What are Northern Residents Deductions?
Northern Canada is the enormous northernmost region of Canada defined by geography and politics. In political terms, this refers to the three territories of Northern Canada which are Yukon, Nunavut and Northwest Territories.
This article provides some information about the Northern Territories, the concept of territorial formula financing and the classification of these deductions.
What are the Northern Territories?
Canada’s Northern territories offer numerous investments opportunities such as diamond mines (oil and gas); adventure and eco-tourism; fashion; commercial fishing; and, Arctic shipping. There are more than $100 billion worth of investment for several projects which are:
- Diamond mines in the Northwest Territories and Nunavut
- Ongoing uranium exploration in Nunavut and Labrador
- Mackenzie Gas Project in the Northwest Territories
- Alaska Highway Pipeline Project in the Yukon
The investment in these projects alone represents a significant share of Canada's total capital investment. On the other hand, provincial and territorial initiatives are in place to stimulate further northern mineral exploration and expansion. One example is Nunavut’s Mineral Exploration and Mining Strategy as well as mining incentive programs in the Yukon. The development of the northern tourism industry presents exciting opportunities to market distinct tourism products. These include adventure travel, hunting excursions, aurora viewing, aboriginal culture experiences and outdoor tourism activities.
What Territorial Formula Financing?
The Department of Finance states that Territorial Formula Financing or TFF is an annual unconditional transfer from the Government of Canada to the three territorial governments. This system enables them to provide their residents a range of public services comparable to those offered by provincial governments, at comparable levels of taxation. TFF helps territorial governments in providing funds for essential public services in the North. These are hospitals, schools, infrastructure and social services. It also recognizes the high cost of providing public services as well as the challenges the territorial governments face in providing these services to a large number of small, isolated communities.
The Department says that TFF is made up of three separate gap filling formulas to recognize the unique circumstances of each of the territories. Each territory’s grant is based on the difference between a proxy of its expenditure needs (the Gross Expenditure Base, or GEB) and its capacity to generate revenues (eligible revenues). Each territory’s GEB is adjusted annually to ensure that territorial spending can grow in line with changes in relative population growth between the territories and Canada and changes in provincial-local government spending.
Territorial eligible revenues include two components. Seven of the largest own-source revenues sources for the territories (personal income, business income, tobacco, gasoline, diesel fuel, alcoholic beverages and payroll) are measured using the Representative Tax System, similar to that used by the Equalization program. The remaining eleven own-source revenue sources (capital tax, general and miscellaneous sales taxes, commercial and non-commercial vehicle licences, hospital and medical insurance premiums, insurance premiums, property tax, lottery and other games of chance revenues, miscellaneous revenues and preferred share dividends) are estimated in a revenue block with a common annual escalator of 2 percent for future years.
The TFF includes incentives for the territories to increase their own revenues and develop their economies by excluding 30 percent of territories’ measured revenue capacity from the TFF grant calculation. A single estimate and payment system ensures the predictability and stability of TFF grants.
Natural resource revenues are not part of territorial eligible revenues for the purposes of TFF calculations. The treatment of natural resource revenues is negotiated separately with each territory as part of overall negotiations on the devolution of the federal responsibility for the administration and control of onshore natural resources to the territorial governments.