Should Canada Bring Back Income Averaging Provisions? February Poll Results

With high inflation rates, currently 5.9% on average across the country – all Canadians are feeling the pinch. One could argue that those earning an income that varies significantly year-to-year are being hit even harder.

In fact, due to the way the tax system is set-up these Canadians are essentially penalized because of graduated rates. An older, but relevant, Financial Post article points out that the more you make in a given year, the higher up the graduated rate ladder you climb, resulting in a higher tax bill.

An often cited study, A Question of Fairness: Time to Reconsider Income-Averaging Provisions,  by C.D. Howe Institute says: The purpose of income averaging is to equalize, as far as it is feasible, the tax liabilities among individuals who have the same total income over several years.

So, what do Knowledge Bureau readers think?

In our February poll, KBR readers were asked: Should Canada bring back 5-year income averaging provisions to smooth out irregular income flows? The vote is in: 92% said yes and 8% said no, with a number of interesting comments:

Gaetan Ladouceur is for the people: “If it can save the taxpayer money - then absolutely.”

Tammi says: “I work for self-employed artists and their income often increases and decreases dramatically year over year. To have an average would be wonderful for this type of worker. They could then plan and organize their money more effectively.”

Corey is more skeptical: “Yes, definitely .... IF…. they let families use the better of the 2 options for themselves. Otherwise, (Revenue Canada) is just considering this to collect more taxes from the small amount of people that the current system worked for.”

Bill Johnson has a more holistic view: “CRA should be able to do an automatic calculation as they did in the past (before eliminating the option). It should help taxpayers who are moving up the income ladder, as well as those who have volatile incomes from one year to the next. I know it helped me when I was a university student as well as my first few years in the workforce.”

Mitzi-Lynne Morgan says: “No. Just get it done every year. Why drag out the pain?”

And Diane has the last laugh: “Too many taxpayers have had irregular income for the past 2-3 years!”

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