Top 20% Income-Earning Families Pay Over Half Canada’s Total Taxes: Study

The Canada Revenue Agency (CRA) headquarters Connaught Building is pictured in Ottawa on Aug. 17, 2020. (Sean Kilpatrick/The Canadian Press)

Canada’s top 20 percent of income-earning families pay over half of the country’s total taxes, and over 60 percent of all federal and provincial personal income taxes, according to a Fraser Institute study.

Study authors Jake Fuss and Nathaniel Li also found that Canada’s bottom 20 percent of income-earning families pay less than 1 percent of all federal and provincial personal income taxes and just 2.1 percent of the country’s total taxes.

“There is a common misperception in Canada that top income earners do not pay their share of taxes and that increasing taxes on this income group is an effective way to generate significant additional government revenue,” wrote Fuss and Li. “However, high-income families already pay a disproportionately large share of all Canadian taxes.”

Fuss and Li divided Canadian families into five brackets, called quintiles, based on how high their shared annual incomes are.

The study found that the bottom quintile earns about 5 percent of the country’s share of total income, while paying about 2 percent of its taxes. The top quintile earns about 44 percent of the country’s total income, and pays 53 percent of its taxes—making it the only bracket whose percentage of taxes paid exceeds its percentage of income.

The researchers also found that the top-earning quintile pays at least 40 percent more of Canada’s total income tax than any other group.

Highest Tax Bracket

The Canada Revenue Agency (CRA) said in recent Inquiry of Ministry tabled in the House of Commons that the number of individuals in Canada’s top 1 percent tax bracket barely changed between 2016 and 2020, while noting that tax collection info for 2021 is still being collected.

Canadians earning over $200,000 are in the highest federal tax bracket, which as of 2016 comes with a 33 percent personal income tax rate.

In 2016, just over 338,000 individuals reported incomes in the top 1 percent bracket and that number did not rise beyond 395,000 by 2020.

Fuss and Li said that increasing tax rates for the country’s highest earners would not necessarily bring more government revenue. “In response to a tax increase, many taxpayers will change their behaviour in ways that reduce their taxable income through tax planning, avoidance, or evasion that results in governments raising less revenue than anticipated,” they wrote.

They added, “Tax increases also reduce Canada’s competitiveness with other industrialized countries, particularly the United States.”

The researchers conducted their study using data from Statistics Canada and the Fraser Institute’s Canadian Tax Simulator, which estimates the amount of taxes Canadians pay to all levels of government.

Fuss and Li said they studied family incomes rather than individual incomes because the former is a better quality-of-life indicator. They said, “An individual may earn little or no income, while their spouse or partner is in the top 20 percent of income earners in Canada.”