Tax credit for recent graduates working in a designated region (Bill C-295)
This note was prepared at the request of Mr. Maxime Blanchette-Joncas, MP for Rimouski-Neigette—Témiscouata—Les Basques.
Introducing a tax credit of up to $3,000 per year, to a maximum cumulative amount of $8,000, for recent graduates working in a designated region. The designated regions are usually rural or remote. The tax credit will be available beginning in 2021. The PBO estimates that the cost will peak at $129 million in 2023-24. It will then decrease slightly over the next two years before reaching a steady state in 2025-26. It will then grow at the same rate as the target population.
Introducing a tax credit of up to $3,000 per year, to a maximum cumulative amount of $8,000, for recent graduates working in a designated region.[^1] The designated regions are usually rural or remote. The tax credit will be available beginning in 2021.
The 2016 census was used to identify the target population that could potentially claim the tax credit, in other words, the population living in designated regions with a recognized degree. Data on the number of new graduates per year were then used to identify the proportion of the target population who graduated in the past 24 months. The estimated number of people who will be eligible to claim the tax credit was further reduced by calibrating the results on the detailed tax statistics from a similar tax credit in Quebec.[^3] Target population growth over the projection period was calculated using PBO population projections as well as historical growth in the number of new graduates.
The average tax credit claimed by eligible individuals was also estimated. Given that the maximum credit an individual can claim is $3,000 per year and the cumulative limit is $8,000, the tax credit can be claimed in full over a minimum period of three years. Furthermore, based on calculations and data taken from SPSD/M 28.0, the PBO assumed that some groups of individuals will take, on average, up to five years to claim the tax credit. As a result, it has been estimated that, on average by age group and province, the tax credit will be claimed over a period ranging from three to five years.
The PBO estimates that the cost will peak at $129 million in 2023-24. It will then decrease slightly over the next two years before reaching a steady state in 2025-26. It will then grow at the same rate as the target population.[^4]
There is inherent uncertainty in how the target population was identified. Indeed, because of the data available, it is impossible to know exactly how many individuals living in a designated region have graduated with a recognized degree in the past 24 months. In addition, the data used are from 2016.
The behavioural response was partially captured by the calibration using the similar tax credit in Quebec, but it was not explicitly modeled by the PBO. This adds a degree of uncertainty given that population growth in the designated regions could be higher as a result of the implementation of that tax credit. Potential interaction effects with other tax credits, such as the tuition tax credit, were not considered.
- Estimates are presented on an accruals basis as would appear in the budget and public accounts.
- Positive numbers subtract from the budgetary balance, negative numbers contribute to the budget balance.