Conservatives double size of children’s fitness tax credit

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Prime Minister Stephen Harper announced the government will immediately double the size of the Children's Fitness Tax Credit, a sign the Conservatives are prepared to cut taxes well ahead of the 2015 budget.

The move is one of a handful of remaining promises from the 2011 Conservative election platform that were contingent on a balanced budget. The platform estimated the promise would cost Ottawa $130-million in lost annual revenue. The Prime Minister said the tax credit will take effect in the current 2014 tax year – even though he said last week that the government still expects to post a small deficit in the current fiscal year.

The most significant pledge left is to allow parents with dependent children to split their income for tax purposes.

The fitness measure will double the current maximum amount of expenses that can be claimed from $500 to $1,000.

"For kids, we know [physical activity] leads to other things: learning new skills, making new friends, gaining new confidence, building strong character and, we hope, inspiring a passion for being active and healthy that lasts a lifetime," Mr. Harper said. "As many of you know, getting kids into these activities can be a challenge for hard-working parents. The costs add up."

The government introduced a motion in the House of Commons Thursday to enact the change for the 2014 tax year, as well as making the credit refundable starting in 2015, meaning Canadians who pay little or no income tax can still receive the credit.

"For something this important, no child should be left out," the Prime Minister said. "Everyone has heard the saying: 'It doesn't matter whether you win or lose, it's how you play the game.' But what's even more important for our government is that kids get a chance to play in the first place."

Mr. Harper made the announcement Thursday at an event in Whitby, Ont. – the riding formerly held by Jim Flaherty, the veteran Conservative finance minister who died earlier this year. The event was held at the Abilities Centre, a large facility that was supported by Mr. Flaherty and his wife, Ontario PC MPP Christine Elliott. A by-election in the riding is expected to be called shortly.

Tax credits are popular with politicians because they are much less expensive in terms of lost revenue than broad-based tax cuts. They also allow the government to show it has delivered something specific to targeted demographics, such as parents with young children.

However, economists and researchers often question the effectiveness of tax credits.

Last year, a report published in the Canadian Tax Journal prepared by eight researchers examined the impact of the Children's Fitness Tax Credit during its first two years, from 2007 to 2009. The report found the credit is more likely to be used by higher income Canadians and is more likely to be used by parents of boys. The research also found little evidence that the credit allowed parents to enroll their children in programs that would otherwise have been unaffordable.

The Prime Minister's decision to announce the credit this week is likely to fuel speculation that other remaining tax-cut promises could be enacted sooner rather than later.

According to the Conservative platform, the move to allow parents with dependent children to split their income for tax purposes would cost $2.5-billion in foregone revenue, but a more recent estimate from TD Economics says the annual cost will be more than $3-billion.

Shortly after releasing his 2014 budget, Mr. Flaherty emerged as a skeptic of the proposal. He said the income splitting promise needed "a long, hard analytical look" in light of analysis showing its benefits would not be widespread among Canadians.

Other 2011 platform promises still outsanding include an Adult Fitness Tax Credit and doubling the contributions cap for Tax Free Savings Accounts.