The Effect on Canadian Families of Changes to Federal Income Tax and CPP Payroll Tax
— Published on January 11, 2018
- Since coming into office, Prime Minister Justin Trudeau’s government has repeatedly claimed to have reduced taxes for middle class Canadian families—a claim based solely on the federal government’s reduction to the second lowest personal income tax rate from 22 to 20.5 percent. However, a recent study found that when all the Trudeau government’s major changes to the personal income tax system are properly accounted for (including the elimination of income splitting and other tax credits), income taxes have been raised, not lowered, on the vast majority (81 percent) of middle income Canadian families.
- In addition to enacting changes to the personal income tax system, the federal government has also announced other significant tax changes that will take effect in the coming years. For instance, payroll taxes will be increased to fund an expansion of the Canada Pension Plan (CPP), with the first increase taking place in January 2019. The dramatic increase in the CPP payroll tax, which was a joint venture with the provinces but initiated largely by the federal government, will be fully implemented in 2025. This raises the prospect of even more middle income families in Canada paying higher taxes beyond what the changes to the federal income tax system would alone indicate.
- This report measures the impact of the federal government’s personal income tax changes and the fully implemented CPP payroll tax increase on the amount of taxes that Canadian families will pay. (A family is defined as a parent or parents with a child or children under age 18.) It finds that once fully implemented, virtually all (98.8 percent) of middle income Canadian families with children (with incomes ranging from $77,839 to $110,201) will pay higher taxes. And they will pay, on average, $2,260 more tax each year.
- In fact, when looking at all 2.988 million families with children in Canada (excluding those in Quebec), 2.756 million, or 92.2 percent, will pay higher taxes—$2,218 more, on average, each year. Indeed, once the increase in CPP payroll taxes is fully implemented, nearly all Canadian families—regardless of where they stand in the income distribution—will pay higher taxes.