs).

Out of the 58 PIT expenditures under review, about a third (21) were found to have no significant interregional impact in 2018, meaning that their benefits were distributed almost proportionally to the share of pre-tax income reported by filers residing in remote and urban areas. Among the other expenditures, a majority (23 out of 37) especially benefited residents of remote areas.

Expenditures that predominantly benefit residents of urban areas are mainly deductions. Four out the 17 deductions under review especially benefit filers in remote areas, while nine especially benefit residents of urban areas. Table 15 confirms that remote area residents especially benefit from the only deduction that specifically targets this population, namely the Northern Residents Deductions. As Table 16 indicates, this measure is the top PIT expenditure for remote area residents. In comparison, Table 16 shows that the number one PIT expenditure favouring urban area residents is the employee stock option deduction.

An opposite pattern is observed for all other types of PIT expenditures since larger proportions of exemptions and credits (refundable and non-refundable) are found to especially benefit residents of remote areas. Among all exemptions and credits under review, only the partial inclusion of capital gains, foreign tax credit for individuals, Investment Tax Credits and Tuition Tax Credit – for self and transferred from a dependant especially benefit filers residing in urban areas.

3.5 Summary

Table 17 is a summary table that displays the target population of the various individual PIT expenditures under review, provides a reminder as to which gender benefits relatively more from each of these measures, and identifies the various other identity groups that especially benefited from each of them in 2018.

For almost all individual PIT expenditures examined, Table 17 confirms the gender impacts that were found in the 2019 GBA+ study. Almost all measures that were identified as being gender-neutral, to the advantage of men or to the advantage of women in 2016 remained so based on 2018 data.^{Footnote 21} Only two measures identified as being gender-neutral in 2016 now appear to be slightly in favour of men, likely because of changes in market conditions: the partial inclusion of capital gains and the dividend gross-up and tax credit.

Regarding the deductions added to the list, i.e., apprentice vehicle mechanics' tools deduction, deductibility of certain costs incurred by musicians and of expenses by employed artists, and partial deduction of and partial input tax credits for meals and entertainment, the 2018 data indicates that men especially benefit from them. This is also the case for the majority of other deductions and the newly included Investment Tax Credits.

Further, the results show that the first part of the newly split credit, i.e., the Tuition Tax Credit – for self, especially benefits women as was observed in 2016 for the entire Tuition Tax Credit. However, the part of the Tuition Tax Credit – transferred from a dependant is found to be relatively gender-neutral, meaning that it does not favour one gender over another.

As previously mentioned, only a few PIT expenditures target specific identity groups. Table 17 confirms that these measures are indeed reaching their targets, which tend to benefit relatively more from each measure. For instance, all PIT expenditures targeting seniors are found to especially benefit older filers. In the same vein, all PIT expenditures targeting lower-income filers especially benefit filers in the lowest family income quintiles. However, there are notable distinctions in the income groups that mostly benefit from the PIT expenditures targeting lower-income filers. While the CCB and GSTC especially benefit members of the first three income quintiles, the benefits of the RMES and non-taxation of social assistance benefits are mostly concentrated in the first two quintiles. Further, the Working Income Tax Benefit especially benefited filers in the first income quintile only. These results may be explained by the different phase-in and phase-out thresholds and reduction rates underlying these measures. It is also worth noting that the non-taxation of Guaranteed Income Supplement and Allowance benefits especially benefits filers in quintiles 2 and 3 but not filers in the bottom quintile.

Table 17 also suggests that even when a tax expenditure does not have any specific target population, it always ends up especially benefiting some identity groups over others. However, the main beneficiaries of individual PIT expenditures change from one measure to another and each of the groups especially benefit from at least some of them. Moreover, the identification of the number of individual expenditures especially benefiting a particular group can be seen as partially informative given that total benefit amounts may differ greatly from one measure to another.

4. Conclusion

This study provides a snapshot in time of the differential impacts of the federal PIT system by age group, income group, family type and area of residence. It shows that the various components of the system reallocate some portion of earned income between these groups. Because the main beneficiaries of the various existing PIT expenditures change from one measure to another, some PIT expenditures especially benefit one group over another. To illustrate, some measures especially benefit younger filers versus older filers, low-income filers versus high-income filers, filers in a couple versus sole filers, and urban residents versus rural residents (and vice versa within the four identity groups). In 2018, all these groups benefited relatively more from at least some of the available federal PIT expenditures.

However, given the inherent progressive nature of the federal tax system, the analysis shows that, overall, it tends to favour economically disadvantaged groups (i.e., groups which report lower proportions of total pre-tax income compared to the proportions of filers they represent). As was the case for women, the shares of after-tax income held by younger filers, members of the lower family income quintiles, sole parents and rural area residents were higher than their shares of pre-tax income.

Contrary to gender (with few exceptions of gender fluidity), age, family situation, income group and area of residence are not static characteristics. They may change over an individual’s lifetime. In addition to getting older, individuals can also experience various changes in family and income situations in their adulthood and move in and out of urban areas. Accordingly, from one period to another in their lives, they may be in a position to benefit relatively more from the various available tax breaks. Nevertheless, considering that tax expenditures can be used to achieve policy objectives in a given year, including vertical equity (i.e., the idea that taxfilers who have the ability to pay more taxes should contribute more), the analyses presented in the current study can help identify the expenditures that work in favour or against such objectives.

It is important to stress that the tax system has various objectives and that a tax expenditure cannot be assessed entirely on the impact it has on the allocation of income between groups. A thorough assessment of tax measures requires the consideration of a much broader range of possible effects than the ones studied in the current paper.