Non-refundable tax credits are an inequitable policy instrument for promoting physical activity among Canadian children.

Spence, John C. ; Holt, Nicholas L. ; Sprysak, Christopher J. 等

Canada is one among a few countries in the world to offer incentives, in the form of tax credits, to discount or subsidize the costs associated with registering a child in an organized physical activity (PA) program. These tax credits can be claimed at a federal level and in some provinces. In this article, we question the idea that a tax credit, especially a non-refundable one (i.e., reduces the amount of income tax a person pays), will support equitable access to PA opportunities for all Canadian children.

Canadian children from low-income families are more likely to be physically inactive and engage in sedentary pursuits compared to children from middle- and high-income families. (1) Specifically, children from families reporting the lowest income take approximately 1,200 fewer steps per day than children from the highest-income families. (1) Similarly, Canadian families in the lowest-income quartile are 2.5 times less likely to have enrolled their child in organized PA programs. (2) Such findings led to the assignment of a 'failing grade' for the PA of Canadian children over the past six years in the Active Healthy Kids Canada report card. Specifically, the 2010 report card concluded that, while approximately 50% of Canadian children and youth participate in sport, "the presence of disparities continues to hamper any grade increase." (ref. 3, p. 16) Thus, a very clear income gradient exists for PA and sport participation of Canadian children. Given the externalities associated with a sedentary lifestyle (e.g., costs to taxpayers attributed to treatment of obesity and other chronic diseases), economists would argue that the low level of PA among Canadian children is an example of market failure that requires government intervention. (4)

Costs associated with registration, equipment and transportation are also barriers to participation for both able-bodied children (5) and children with disabilities. (6) Not surprisingly, 63% of Canadian parents in the lowest-income quartile spend less than $100 per annum on registration fees for their children's organized PA. (2) In contrast, 85% of parents in the highest-income quartile spend $100 or more on their children's sport and PA. However, there is currently insufficient provision for removing financial barriers and engaging more children in PA and sport.

To reduce the cost of participation in organized PA (including sport), the Province of Nova Scotia adopted the Healthy Living Tax Credit (HLTC) in 2005. (7) It is a $500 non-refundable credit that is available for children up to 17 years old, as long as the organization is registered with Nova Scotia Health Promotion. This was followed soon after by the Children's Fitness Tax Credit (CFTC) which was implemented by the Canadian government in 2007. The CFTC allows a non-refundable tax credit of up to $500 to register a child 16 years of age or younger in an eligible PA program. (8) Depending on the net taxable income of a household, this would amount to, at most, a tax reduction of $75 per child (i.e., $500 X 15% marginal tax rate). In the case of children with disabilities, the parent may claim an extra $500 for children up to 18 years of age and include costs for equipment, assistive devices, and transportation. Manitoba and the Yukon offer similar non-refundable tax credits. (9,10) More recently, Ontario and Saskatchewan introduced refundable (i.e., low-income parents can claim the full amount of the credit even if they pay little or no income tax) tax credits. (11,12) The actual or estimated expenditures for these tax credit programs are approximately $98.4 million across the provinces (Table 1) and somewhere between $110 and $165 million for the CFTC (Figure 1). (13) Thus, governments in Canada are awarding approximately $210 million in tax credits to promote PA and sport participation among children.

Limited information is available on the effectiveness of the tax credits for promoting PA. However, recent work has demonstrated that the CFTC, though technically available to any tax-paying Canadian to claim for their child, is inaccessible to a large segment of Canadian children. (3) Specifically, parents from low-income families reported being less aware of the CFTC, were less likely to have claimed it in the previous tax year, and less likely to have plans to claim it in the current year. These reports are supported by actual claims data showing large differences in the proportions of families using the CFTC in the lowest- and highest-income categories. (14) Presumably, families at the lower end of the income continuum could not afford the costs associated with registering a child in organized PA and thus were unable to take advantage of the tax credit. Furthermore, because the credit is non-refundable, low-income families may have no tax liability to reduce, or prepayment of taxes to refund, and thus will not receive any benefit from the tax credit. Therefore, the CFTC and similar non-refundable credits are examples of policy that may promote health inequity among Canadian children.

Potential solutions to the non-refundable tax credit

If tax credits such as the CFTC are not helping children from low-income families to engage in PA programs, one option is to allow tax-paying organizations that subsidize the costs of participation for such children (e.g., corporations) to claim the equivalent amount of a tax credit for a child (e.g., $75.00 for the CFTC). (2) This would help address the upfront financial barrier that low-income families experience for PA programs, and also provide more equitable access to government tax credits.

If the non-refundable tax credit is preferred, then instead of allowing sponsoring organizations to claim a tax credit, a second option is for governments to directly fund the efforts of these organizations at the equivalent amount of a tax credit per child supported in the previous year. For example, KidSport has chapters across Canada organized at a provincial level. Though much of the funding is raised through individual and corporate donations, some provinces provide substantial funding for their provincial chapters. Nova Scotia distributes approximately $400,000 per annum to KidSport Nova Scotia. (7) Similarly, Sport Canada contributed $719,000 to Canadian Tire Jumpstart Charities in 2009-2010. (15) The problem with this option is that not all governments (federal and provincial) support these types of programs to the same extent and little information is available on the reach of these programs. Thus, in the absence of a concerted and explicit commitment on the part of governments, it is likely that distribution of funds is inequitable across the country.

[FIGURE 1 OMITTED]

Another option is to make the CFTC and similar provincial credits a refundable credit similar to the Children's Activity Tax Credit (CATC) in Ontario and the Active Families Benefit in Saskatchewan. Thus, regardless of income status, families would be able to apply for a credit relative to the amount of expense incurred for their child's participation in an organized PA program. Furthermore, as is the case with the Active Families Benefit, this option could be enhanced by including a certain limit up to which the fees (e.g., $150), as opposed to a percentage, could be fully refundable. (14) Though it is true that a refundable tax credit would cost governments more than a non-refundable tax credit, an examination of Figure 1 reveals that the CFTC is under-utilized by approximately $50 million in comparison to what the federal government was expecting to expend when the credit was first introduced in the 2006 budget. Thus, converting the CFTC to a refundable credit may not result in much extra cost to what the Canadian government has already committed. Though this option addresses the previously discussed issue of inequity, it does not address the income gradient for PA and the associated financial barriers. Therefore, we recommend that the best overall option is a combination of a refundable tax credit and dedicated provincial and federal funding for subsidizing the costs of organized PA for low-income children.

DISCUSSION

Low PA among Canadian children and youth is a major public health concern that has been recognized by federal and provincial governments through tax credit programs currently in place. These tax credits come with a significant financial cost in terms of untaxed income (we estimate somewhere in the range of $200 million), yet limited information exists on the effectiveness of these credits for promoting and enabling PA of Canadian children. There is evidence, however, that non-refundable tax credits are not useful for promoting PA among children from low-income families who do not qualify, or cannot afford the initial expense, to claim these credits. Unless Canadian governments address the refundable nature of these credits and consider other mechanisms for sponsoring low-income families, these tax credits are in danger of creating more of a health inequity among Canadian children.

Policy should be informed by the best evidence available and this seems particularly so when the program is both expensive and addressing a critically important health issue. Though the current evidence regarding the effectiveness of a range of obesity and PA interventions is limited, it clearly tells us that the non-refundable PA tax credit is inequitable and likely ineffective. (3,14)

Acknowledgement: Dr. Timothy Caulfield is a Tier I Canada Research Chair in Health Law and Policy.

Conflict of Interest: None to declare.

Received: June 30, 2011

Accepted: December 18, 2011

REFERENCES

(1.) Craig CL, Cameron C, Griffiths JM, Tudor-Locke C. Descriptive epidemiology of youth pedometer-determined physical activity: CANPLAY. Med Sci Sports Exerc 2010;42:1639-43.

(2.) Spence JC, Holt NL, Dutove JK, Carson V. Uptake and effectiveness of the Children's Fitness Tax Credit in Canada: The rich get richer. BMC Public Health 2010;10:356.

(3.) Active Healthy Kids Canada Report Card on Physical Activity for Children and Youth. Available at: http://www.activehealthykids.ca/ecms.ashx/ ArchivedReportCards/2010ActiveHealthyKidsCanadaReportCard-longform.pdf (Accessed May 15, 2011).

(4.) Cawley J. An economic framework for understanding physical activity and eating behaviors. Am JPrev Med 2004;27:117-25.

(5.) Holt NL, Cunningham CT, Sehn ZL, Spence JC, Newton AS, Ball GD. Neighborhood physical activity opportunities for inner-city children and youth. Health Place 2009;15:1022-28.

(6.) Shikako-Thomas K, Majnemer A, Law M, Lach L. Activities in children and youth with cerebral palsy: Systematic review. Phys Occup Ther Pediatr 2008;28:155-69.

(7.) Nova Scotia Budget Backgrounder: For the Fiscal Year 2006-2007. Available at: http://www.gov.ns.ca/finance/site-finance/media/ finance/2006_persbackgrounder.pdf (Accessed June 20, 2011).

(8.) Canada Revenue Agency. Available at: http://www.cra-arc.gc.ca/whtsnw/fitness-eng.html (Accessed June 20, 2011).

(9.) Manitoba Budget Paper D: Taxation Adjustments. Available at: http://www.gov.mb.ca/ finance/pdf/budget2006/taxation.pdf (Accessed June 20, 2011).

(10.) Yukon to introduce new child tax credit. Available at: http://www.gov.yk.ca/ news/07-201.html (Accessed May 18, 2011).

(11.) Ontario Children's Activity Tax Credit. Available at: http://news.ontario.ca/ mof/en/2010/09/ontario-childrens-activity-tax-credit.html (Accessed May 18, 2011).

(12.) Government of Saskatchewan. Active families benefit program to provide up to $18 million for Saskatchewan families. Available at: http://www.gov.sk.ca/ news?newsId=0a5d1557-4353-47c6-afaa-424359c2fd34 (Accessed June 20, 2011).

(13.) Department of Finance Canada. Tax expenditures and evaluations 2010. Available at: http://www.fin.gc. ca/taxexp-depfisc/2010/TEE2010_eng.pdf (Accessed May 18, 2011).

(14.) von Tigerstrom B, Larre T, Sauder J. Using the tax system to promote physical activity: Critical analysis of Canadian initiatives. Am J Public Health 2011;101(8):e10-e16.

(15.) Sport Canada Contributions Report 2009-2010. Available at: http://www.pch.gc.ca/pgm/ sc/cntrbtn/2009-2010/index-eng.cfm (Accessed June 20, 2011).

John C. Spence, PhD, [1] Nicholas L. Holt, PhD, [1] Christopher J. Sprysak, LLM, [2] Nancy Spencer-Cavaliere, PhD, [1] Timothy Caulfield, LLM [2]

Author Affiliations

[1.] Faculty of Physical Education and Recreation, University of Alberta, Edmonton, AB

[2.] Faculty of Law, University of Alberta, Edmonton, AB

Correspondence: John C. Spence, Sedentary Living Lab, Faculty of Physical Education and Recreation, W1-16h Van Vliet Centre, University of Alberta, Edmonton, AB T6G 2H9, Tel: 780-492-1379, Fax: 780-492-2364, E-mail: jc.spence@ualberta.ca

Table 1. Provincial Expenditures for Child Fitness Tax Credits

Province       Year  Credit                Type               Cost
                                                           ($ million)

Manitoba       2007  Fitness Tax Credit    Non-refundable      3.0
Nova Scotia    2005  Healthy Living Tax    Non-refundable      2.2
                       Credit
Ontario        2010  Children's Activity   Refundable         75.0
                       Tax Credit
Saskatchewan   2009  Active Families       Refundable         18.0
                       Benefit
Yukon          2007  Yukon Child Tax       Non-refundable      0.2
                       Credit
Total                                                         98.4
Expenditures