Increasing the Northern Residents Deduction
Bill C-401 (44-1) proposes to increase the Northern Residents Deduction. It would increase the basic residency amount to $13.00/day for residents in both intermediate and northern zones starting in 2025 and would index this amount to inflation for subsequent years. Bill C-401 would also eliminate the discounting of travel amounts for residents in intermediate zones. We estimate that Bill C-401 would reduce federal personal income tax revenues by $935 million from 2024-25 to 2028-29.
Parliament was prorogued on January 6, 2025, which ended all parliamentary business. The majority of the work required for this estimate report was completed at the time of prorogation. Therefore, this note is presented in accordance with the Parliamentary Budget Officer’s mandate to promote budget transparency and accountability.
Bill C-401 (44th Parliament, 1st Session) proposes to increase the Northern Residents Deduction.
The Northern Residents Deduction consists of a residency deduction and a travel deduction.
Within the residency deduction, a basic residency amount of $11.00/day is available for residents in northern zones and a basic residency amount of $5.50/day is available for residents in intermediate zones. Bill C-401 would increase the basic residency amount to $13.00/day for residents in both zones starting in 2025. Bill C-401 would also index this amount to inflation for subsequent years.
The residency deduction also includes an additional residency amount which doubles the basic residency amount for tax filers who are the only claimant in their dwelling. Bill C-401 would also increase the additional residency amount to match the changes in the basic residency amount.
Currently, residents in both northern zones and intermediate zones are able to claim travel amounts. However, travel amounts are reduced by 50% for residents in intermediate zones when calculating their travel deduction. Bill C-401 would eliminate this discounting of travel amounts for residents in intermediate zones.
Deductions are subtracted from a tax filers’ net income to determine their taxable income, prior to the application of federal tax rates and non-refundable tax credits. As a result, the change in tax filers’ federal tax obligations depends on tax filers’ marginal tax rate and whether they have unused non-refundable tax credits.
The Parliamentary Budget Officer (PBO) estimates that Bill C-401 would reduce federal personal income tax revenues by $935 million from 2024-25 to 2028-29.
- Estimates are presented on an accrual basis as would appear in the budget and public accounts.
- A positive number implies a deterioration in the budgetary balance (lower revenues or higher spending). A negative number implies an improvement in the budgetary balance (higher revenues or lower spending).
- Totals may not add due to rounding.
Our model is based on tabulations from tax data for 2018 to 2023.
We constructed a baseline projection of residency amounts for each zone under the assumption that the number of claimants would grow at the 2009 to 2021 compound annual growth rate from 2022 levels. For tax filers for whom the 20% of net income cap is not already binding, the change in residency amounts for each zone under Bill C-401 was calculated by scaling residency amounts claimed to reflect the change in amounts allowed, then re-deducting non-taxable benefits for board and lodging at special work sites. For 2026 onwards, this scaling included the expected impact of inflation adjustments based on the consumer price index projection set out in the PBO’s latest Economic and Fiscal Outlook.
We constructed a baseline projection of travel amounts for each zone under the assumption that the share of individuals with a residency amount who have a travel amount remains at 2022 levels, and the average value of travel amounts remains at 2022 levels. Despite trends in general inflation, travel amounts are subject to a cap of $1,200 per individual per year (unless the individual is receiving taxable travel benefits from employment exceeding that amount). Travel amounts for intermediate zones under Bill C-401 were assumed to increase by 100%.
We estimated the resulting change in federal tax obligations by applying each tax filers’ marginal tax rate to the change in the above amounts. However, no change in federal tax obligations is imputed for individuals with incomes below the basic personal amount.
Sources of uncertainty include the future number of northern residents deduction claimants in each zone, the share of claimants with travel amounts, and the average value of those travel amounts. This projection does not account for unused non-refundable tax credits other than the basic personal amount. This projection also does not account for potential behavioral responses by residents in intermediate zones, such as residents choosing to travel more because a greater share of the costs of that travel is tax deductible.