payroll tax

B.C. government sending all the wrong signals to investors

B.C.’s overall tax rate on new investment is 27.7 per cent—the highest rate in Canada.

Printer-friendly version
The Effect on Canadian Families of Changes to Federal Income Tax and CPP Payroll Tax

Summary

  • 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.

If you think June 9 is too late for Tax Freedom Day, just wait

In 2017, the average Canadian family with two or more people will pay $47,135 in total taxes.

Printer-friendly version

Summary

  • In 2017, the average Canadian family will earn $108,674 in income and pay a total of $47,135 in taxes (43.4%).
  • If the average Canadian family had to pay its total tax bill of $47,135 up front, it would have worked until June 8 to pay the total tax bill imposed on them by all three levels of government (federal, provincial, and local).
  • This means that in 2017, the average Canadian family will celebrate Tax Freedom Day on June 9.
  • Tax Freedom Day in 2017 arrives one day later than in 2016, when it fell on June 8, because the average Canadian family’s total tax bill is expected to increase at a faster rate this year (2.4%) than the growth in income (2.2%).
  • Tax Freedom Day for each province varies according to the extent of the provincially levied tax burden. The earliest provincial Tax Freedom Day falls on May 21 in Alberta, while the latest falls on June 25 in Newfoundland & Labrador.
  • The Balanced Budget Tax Freedom Day for Canada arrives on June 18. Put differently, if governments had to increase taxes to balance their budgets instead of financing expenditures with deficits, Tax Freedom Day would arrive 9 days later.