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Report
City Council
The Corporation of the City of Brampton
BDAMPTG?* CITY COUNCIL
Date:
December5, 2014
File:
H20
Subject:
Elected Officials Compensation - One-Third Tax Exempt Status
Contact:
Peter Honeybome, Executive Director, Finance and Treasurer,
Corporate Services, (905.874.2221)
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Overview:
•
At its meeting held on December 3, 2014, Committee of Council directed staff to
prepare this report for consideration by City Council on December 10, 2014 to
provide the information necessary to enable Council to make an informed
decision with respect to the continuation or elimination of the One-Third Tax
Exempt status for Council Members' remuneration.
Recommendations:
1. That the report from Peter Honeybome, Executive Director, Finance and
Treasurer, dated December 5, 2014 to the City Council meeting of December 10,
2014 re: Elected Officials Compensation - One-Third Tax Exempt Status be
received, and
2. That Council consider the information contained in this report and direct that:
a. The One-Third Tax Exempt status be retained in accordance with the
provisions of subsections 283 (5) and 283 (7) of the Ontario Municipal Act,
2001, or
b. The One-Third Tax Exempt Status be permanently repealed effective
January 1, 2015 and that the By-law confirming the proceedings of this
Council meeting be considered the necessary authority to repeal the
One-Third Tax Exempt Status pursuant to the requirements of
subsection 283 (6) of the Municipal Act, 2001, and
i. The salary and car allowance amounts not be increased to
compensate for the reduction in net pay, or
ii. The salary and car allowance be increased such that there is no
impact to a Council Members' net pay as a result of the elimination
of the One-Third Tax Exempt status.
Background:
The remuneration of Members of Council is authorized by section 283 of the Municipal
Act, 2001 (the "Act") and provides that the remuneration of a Member of Council is
100% taxable unless the Municipal Council leverages the provisions of the Act and
passes a Resolution in each Term of Council to continue the One-Third Tax Exempt
status. Specifically, subsections 283(4), 283(5) and 283(7) of the Act operate to provide
that no portion of the remuneration of a Member may be deemed to be for expenses
unless the Council of the Municipality passes a Resolution to continue the deeming in
each Term of Council.
The One-Third Tax Exempt Status is a provision permitted and deemed by the Act to be
for expenses incidental to the discharge of the Member's duties as a Member of Council
and therefore not subject to statutory deductions such as income tax.
In all previous Terms of Council, a Resolution has been passed to continue the
One-Third Tax Exempt status. Most recently, on February 27, 2013, City Council
adopted the recommendations of the Council Compensation Committee including the
following resolution (C055-2013):
Whereas the Municipal Act includes a provision that allows for the salaries
of Members of Council to be subject to a 1/3 tax provision as it pertains to
income tax; and
Whereas a municipalcouncil which currentlytakes advantage of the
aforementioned provision is required to revisit that matter during its term of
office; and
Whereas if a municipal council resolves to eliminate the 1/3 tax free
provision under the MunicipalAct, that elimination is permanent and cannot
be reinstituted under the current legislation; and
Whereas the elimination of the 1/3 tax-free provision would require a salary
increase in perpetuity for the members of the council for their net income to
be equivalent;
Be it resolved that the 1/3 tax-free allowance for Members of Council be
retained for the current term of office which ends on November 30, 2014,
and for the December 1, 2014 to November 30, 2018 term of office.
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Some time ago, the Region of Peel eliminated the One-Third Tax Exempt status for the
compensation it pays to Members who sit on Regional Council. The decision by
Regional Council has no bearing or impact on the decision(s) that Brampton's Council
may make in respect of the taxable status of the compensation paid to Members of
Brampton Council.
Participation in the Ontario Municipal Employees Retirement System (OMERS)
At its meeting held on May 21, 2014, City Council passed the following By-law:
By-law 143-2014
To authorize participation in the OMERSprimary pension plan
("Primary Plan"), and the retirement compensation arrangement that
provides benefits formembers and former members of the Primary
Plan ("RCA"), in respect of the Mayor and Regional and City
Councillors (Councillors) of The Corporation of the City of Brampton
Participation in OMERS is mandatory for all new Council Members and optional for
all Council Members who were Members before the By-law was passed.
Current Situation:
At its meeting held on December 3, 2014, Committee of Council directed staff to
prepare a report for consideration by City Council on December 10, 2014 that would
provide the information necessary to enable Council to make an informed decision with
respect to continuing or eliminating the One-Third Tax Exempt for Council Members'
remuneration.
Subsection 283(6) of the Act permits a Council to repeal the original By-law enabling the
continuation of the One-Third Tax Exempt status. The original Bylaw 295-2002 passed
by City Council at its meeting on September 30, 2002 to approve Council Resolution
C324-2002, which was the initial Resolution authorizing the continuance of the
One-Third Tax Exempt.
Should Council decide to repeal the By-law authorizing the One-Third Tax Exempt
status, subsection 283(4) of the Act would then apply. Subsection 283(4) provides that
no part of the remuneration of a Member shall be deemed to be for expenses.
Accordingly, the decision to repeal the One-Third Tax Exempt status is
permanent and not reversible. That is, no future Council may re-establish the
option.
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Subsection 283(6) of the Act states that "the repealing by-law shall be effective on
January 1 of the year after the year in which it is passed'. Accordingly, in order to
eliminate the One-Third Tax Exempt status effective January 1, 2015, City Council must
pass a By-law to repeal the original By-law (295-2002) and resolution (C324-2002)
before December 31, 2014.
The compensation affected by the One-Third Tax Exempt status includes the salary and
monthly car allowance.
Considerations
Impact on Net Pay:
The elimination of the One-Third Tax Exempt status will result in a reduction in the
Members' net pay unless the gross compensation (salary and monthly car
allowance) is increased to offset the reduction that would otherwise occur. The
following table shows the impact on Members' net pay and the revised
compensation levels that would be required to offset the reduction in net pay that
would otherwise occur.
Current Gross Pav (Annual)
Salary
Mayor
Councillor
Car Allowance
Net Pav (Annual)
Total
Based on 1/3
Based on Fully
Tax Free
Taxable
$161,393
$12,639
$174,032
$126,879
$93,233
$78,713
$12,639
$91,352
$72,491
S57.895
Increased gross pay required to maintain current net pay assuming gross pay is fully (100%) taxable:
Revised Gross Pay (100% Taxable)
Required to Maintain Current Net Pay (Annual)
Mayor
Councillor
Salary
Car Allowance
$252,590
$14,561
$109,070
$14,561
Total
S267.151
S123.631
Net Pay
$126,879
$72,491
The above calculations are based on the following assumptions:
• The Member of Council is a member of OMERS (Currently, the Mayor
and seven Councillors are members of OMERS)
•
Deductions from Gross Pay include:
o Canada Pension Plan (CPP)
o
OMERS
o
Income Tax
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Impact on OMERS:
OMERS is the pension plan for Ontario municipalities. It is a defined benefit pension
plan meaning that the pension payment entitlement when an OMERS member
retires is based on their number of years of service and the average of their highest
five years of taxable compensation.
The OMERS deductions from pay and ultimately the OMERS pension payments are
based on taxable income. This means that based on the current One-Third Tax
Exempt status, a Members' OMERS deductions would be based on two-thirds of the
total compensation and the pension that would be paid would be based on two-thirds
of the compensation. The OMERS Plan requires that the municipality match the
contributions by the Member.
Elimination of the One-Third Tax Exempt status would result in an increase in the
OMERS deduction from pay and a substantial increase in the pension amount over
what would otherwise be realized under the current scenario.
The OMERS deduction from a Member's pay is considered and treated as a "before
tax" amount. In practical terms, taxable income is reduced by the amount of the
OMERS deduction before income tax is calculated. The current (2015) OMERS
deduction rates for Members are:
2015 OMERS Contribution Rates
(on taxable income)
On earnings up to CPP
earnings limit ($53,600)
9.0%
On earnings over CPP
earnings limit ($53,600)
14.6%
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Financial Implications:
There are no financial implications should City Council decide to retain the One-Third
Tax Exempt status.
Eliminating the One-Third Tax Exempt status with no change to the gross compensation
amounts would result in an annual financial impact of $59,996 due to the increase in the
City's matching amount of the OMERS deductions and other payroll tax amounts such
as the Employer Health Tax premiums (assuming all Members of Council are members
of OMERS).
Eliminating the One-Third Tax Exempt status and increasing the total compensation
amounts to offset the reduction in net pay that would otherwise occur will result in an
annual financial impact of $525,418 due to the increased compensation amounts, the
City's matching amount of the OMERS deduction and other payroll tax amounts such as
the Employer Health Tax and life insurance premiums (assuming all Members of
Council are members of OMERS).
Strategic Plan:
This report achieves the Strategic Plan priority of "Corporate Excellence" by contributing
to the goal of continuing retain and encourage the best and brightest to take a
leadership role in our community through direct involvement on City Council.
Conclusion:
This report provides Members of Council with the information required to make an
informed decision with regards to the merits of Members of Council continuing or
eliminating the One-Third Tax Exempt status with respect to their salary and monthly
car allowance.
Peter Honeybome
Peter Simmons
Executive Director, Finance
Chief Corporate Services Officer
and Treasurer