On May 29, 2025, the Government of the Northwest Territories adopted Regulation R-038-2025, amending the Income Tax Regulations under the authority of section 33 of the Income Tax Act. The amended provision directly affects the prescribed amounts used in the calculation of tax benefits under subsection 3.5(3) of the Income Tax Act, specifically for eligible persons residing in designated geographic zones.

The amendment outlines that for the purposes of calculating certain tax deductions or benefits, all prescribed amounts—identified in the regulation as variables A, B, and C—are set to zero dollars across all three zones referenced in the legislation. These zones are defined based on the ordinary residence of the eligible person. Specifically, if the individual resides in Zone 1, Zone 2, or Zone 3, the prescribed amounts are uniformly set at zero for: (A) the eligible person themselves, (B) a qualified relation, and (C) each qualified dependant. This effectively eliminates any financial benefit or credit that may have previously been available through these provisions of the Act for residents of any zone.

By setting all applicable prescribed amounts to zero, the territorial government has opted to remove or suspend the tax deduction or benefit linked to residency in Zones 1, 2, or 3 under subsection 3.5(3). Previously, these prescribed amounts likely varied to reflect cost-of-living or accessibility issues related to remote or isolated communities, as is common in northern jurisdictions. With this amendment, those distinctions are no longer recognized in the current formula, effectively neutralizing zone-based tax relief.

No further sections of the Income Tax Regulations are amended within this regulation. The change is narrowly targeted but may have widespread fiscal implications for residents who previously qualified for deductions or credits based on their living situation or family composition.

The regulation also specifies that it will come into force on July 1, 2025. This effective date gives taxpayers and tax professionals a short window to prepare for the elimination of these prescribed amounts. From that date onward, income tax calculations that previously incorporated benefits for Zone-based living and family dependants under subsection 3.5(3) will no longer reflect any monetary advantage through these lines. Tax returns filed for periods beginning on or after this date must therefore disregard any previous values assigned to these variables and proceed under the assumption that the amounts are zero.

This amendment represents a clear and direct policy decision to nullify certain geographic and demographic tax benefits. While the broader political or economic reasoning is not explained in the regulation itself, the technical effect is unmistakable: from July 1, 2025, the residents of the Northwest Territories will no longer receive prescribed tax relief under the specific provisions outlined, regardless of their zone of residence or the number of qualified relations or dependants they support.

Northwest Territories (038-2025) May 30, 2025
Disclaimer: Insights are for informational purposes only and do not reflect RRI’s official position or constitute legal opinion.