A tax consultant in Yellowknife says proposed changes to the northern residents’ tax deduction are a “bombshell” that will benefit many northerners, but mean some will be able to claim fewer trips.
Federal finance minister Chrystia Freeland’s Monday budget includes a range of items affecting the North. Among them are plans to expand the travel component of the northern residents’ deduction.
The change would allow northerners without employer-provided travel benefits to claim up to $1,200 in eligible travel expenses, beginning in the 2021 tax year.
If passed in parliament, the budget estimates this will reduce federal revenues by $125 million over five years.
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“This is a significant change,” Yellowknife tax consultant and accountant Andy Wong told Cabin Radio. “This is a bombshell because I certainly wasn’t expecting it and, around the office, we were pleasantly surprised that the government introduced the deduction for every northerner who files a tax return.”
Wong says this will do away with the current two-class system.
He explained that now, retirees, people who are self-employed, and people whose employers haven’t granted them travel benefits – largely low-income earners in the hospitality and service industries – can’t claim travel expenses on their tax return like other northerners. With the proposed change, these individuals will be able to claim deductions for up to two trips, up to $1,200.
However, Wong said the change will pose challenges for people who haven’t previously been eligible for the travel deduction.
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He noted the travel deduction is subject to a person’s actual travel expenses and the lowest return airfare for their trip. That means claiming the tax benefit isn’t as easy as just including receipts.
Northerners have their taxes reassessed more often than Canadians living in the provinces. In 2016, 13 percent of residents in the NWT and Nunavut were reassessed by the Canada Revenue Agency, compared to nine percent of people elsewhere in Canada.
But Wong said he doesn’t believe the change to the travel deduction will result in more northern tax reassessments, saying the revenue agency is more interested in larger tax deductions.
Fewer trip claims for some
Wong said the federal government is also proposing changes to the number of trips that can be claimed per household, meaning some people will be able to claim fewer trips.
Currently, every northern taxpayer eligible for the travel benefit can claim up to two trips for each member of their household. Wong said that means, for a family of four with two working parents and two children, each parent could claim up to eight trips a year, totalling 16 eligible trips for the household.
“That’s pretty generous,” he said.
Under the new rules, only two trips can be claimed for each member of a household, regardless of the number of tax returns filed. That means, for a family of four, both parents would only be able to claim a total of eight trips between their two tax returns.
The federal government is also proposing changing the definition of “household” to include blood relations, partners, and children under the age of 18. That means children over the age of 18 and live-in nannies would be excluded from tax deductions.
