Children’s Fitness Tax Credit

A new study on the Children’s Fitness Tax Credit (CFTC) was recently published in the Canadian Tax Journal (Fisher et al, 2013, CTJ ungated). The authors analyze both tax return data to study the determinants of the amount claimed, and survey data to study awareness of the tax credit and the importance of the tax credit in sports enrollment.

In general, economists are not in favour of this narrowly focused, non-refundable tax credits (termed Boutique Tax Credits) for two main reasons.  First, while the stated goal of the CFTC is to increase enrollment in children’s sports, the tax credit is unlikely to have much of an impact on enrollment.    Instead, it merely subsidizes those already participating.  Second, since the credit is non-refundable, the biggest beneficiaries of the tax credit are high income tax filers.   The Globe and Mail reported that more than 70% of the value of the tax credit accrues to the top 25% of tax filers.

On the other hand, politicians love these taxes.  They comprise a relatively small portion of the budget (the CFTC is estimated to cost Canadians $90-115 Million in foregone tax revenue) and they have a large political impact, appealing to middle-class families.

The current study supports both the economic negatives and the political positives:

  • “For the 2007-2009 period, the average annual household income of those claiming the CFTC was approximately $115, 000, compared to the population average of approximately $80,000.  Approximately 46% of families claiming the CFTC earned more than $100,000 annually.” (p. 608)
  • This pattern holds in regression analysis -t hose with higher income are more likely to claim the CFTC and claim a higher amount, even after controlling for factors such as age, education, family size and province.
  • From the survey – 65% of families with children surveyed had heard of the CFTC, and awareness of the program increased with income and education.
  • Most survey respondents said the CFTC was important (22.3) or very important (48.4) to increasing physical activity among Canadian children (general question).  However, when asked the specific question, only 16% of parents agreed that the CFTC enabled them to enroll their children in a program when they would otherwise not have been able to do so.
  • The CFTC was, in fact, the least important attribute of sports programs ranked by survey respondents.    More important were availability of facilities, convenient programming, opportunities for free play, school or after school programs and coaching or instruction.

We claim the maximum amount each year for our two oldest boys (the youngest is one) and less tax is always preferred.  But it is only a tax break and has no impact the amount that we spend on sports since we simply do not budget the tax incentive into sports spending throughout the year.    So while, as a hockey parent I love the CFTC, as an economist I do not.   And when I`m at the polls, the economist always wins.

JRC

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