441-00724 (Taxation)

The Government of Canada recognizes the challenges facing those who live in northern or remote regions. The intent of the Northern Residents Deduction is to assist Canada’s northern and isolated regions in drawing skilled labour to their communities by providing recognition for the additional costs faced by residents of these areas.

The current zonal system of tax benefits for northern residents was established following an extensive review of the former community-based system by the Task Force on Tax Benefits for Northern and Isolated Areas. The Task Force held extensive consultations across the country and concluded that determining eligibility for the tax deductions for residents of northern and isolated areas on a community-by-community basis was arbitrary and divisive – residents of neighbouring communities were being treated differently for tax purposes, even though they often shared common workplaces, services, and cultural and recreational facilities.

In October 1989, the Task Force recommended replacing the community-by-community approach with a zonal approach, where only communities within a “Northern Zone” would qualify for tax benefits. The boundaries of the Northern Zone were delineated with a view to ensuring that communities in the zone had similar characteristics. The Task Force used objective criteria to compare communities on the basis of isolation, nordicity, community characteristics, and environmental factors. The Task Force also attempted to minimize border delineation problems by having as much separation as possible between qualifying and non-qualifying communities. 

• For example, the Task Force considered the distance of a community from the nearest urban centre with a population of at least 10,000. Communities at least 500 kilometers from such an urban centre, or with no road access, were scored as the most remote.

The Task Force recommended a Northern Zone and, following further consultations, an Intermediate Zone was added to bridge the gap between the Northern Zone and the less isolated areas of the country. The approach used by the Task Force to design the Northern Zone was also applied in developing the Intermediate Zone: the same ranking system was used, and efforts were made to minimize border problems. The new system of Northern Benefits took effect starting in 1991.

It was recognized that the Intermediate Zone, in relation to the Northern Zone, covers regions in which the communities are characterized as being more populated, in greater proximity and less homogeneous, thereby making the task of setting borders more challenging. Given this reality, regardless of where the borders are set, there would inevitably be communities across the country that would be disappointed with their exclusion. It was determined that the final border design incorporated fair trade-offs in difficult circumstances that were deemed workable in a broad-based, national tax system.

It is important that the Government of Canada receive the views of Canadians on the tax system. This helps to focus our efforts on improvements to ensure that the tax system is fair and effective.