Appendix B: Sources and methods

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There is no specific "tourism industry" or "tourism commodity" within the statistical system. Rather, tourism is dispersed among the various industries and commodities of the system. Therefore, like the Canadian Tourism Satellite Account (CTSA), this study requires the estimation of the tourism portion of each industry and commodity. Once these shares are established, they are multiplied against the taxes, by industry or by commodity, to determine the portion attributable to tourism. The following describes the key data sources for the study and outlines the main aspects of its methodology.

Data sources

Several main data sources are used in this study. The CTSA and the National Tourism Indicators (NTI) provide tourism expenditures by commodity which allows the calculation of tourism’s share of spending for all commodities. Detailed information from these sources is used to estimate tourism shares by industry as well. Revenue from government sales of goods and services to visitors also comes from the CTSA and from the Industry Accounts Division (IAD) of Statistics Canada.

Information on taxes on products (final sales), by detailed commodity, and taxes on production and intermediate inputs, by detailed industry are supplied by IAD. These data are by level of government (federal, provincial/territorial and municipal) annually up to 2008. The National Income and Expenditure Accounts (NIEA) carry estimates of revenues by type of tax and level of government, which serve as benchmark totals for 2009 to 2011. While this source has more up-to-date estimates, it does not provide any industry or commodity detail. The tax totals are on an accrual basis, that is, they are allocated to the year in which the taxes are generated, not the year in which they are actually paid.

Federal and provincial/territorial taxes on employment earnings and social insurance contributions by industry draw on T4 tax remittance files from Canada Revenue Agency up to 2008. The totals in 2009 to 2011 for these sources are derived using data from the NIEA, although no industry details are available in this case.

Methods

a. Tourism shares

The tourism shares of commodities or industries provide the crucial ratios to estimate the portion of taxes due to tourism, either from taxes on income or production by industry or from taxes on products by commodity. The tourism shares are calculated using the output attributable to tourism from the CTSA divided by the total gross output (at basic prices) of a commodity or industry from the I-O tables. These shares are then multiplied against the taxes, by commodity or industry, to obtain the taxes attributable to tourism. This method assumes that the tourism tax share is equal to the tourism commodity or industry share. To give an example, if a commodity raises $20 million in sales taxes and the CTSA shows 10% of its total demand is from tourists, the government revenue attributed to tourism is $2 million ($20 million X 10%). Similar calculations are done by industry to estimate the portion of taxes on income and production that are due to tourism.

Government revenues are also separated into those attributable to tourism exports and to tourism domestic demand. The tourism shares for exports are calculated similarly to those for total tourism, but in this case using output attributable to tourism exports from the CTSA divided by the total gross output (at basic prices). These tourism export shares are then multiplied by the taxes to obtain the government revenue attributable to tourism exports. The revenue attributable to domestic tourism is then derived as a residual by deducting the revenue from tourism exports from that due to total tourism. This method is used in the calculations for income taxes, other taxes on production and intermediate inputs, and contributions to social insurance plans. In these cases, the estimates of tax revenues are all on an industry basis, and tourism shares by industry are applied.

For taxes on products (final sales), an adjusted tourism export share is used that takes into account the fact that (1) these estimates relate only to taxes on final demand expenditures and (2) the travel expenses of Canadian businesses are treated as an intermediate expense and consequently do not generate any taxes on final sales. Consequently, a special adjustment based on details from the CTSA is made to remove the portion of output supplied to domestic business tourism before calculating the tourism export share. This has the effect of raising the export share of revenue from taxes on products directly attributable to tourism above its share of total tourism spending. In this case, the estimates of taxes on products (final sales) are all on a commodity basis, and the tourism shares by commodity are applied.

These calculations are done at the most detailed level of the I-O tables. For publication, these details are aggregated so as not to reveal any confidential data. These calculations are also done only for the years for which the CTSA is available. For other years, these ratios are taken from unpublished details of the NTI, which in turn are benchmarked on the CTSA estimates.

b. Taxes on income and contributions to social insurance plans

Information on taxes withheld from employment earnings and Employment Income (EI) and Canada Pension Plan and Quebec Pension Plan (C/QPP) premiums by industry come from T4 tax remittance files. Employer contributions to workers’ compensation plans, by industry, come from the NIEA. The T4 files only contain employee contributions to EI and C/QPP; employers’ contributions however are a straightforward calculation based on the employee premiums. The self-employed are not included in the T4-file. The totals for their EI and C/QPP premiums are distributed by industry on the basis of the distribution for employee contributions. Contributions to social insurance plans are benchmarked to totals published in the NIEA.

Taxes on employment earnings for the province of Quebec are only partially covered by the T4 remittance files. These files include only the federal portion of tax withheld from pay cheques. There is a 16.5% abatement of federal income tax to residents of Quebec, and this is deducted from the federal tax assessed. The provincial portion is calculated separately using the ratio of provincial to federal income tax paid in Quebec from the Provincial Economic Accounts. This total is distributed by industry according to the distribution of federal taxes on employment earnings in Quebec.

The T4 tax files were used up to 2008, while preliminary estimates of tax and contribution totals were used for 2009 to 2011. Consequently, for 2009-2011, the industry distribution of taxes on employee earnings and social contributions is based on the distributions for 2008.

Taxes on profits of corporations and government business enterprises and on the net income of unincorporated businesses are also included in the study. For corporations and government business enterprises, federal and provincial/territorial accrued tax totals for all years come from the NIEA. In this case, a distribution of taxes is not available by industry. However, operating surplus, available by industry from IAD, is used to distribute the totals. This method results in taxes that are proportional to surplus across industries, and applies only for 2000 to 2008. The distribution for 2008 is carried forward for 2009 to 2011.

In the case of unincorporated businesses, the total tax comes from Canada Revenue Agency. This figure is first split between the federal and provincial/territorial governments on the basis of their respective shares of income taxes. The distribution by industry is then established on the industry distribution of mixed income with data for 2000-2008 from IAD. The distribution for 2008 is assumed to carry forward to 2009 to 2011.

All taxes on income and contributions to social insurance plans are calculated on an industry basis. The tourism portions are thus estimated using the tourism shares by industry, as described above, both at the total tourism and tourism export levels.

c. Other taxes on production and taxes on products

Other taxes on production and taxes on products for intermediate use are available by industry from IAD. The tourism portion of these taxes is simply estimated as the tourism share of each industry times the tax amount for each industry. For 2009 to 2011, totals for these taxes come from the NIEA, while their industry distribution is based on that for 2008.

Taxes on products related to final sales are taken on a commodity basis from tax margins of the input-output accounts. All taxes on products (final sales) levied by the three levels of government are included; tourism shares by commodity as described above are applied to obtain the tourism portion, both at the total level and for tourism exports. Commodity details for 2000 to 2008 come from IAD, while totals for 2009 to 2011 come from the NIEA. The distribution of taxes by commodity for these latter years is based on the distribution for 2008.

A special calculation is required for convention fees, because these payments and sales taxes on them, while included in the input-output accounts, are not specifically identified as such. However, tourism spending on convention fees is estimated in the CTSA and the NTI. To estimate the taxes, it is assumed that the domestic portion is fully subject to GST/HST. For tourism exports, it is assumed that 50% of the fees paid are related to "foreign conventions" held in Canada and hence exempt from GST/HST (a "foreign convention" is one where over 75% of participants are non-residents). The estimated taxes are then removed from those paid on accommodation services.

A refinement is made regarding the treatment of taxes paid at the border on non-tourism commodities or goods (e.g., clothing, jewelry, alcohol, tobacco, vehicles, etc.) brought back to Canada by Canadians travelling abroad. Estimates of taxes paid at the border, based on details from the NIEA, are added to the total taxes on products (final sales) attributed to tourism for the category of non-tourism commodities.

Information on product taxes related to tourism commodities for 2009 and 2011 was reviewed for any significant changes to legislated tax rates that would call for adjustments to the distribution for these years. The only notable changes were the increase in the federal Air Travellers Security Charge in April 2010 and the introduction of the Harmonised Sales Tax in Ontario and British Columbia on July 1, 2010. These are both reflected in the study’s estimates.

d. Government sales of goods and services

Government sales of goods and services provide another source of revenue. These revenues come mainly from camping, recreation and entertainment. They are determined in the CTSA by taking the total supply of government tourism commodities and multiplying each one by the appropriate tourism share. These details are available from IAD up to 2008, and again the appropriate tourism shares are applied. For 2009 to 2011, however, only control totals on government revenues from all sales of goods and services are available, not just tourism commodities. In this case the proportion of government sales from tourism commodities is assumed to be the same as in 2008, and then the same tourism shares are applied.