Northern residents tax break needs beefing up, Nunavut MLA says

Revenue Canada returned $18 million to about 9,300 Nunavut residents in 2012, through the northern residents tax deduction. But Iqaluit-Tasiluk MLA George Hickes says inflation has reduced the value of the benefit. (FILE IMAGE)

The federal government’s longstanding northern residents income tax deduction just isn’t big enough to protect Nunavut tax-filers from the rising cost of living, Iqaluit-Tasiluk MLA George Hickes said March 5 in the legislative assembly.

“My constituents understand that inflation has increased significantly since 1987 and they feel that it is high time for the northern residents deduction to be adjusted for inflation,” Hickes said.

The northern residents deduction, created in 1986, allows tax-filers living in the three territories and certain northern regions of the provinces to deduct two potential items from their taxable income:

• a deduction from taxable income of at least $8.25 for each day spent occupying a self-contained northern-based dwelling unit, up to about $6,000 per year; and

• for those northern tax-filers who receive vacation travel assistance from their employer, a deduction equal to the cost of a vacation, including airfare, accommodation and meals.

It’s not a tax credit, which is a benefit added to the filer’s total tax payable.

But because it reduces taxable income, the northern deduction effectively reduces the amount of tax that northern residents must pay and often beefs up the size of their refunds.

Ottawa raised the value of the benefit in 2008, within the late Jim Flaherty’s federal budget that year — but only by about 10 per cent.

Ottawa made that move in response to a year-long campaign in 2007 led by a coalition of unions, business groups and Inuit organizations.

But Hickes told MLAs the 10 per cent improvement in 2008 wasn’t nearly enough and that the value of the benefit continues to shrink because of inflation.

Citing a discussion paper that Nunavut Tunngavik Inc. produced in 2007, Hickes said inflation eroded the value of the northern tax benefit by 64 per cent between 1987 and 2007.

And since 2007, Hickes said the benefit should have been increased by about 20 per cent.

“In effect, since 1987, inflation has decreased the value of this program by 84 per cent,” Hickes said.

This means Nunavut must continue to lobby Ottawa on the issue, he said.

“Clearly, based on the past 27 years, if we continue to be silent about the inflationary impact on this program, which is very important to Nunavummiut, then it is likely that it may be overlooked by the Government of Canada,” Hickes said.

But Finance Minister Keith Peterson, in response to a question from Hickes, said he has held no discussions with federal finance officials on that issue.

He said that’s because he and the other two territorial finance ministers decided to focus their lobbying efforts on infrastructure funds like Building Canada and the gas tax fund, as well as on medical travel, housing and energy.

“In 2012, our analysis has shown us that, with our limited resources personnel-wise and financial-wise, we could focus on lobbying Canada for funds that would benefit all Nunavummiut, and that’s what we did,” Peterson said.

On the other hand, Peterson said that in 2012, 9,300 Nunavut residents saved about $18 million in income tax because of the northern benefit.

And this cost the GN only about $4 million in foregone revenue.

“The payoff, tradeoff between putting money in the back pockets of Nunavummiut versus the government’s lost revenue to cover the northern residents deduction is fairly insignificant to us as a government, but helpful to Nunavummiut,” Peterson said.

Right now, Peterson said, Nunavut has made three financial proposals to the federal government: on housing, energy and increasing the territorial government’s debt cap.

So for that reason, Peterson said that right now, he won’t commit to a full-blown lobbying effort on the northern residents deduction.

And he also said federal officials are already aware of Hickes’s demand.

“Ottawa reads the Hansard, so they’re well aware of Mr. Hickes — and this exchange, I’m sure, is being listened to as we speak,” Peterson said.