Income tax only a portion of our total tax bill

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Appeared in the Vancouver Province
With the deadline for income tax returns just around the corner, taxes are no doubt on the minds of many Canadians. This deadline is an arresting reminder of how much income tax we paid throughout the year. While some happily pay their share—thinking of the numerous government programs these tax dollars finance—others feel they’re overtaxed.

Regardless of where you stand in this debate, it’s important to have a complete understanding of all the taxes you pay, in addition to income taxes. That way you, as a taxpayer, can better assess whether you’re getting enough value for your tax dollars. For a complete picture of the total tax bill, Canadians must look well beyond their income tax returns.  

The reality is that income taxes form only a portion of the total tax bill imposed on us by all levels of government (federal, provincial, and municipal). In 2010, a Canadian family with average income of $72,393 paid $9,594 in income taxes. Although personal income taxes are the single largest tax Canadians pay, they represent only about one-third of our total tax bill.

Two other significant taxes on our tax returns are contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI). In addition, residents of British Columbia, Ontario, and Quebec pay health care taxes either through direct premiums or payroll taxes. All together, the average Canadian family paid some $5,873 in CPP, EI, and health taxes in 2010. Payroll taxes are second only to income taxes as the single largest government levy.

Next up is likely the most hated type of tax in Canada, sales taxes, since they show up every time we make a purchase. Calculating the amount of sales taxes paid by families is difficult because it requires people to track all their purchases of taxable goods and services. Our estimates indicate that the average Canadian family pays about $4,532 in sales taxes per year.

Also low on the popularity scale are property taxes, which add about $3,436 to the average family’s tax bill. A common misconception is that only homeowners pay property taxes. But in reality renters also pay these taxes since the cost is included in their monthly rent. So in one form or another, we all pay property taxes. For homeowners, the cost of property taxes is at least transparent, since they each receive an annual bill.

In addition to personal income taxes, payroll taxes, sales taxes, and property taxes, there are a host of less visible taxes that Canadians pay but do not see. For instance, the average Canadian family paid approximately $2,628 in profit taxes in 2010. Taxes on liquor, tobacco, and amusement amounted to $1,737 for the average Canadian family, while automobile and gas taxes totalled about $763. Finally, average families paid $1,351 in other taxes that are not easily discernable (i.e., import duties).

Summed up, the average Canadian family faced a tax bill of $29,913 in 2010 against income of $72,393. That means 41.3 per cent of the family’s budget went to paying for government. For perspective, 34.0 per cent of the budget went to paying for the necessities of life (food, clothing, and shelter). Indeed, the total tax bill has grown to the point where families are now paying more in taxes that they do for basic necessities.

But it doesn’t end there. Most federal and provincial governments are running budget deficits, meaning that current taxes are not sufficient to cover current government spending. By running substantial budget deficits, Canadian governments of today are putting off tax bills that will inevitably come due. Including deferred taxation (deficits) in the family’s total tax bill raises the bill’s total to $33,275. So, Canadian families are facing a future tax bill of an additional $3,362.

This year’s tax deadline will likely bring about mixed views on the appropriate level of income taxation in Canada. But it’s critical for Canadians to realize that the taxes delineated on their income tax returns are only part of the total taxes we pay. Understanding our total tax bill will enable each of us to better assess whether or not we, as taxpayers, are receiving value-for-money. Armed with this knowledge, we can, at the very least, hold our governments more accountable for the resources they extract.

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