Finance Minister Joe Ceci’s budget speech reiterated what we heard from the NDP throughout the provincial election campaign: those who can afford to contribute a little more will be asked to do so. As it turns out, a significant number of people in this province won’t be asked to do so—namely, those elected municipal and school board representatives who receive a portion of their publicly-funded salaries tax-free. With the exception of Calgary, representatives across the province receive one-third of their salaries tax-free, a practice which some critics have called “absurd” and others say flies in the face of transparency.
Introduced in 1947 under the federal Income Tax Act, the purpose of a one-third tax-free expense allowance is to provide “an allowance for expenses incidental to the discharge of the person’s duties as an elected officer.” Alberta’s Municipal Government Act reiterates that the purpose is to cover incidental expenses. But officials receiving these allowances are not required to account for these so-called expenses in any way: no receipts are produced and no reporting is required. The money is simply added to the councillors’ and trustees’ paycheques. Jim Lightbody, a professor at the University of Alberta specializing in municipal government and politics, calls them an “absurd anachronism.”
With the original purpose of the tax exemption eliminated by the introduction of expense accounts and budgets for office expenses, putting an end to this perk has been a growing trend across the country at all levels of government. But not in Alberta municipalities, where taxpayers foot the bill for expenses and politicians continue to receive the tax-free allowance.
Federal politicians ended their tax-free status in 2000 and Alberta eliminated the tax-free allowance for MLAs in 2012. Today, Quebec is the only province that continues the practice. Calgary’s city council eliminated their tax-exempt status is 2006, as did their school trustees.
“It’s a throwback to a happier time when being elected to municipal office was considered a civic duty,” Lightbody says. “Any reasonable person, if they knew about this—and most don’t—would see this for what it is: city councillors perpetuating a legal tax evasion that no citizen would ever get away with.”
Lightbody notes that when politicians gave themselves allowances to cover the costs of these extra expenses, they should have also given up the tax-free allowances, but didn’t.
“This is the best-paying job that any of these people will ever have,” he adds, noting that there’s little chance they will do anything to mess with that.
In Edmonton, city councillors receive a salary of $99 994. However, since one-third of that is tax free, the fully taxable equivalent is a salary of $118 824. The mayor receives $176 145, which translates to a fully taxable equivalent of $213 272. In addition, all members of city council receive vehicle allowances ($14 173.92 per year for the mayor; $7074.72 for councillors) which are also one-third tax free.
According to information found on the Departments of Municipal Affairs and Education websites, Alberta has 180 municipalities and 61 school boards. (There are 62 school districts but one—Northern Lights—is being run by a provincially-appointed administrator.) The province’s 17 cities have a total of 122 elected council representatives, including mayors. There are five specialized municipalities, including the Regional Municipality of Wood Buffalo and Strathcona County. The province’s 108 towns have a total of over 740 elected town officials and, as of May 2015, there were 64 municipal districts with approximately 440 elected officials. It’s unclear what impact there would be on the provincial and federal treasuries if all of these people started paying tax on their full salaries.
The provincial government has committed to introducing changes to the Municipal Government Act next spring. “The MGA review is focused specifically on how municipalities are empowered to govern, how they are funded, and how they collaborate with each other,” wrote Laura Tupper, acting press secretary to Municipal Affairs Minister Danielle Larivee, in an email. “All proposed changes flowing out of the review are within these three categories. Our work with municipalities will not end with the MGA review, and we expect to have ongoing discussions about how to ensure our municipalities remain strong, accountable and effective.”
In Edmonton alone, the amount of tax revenue foregone due to the exemption is likely in excess of $300 000, based on the figures reported in 2013 by the city’s Independent Council Compensation Committee. The Committe’s recommendations included that members of council’s annual salary, annual retirement benefit, annual car allowance and transition allowance be made fully taxable and that the remuneration be “grossed-up” (increasing the salary to offset the increased tax payment) so as not to impact the take-home pay received by the mayor and councillors. Their report said “restating the current remuneration as a grossed-up amount allows openness and transparency, fairness, direct comparison, and ease of understandability to the public.”
Council rejected the recommendation, arguing the change would put the public on the hook for an additional $286 000 a year. Mayor Iveson has, to date, remained opposed to the idea.
“For us to make it taxable would just ship a few hundred thousand dollars worth of taxes to the province and Ottawa at precisely the time we’re trying to convince those orders of government to invest in local government,” he told Global News last January. The mayor’s office was unavailable for comment when contacted to clarify those remarks.
Ontario revised its Municipal Act in 2001 and most of its major cities have since eliminated the tax-free provision. Municipalities that do not remove the provision are required to review their remuneration by law at a public meeting once during their four-year term. Paige MacPherson, Alberta spokesperson for the Canadian Taxpayers Federation—which has long called for an end to the tax-free allowances—thinks that’s a great idea.
“We’ve never really approached the matter from the perspective of lost revenue,” she says. “But we do believe the change needs to be made in the interests of transparency. Taxpayers should be able to easily determine what their elected representatives are being paid.”
Lightbody is more blunt in his assessment: “If city councillors want to be taken seriously as a level of government, they should clean up their act and stop being tax dodgers.”