When A Raise Is Not A Raise — Or Is It?

There are two ways to look at CBRM Council’s decision, taken during Monday’s General Committee meeting, to increase the mayor and councilors’ salaries to compensate for the federal government’s decision (contained in that gripping bestseller Budget 2017: Building a Strong Middle Class) to eliminate a tax break that allowed them to receive one-third of those salaries tax-free.

One way — the one presented by the Federation of Nova Scotia Municipalities and our council and apparently, most councils in the province — is that the salary increase is not really a salary increase because although their gross pay will rise, their net or take-home pay will remain the same.

And this is true, as you can see by the table from the Issue Paper on the subject prepared by CBRM Chief Financial Officer Jennifer Campbell (click to enlarge):

Source: CBRM

Source: CBRM

 

What this is saying, basically, is that the mayor and council have always received these salaries, it’s just that the federal government used to pick up 1/3 of them and now the CBRM has to cover the whole shot.

 

Unfair?

But there’s another way to look at it — the way the federal government was looking at it when it removed the exemption. Here’s the relevant passage from Budget 2017:

Employee Benefits and Allowances

In today’s workforce, many Canadians receive benefits—such as a daily food allowance or transit fare—which are counted as taxable income. Yet certain tax measures allow some individuals to pay less than their fair share of taxes on such benefits. These measures are unfair and they lack a strong policy rationale. To improve consistency, Budget 2017 proposes to:

  • Eliminate the deduction in respect of employee home relocation loans. Evidence suggests that this deduction disproportionately benefits the wealthy, and does little to help the middle class and those working hard to join it.
  • Remove the tax exemptions for non-accountable expense allowances paid to members of provincial and territorial legislative assemblies and to certain municipal office-holders. This exemption is only available to certain provincial, territorial and municipal office holders, and provides an advantage that other Canadians do not enjoy. [emphasis mine]

If I make $47,074 a year (for what is, rightly or wrongly, considered a part-time job), I pay tax on the full amount, so why should an elected municipal official pay tax on only two-thirds?

Well, the answer has always been that the tax-free portion of the salary was intended to cover expenses incurred in the line of duty.

But during the same meeting, Jennifer Campbell also explained that, in keeping with changes to provincial law, the municipality has to revamp its travel policy and establish a hospitality policy. Draft copies of both are included in the agenda for Monday’s meeting (it starts on Page 49) and I stand to be corrected, but it seems to me they cover pretty much every expense that could be incurred in the line of a mayor or councilor’s civic duty.

And if I’m reading the applicable tax law correctly, such expenses are probably not taxable for the average councilor (although things may be different for our high-flying mayor):

A municipal corporation or board may pay a non-accountable expense allowance to an elected officer to perform the duties of that office.

If the expense allowance is more than one-third of the officer’s salary and allowances, the excess amount is a taxable benefit.

The increases will cost the CBRM an additional $35,000 this fiscal year and $140,000 per year from now on. That’s not a whole lot of money and I’m not getting all hot and bothered about it. I also agree that the timing is not great, coming in the middle of this council’s term. But I think we need to be clear about the remuneration council receives and why. So I’ll give the final word to our mayor, who was back in the saddle on Monday, and who (as is his wont) joined the discussion from the chair to explain the thinking behind the change to the federal tax code:

I think Councilor, to that, it was just bringing, basically, political tax policy because…it was a practice that was applied provincially in the past, as well, in terms of tax-free benefits and as tax policy is catching up I think they were looking then at municipalities and saying, “What is the most effective tax policy in this day and age?” And it was just applying that applicability. I think that’s why the NSFM have applied it no differently than legislatures have looked at it as well.

All clear, everyone?

 

 

 

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