Good afternoon. I am Dr. Lindsay Tedds. I'm an associate professor here in the School of Public Administration at the University of Victoria.
My primary area of expertise is in Canadian tax policy, particularly with respect to design and implementation. I've written a number of peer-reviewed journal articles in this area, along with book chapters, technical reports, and two books.
I'd like to thank the committee for this opportunity to share my views on two tax policy measures included in Bill C-43 that includes the income contributed to an amateur athletic trust, as well as the children's fitness tax credit.
With respect to the amateur athletic trust changes, under Canadian tax rules Canadian athletes must claim any athletic prize money, as well as any income from endorsements and other remuneration-related activities. They have to report that as taxable earned income. Amateur athletes, though, can defer paying tax on this earned income by placing it in an amateur athletic trust. Tax on this earned income then is deferred until it is paid out by the trust and back to the athletes.
While the athletic money is considered to be earned income and eligible for determining RRSP contribution room, this recognition does not occur if the income is instead placed in an amateur athletic trust—that is, the money is never treated as earned income either at the time of placement in the trust or upon disbursement when the taxes are paid. As a result, the athletic money never qualifies toward determining an athlete's annual RRSP contribution limit.
Through Bill C-43, the federal government is changing the rules to ensure that this earned income in an amateur athletic trust is recognized as such for the purposes of determining an athlete's annual RRSP contribution limit in the year it is earned. It's eliminating a penalty that these athletes unwittingly incurred when using a government-sanctioned tax deferred vehicle and recognizes the importance for everyone to be able to garner RRSP room from the income they earn from their endeavours.
With respect to the children's fitness tax credit, this tax credit was introduced in 2007 with the stated goal of increasing enrolment of children in sport. This tax credit has been shown through at least four studies now to be ineffective in achieving this goal. Only about 15% of parents agree that this tax credit enables them to enrol their children in the program when they would not otherwise have been able to, subsidizing the behaviour of 85% of households. As a result, this tax credit does little more than subsidize behaviour that normally would otherwise occur.
It's also been shown this subsidy disproportionately goes to high-income households. About half of the households that claim the credit earn more than $100,000 annually. This regressivity is not going to be undone by making the tax credit refundable. This is due to the fact that the size of CFTC claims increase with income. That means high-income households obtain a greater and greater benefit from the credit.
Economists have long been calling for an end to these types of boutique tax credits because they are poorly targeted and ineffective in achieving their goals. The goal of a tax system is to raise the most revenue with the least distortions in a progressive manner, while minimizing administrative and compliance costs. These boutique tax credits mean that statutory rates are higher than they would otherwise be, distorting work and other effort; revenue is sacrificed that could be used more effectively; our progressivity is compromised; and time and money is wasted on administering the program and complying with the rules.
Do you really want hard-working Canadians to keep more of what they make, whether they be families or otherwise? Eliminate these wasteful boutique tax credits and instead cut tax rates. Doing that respects the principles of efficiency, equity, and economic growth, all while reducing administrative costs.
In closing, I'd like to thank you for providing me with this opportunity to provide my views on these two measures. I look forward to your questions.
Thank you.