Guidance available on elimination of the federal one-third tax exemption for municipal elected officials

In the 2017 federal budget, the federal government eliminated the one-third tax exemption for provincial and municipal elected officials. The change comes into effect on January 1, 2019. The Federation of Canadian Municipalities (FCM) and AUMA have developed guidance documents to help municipalities manage this change.

Based on resolutions adopted by members, AUMA, FCM and other municipal associations across Canada have urged the federal government to reverse its decision to eliminate the exemption.  FCM took the lead in coordinating advocacy initiatives and held discussions with and sent letters to the federal Minister of Finance and ministry staff outlining the negative cost implications of the change for municipal officials and municipalities across Canada. Despite these concerns, the Minister of Finance indicated that no reversal of the decision is forthcoming.  

FCM’s Change in “one-third” federal tax exemption for elected officials: A guide for Canadian municipalities outlines advocacy efforts and provides options for municipalities to consider in responding to this change. These options include:

1. Full compensation increase -  adjust pre-tax compensation levels in 2019  to maintain the same after-tax compensation of 2018
2. Partial compensating increase – adjustment pre-tax compensation levels in 2019 to partially make up for losses in compensation
3. Expand expense policies – develop more comprehensive reimbursement plans for expenses incurred
4. No action – as a result of this, elected officials’ after tax income would be reduced.

AUMA prepared a brief financial analysis that provides sample calculations demonstrating the loss of post-tax income municipal elected officials will experience and the potential cost to municipalities of increasing pre-tax compensation to make up for this loss.