In just seven months, the city of Yellowknife’s elected officials will see new CRA rules eliminate a one-third tax exemption on their salaries.
The City of Yellowknife is aware it will have to put any potential wage adjustment before councillors, said Kerry Penney, director of policy, communications and economic development.
Administration can’t confirm whether it will place the issue before current council, or the incoming council whose wages will be affected.
Some municipalities are scrambling to adjust to the CRA rules which will do away with the exemption in 2019, forcing them to either boost salaries to reflect an identical take home pay under new taxation rules, or retain current gross pay and see councillors take pay cuts.
Some officials receive allowances that are not included for tax purposes, including elected territorial, municipal and provincial politicians, school boards, and elected officers of commissions, corporations and municipal utilities boards.
The city is working on “anything that could possibly affect us. Regardless, it takes place in 2019,” said Penney.
“Because the honorarium for local officials is so low, people aren't really running for office to make money,” she said.
City councillors work part-time and are compensated $13,333 annually, plus a tax free allowance of $6,667 and a taxable honorarium of $260 for each day they take off from their full time jobs for city business.
The deputy mayor, also part-time, is compensated $14,333 plus a $7,167 tax-free allowance.
The full-time mayor ears $58,587 annually, plus a $29,294 allowance.
The 2017 federal budget changed the tax rules during a review of tax expenditures to “make existing tax measures more effective, equitable and accessible to Canadians,” said Etienne Biram, media relations for the Canada Revenue Agency.
The amount excluded from taxation is limited to half of an official’s salary or other annual remuneration, said Biram.
“The exemption for non-accountable allowances paid to certain public officials provides an advantage that other Canadians do not enjoy,” he wrote.
The rules have changed to “address this inequity,” he said.
Federal politicians lost their tax-free status in 2000. Calgary city council and its school board eliminated the rule in 2006 and Alberta MLA’s lost eligibility in 2012.
Ontario removed the exemptions in 2001, said Scott Hanick, vice president of the Canadian Taxpayers Federation.
“In fact there are very few places left that this federal tax change affects,” he said.
Taxation rules and municipal allowances were implemented in the 20th century at a time when politicians didn’t have expense accounts and up to half of their salary was considered tax free.
“It's really become a relic at this point. Many years ago it was an expense allowance but it became a strange perk that politicians got,” he said.
“Trying to get politicians to agree to lower their own pay is a little bit difficult,” he said.
The federation recommends adjusting gross salary under new taxation rules to identically reflect the take-home pay.
“Strathcona County just went through the same thing and the mayor was so worried about being appearing to raise his own wages,” said Hannick.
Strathcona's city councillors reluctantly voted to raise their own pay in a 6-2 vote, resulting in identical take home pay under new CRA rules.
During the last discussion in Yellowknife’s council chamber in January, councillors debated automatic raises paced with inflation.
At the time, Coun. Adrian Bell asked that any discussion about wage reviews go to committee.
Sending wage discussions to committee is an option municipalities may want to employee with CRA rules looming, said Hannick.
Meanwhile, Biram said the federal government staggered the effect of new tax rules by giving organizations two years to adjust their compensation schemes for 2019 and onward.
Until 2019, if a municipality determines that a portion of an officials salary is an allowance, the CRA will exclude one third of the salary and the entire allowance from income.
Non-accountable allowances paid to an officer or employee are to be included in income for tax purposes, said Biram.
The taxpayers federation is in support of the new rules.
“We're opposed to any special rules for politicians when it comes to their taxes, said Hanick.
Unclear taxation rules can make it difficult to attract talent because candidates may be reluctant to leave full time jobs for ambiguous take home pay, he said.
“It masks the true after-tax money that they're getting and gives people a false impression about what a city councillor makes,” he said.