Personal tax credits sound great, but they have a cost that quickly adds up

financialpost.com:

For tax geeks like me, the release of the annual Report on Federal Tax Expenditures is an exciting day, but I’m guessing most people don’t read this data-rich review that “reports on the estimated fiscal cost of federal tax expenditures, sets out the approach used in developing these estimates and projections, and provides detailed information on each tax expenditure.”

But it sounds more compelling in plain English: What does a tax measure enacted into law that is not revenue raising and provides tax relief of some sort actually cost?

The report provides a very brief historical and policy background on most of the various tax expenditures. It is far from perfect and provides many caveats to its financial estimates (such as not providing any projections for behavioural changes if a particular measure is taken away or modified), but it is still an interesting read and benchmark.

Every year, I look to see what the biggest tax expenditures are. The highlights for me are the contributions to registered pension plans and registered retirement savings plans (estimated to cost the federal government $54.4 billion in 2024 and $52.3 billion in 2025) and the principal residence exemption (about $5.5 billion in 2024 and $6.5 billion in 2025, but both are down from an estimated high of $13.4 billion in 2021).

I also look for the small numbers and I always get frustrated at how small some of the various personal tax credit expenditures are. For example, the new multi-generational renovation tax credit, introduced in the 2022 federal budget for the 2023 and subsequent taxation years, provides a 15 per cent refundable credit on a maximum of $50,000 of “qualifying expenditures” (meaning a maximum refundable credit of $7,500) to assist