Kitchener councillors, mayor to lose tax break in 2019

Kitchener city councillors will no longer get a break when tax time rolls around. 

At yesterday's city finance meeting, Kitchener council unanimously voted to eliminate an annual salary tax exemption. Previously, one-third of the mayor's or a councillor's salary was tax-free.

The move is in line with the 2017 federal budget that requires all municipal politicians to pay taxes on their entire salary. Municipalities have until January 1, 2019 to make the necessary changes.

"Many municipalities in Ontario still had [the exemption] in place and we were one of them," Mayor Berry Vrbanovic told CBC Kitchener-Waterloo.

Level playing field

The tax exemption is a decades-old allowance that aimed to offset the expenses incurred from public service work. It's been in place in Kitchener since before Vrbanovic joined council in 1994.

Vrbanovic said that he believes the government has ended the benefit as a way to increase transparency.

"Obviously this is going to generate — across the country — some fairly significant new tax dollars for the federal government," Vrbanovic said.

"They would argue that it's done in the interest of creating a level playing field and in that context I think it's a positive step."

Topping up salaries

Taxing the full salary means that many councillors would end up with reduced take home pay. In order to avoid that, city council approved a "gross-up" to both councillor and mayor salaries.

"Anytime a council has dealt with this in the past," Vrbanovic said, "it's always been done in a manner to ensure that there isn't a reduction in council salaries, because that's not what the intent was."

Because councillors work part-time in Kitchener and often have jobs outside of their council duties, city staff recommended a "gross-up" rate of 43.41 per cent. This is roughly equal to the annual tax exemption amount when a councillor's salary is combined with an average external salary of $55,000 per year.

"I think the important thing here is to remember that this does not add any additional income to members of council," Vrbanovic said. "It's simply going to provide a transfer of those additional dollars to the federal government to take into account the removal of the one-third tax-free portion."

Little impact on budget

Vrbanovic says the increase will cost the city an extra $123,000 when it goes into effect in 2019.

Scott Davey, councillor for Ward 1, who voted in favour of the change, says that it will be the next round of councillors that see salary change.

"We have to do it before the next term of council," Davey explained, "because of a rule, that I completely agree with: you can't change or talk about your pay while you're a city councillor."

The mayor says that city staff will work to incorporate this into the overall budget and taxpayers won't see much of a difference.

Scott Davey agrees. "It will increase the operating budget in the 2019 tax year, but it won't be something people will notice on their tax bills," Davey said. "We're talking about cents over the whole year."