HomeMy WebLinkAboutFCS-15-005 - Council's One-Third Tax Free Remuneration - Muniicpal Act, 2001 Staff Report
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REPORT TO: Finance & Corporate Services Committee
DATE OF MEETING: December 7, 2015
SUBMITTED BY: C. Tarling, Director of Legislated Services I City Clerk, 519-741-
2200, ext. 7809
PREPARED BY: C. Tarling, Director of Legislated Services I City Clerk, 519-741-
2200, ext. 7809
WARD(S) INVOLVED: All
DATE OF REPORT: November 26, 2015
REPORT NO.: FCS-15-005
SUBJECT: Council's One-Third Tax Free Remuneration — Municipal Act,
2001
RECOMMENDATION:
That pursuant to Section 283 of the Ontario Municipal Act, 2001 (the Act), one-
third of the remuneration paid to the elected members of Kitchener City Council
continue as expenses incident to the discharge of their duties as members of the
Council.
BACKGROUND:
Under the previous Municipal Act (1990), Kitchener City Council passed a resolution on
July 2, 2002 to provide that one-third of the remuneration paid to the elected members
of Council and local boards be considered as expenses incidental to the discharge of
their duties as members. Section 283 of the Municipal Act, 2001 (the Act) provides that
Council can pass a resolution that one-third of the remuneration paid to its members
may continue to be deemed to be the reimbursement of expenses for the purpose of the
Income Tax Act; and therefore, are not taxable.
Pursuant to Section 283(7) of the Act, on or after December 1, 2003, Council is required
to review the retention of the one-third tax free allowance at a public meeting at least
once during its four-year term of office. Previous Councils have passed comparable
resolutions in July 2005, June 2007 and November 2012.
***This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
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REPORT:
If one-third of Council's remuneration is to continue to be treated as a reimbursement of
expenses, then Council must pass a resolution of the nature set out herein at a public
meeting. Consideration of this matter at the December 7, 2015 Finance and Corporate
Services Committee meeting satisfies this requirement.
Should Council decide to discontinue the one-third tax free allowance and change the
Mayor and Councillors' compensation to be fully taxable, then in accordance with
Section 283 (6) of the Act, the original resolution from July 2002 would have to be
repealed. If Council elects to end the one-third allowance, the Act stipulates it cannot
be re-instated in the future. This decision would be effective January 1, 2016.
It should be noted the current one-third tax provision does not negatively affect the City;
in fact, there is a relatively small positive financial impact. The taxable earnings for
members of Council are currently reduced by one-third and as such, the amount of
Canada Pension Plan (CPP) contributed by each member is reduced accordingly. The
City as an employer, must match any CPP contributions; therefore, a reduction in
contributions paid by Councillors results in a savings due to the lower contributions that
have to be paid by the City. There is also a savings on Employer Health Tax (EHT)
premiums.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
The recommendation of this report supports the achievement of the city's strategic
vision through the delivery of core service.
FINANCIAL IMPLICATIONS:
The following outlines three options and their related financial impacts. These options
are 1) Continuation of the One-Third Tax Free Allowance; 2) Fully Taxable, No Change
in Gross Pay; and 3) Fully Taxable and Adjust Gross Pay to Maintain the Same Net
Pay.
Option 1 - Continuation of the One-Third Tax Free Allowance
The continuation of the one-third tax free allowance for Council would mean the City
would continue to report the remaining two-thirds for income tax purposes to the
Canada Revenue Agency.
There is no net financial impact associated with continuing with the recommendation to
maintain the one-third tax free portion of the remuneration.
Option 2 - Fully Taxable, No Change in Gross Pay
There would be no change in gross pay and no impact on the 2015 Budget; however,
net pay would be reduced by $3,352 for each Councillor and $8,303 for the Mayor.
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This Option would also cost the City an additional $9,707 annually, as a result of having
to match the increased C.P.P. as well as Employer Health Tax contributions.
Option 3 - Fully Taxable and Adjust Gross Pay to Maintain the Same Net Pay
The current annual salary for a Councillor is $40,005 and $77,759 for the Mayor, one-
third of which is tax-free. To convert the remuneration to 100% taxable while
maintaining the same level of net after-tax compensation, those annual salaries would
need to be grossed up to $44,615 for each Councillor and $90,847 for the Mayor.
This Option would result in an unavoidable budget increase totalling $78,391 per year
(at 2015 rates).
A comparative analysis of the three options with detailed calculations is attached in
Appendix W. The calculations (e.g. income tax projections) contained in the attached
assume single source income from the City. Actual marginal tax rates will vary based
on all source income and deductions available to individual Councillors.
COMMUNITY ENGAGEMENT:
INFORM — This report has been posted to the City's website with the agenda in
advance of the council / committee meeting.
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO
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