It’s Over 50% - Top 3% Pay More Than Their Fair Share

Amidst calls by the federal government to improve “tax fairness,” a report by the Canadian Taxpayers Federation (CTF) shows that while a mere three per cent of all tax filers earn $150,000 or more, they contribute over one-third of all federal income taxes collected.

Last week, the Department of Finance announced the “next steps” in the federal government’s “plan for tax fairness and a strong middle class,” aka the proposed tax changes to Canadian Controlled Private Corporations. In the statement, Finance Minister Bill Morneau acknowledged the feedback received during the consultation period.

“We will act on what we’ve heard from small business owners and hard-working middle-class farmers and fishers. You are not the focus of our changes to strengthen the fairness of Canada’s tax system. Rather, the focus of these changes is a small number of wealthy incorporated individuals,” he said, repeating his call for the “rich” to pay their fair share.

This rhetoric has been particularly offensive to Canadian private business owners and those who pay the majority of taxes in Canada.   The CTF crunched the numbers on who pays income tax and in what proportions, based on the most recent CRA filing data available (2014), and here’s what it found out about the 27.5 million Canadians who filed a tax return that year:

• 9.1 million filers (33 per cent) paid no income tax
• 9.8 million filers (36 per cent) — those earning under $50,000 — paid $17.6 billion, or 13.2 per cent of all federal income tax
• 6.4 million filers (23 per cent) — those earning between $50,000 and $99,999 — paid $46.7 billion, or 35 per cent of all federal income tax
• 1.5 million filers (5 per cent) — those earning between $100,000 and $149,999 — paid $23.9 billion, or 17.9 per cent of all federal income tax
• 566,000 filers (2 per cent) — those earning between $150,000 and $249,999 — paid $16.9 billion, or 12.7 per cent of all federal income tax
• 268,000 filers (1 per cent) — those earning $250,000 or higher — paid $28.1 billion, or 21.1 per cent of all federal income tax

“It is false to say higher income Canadians do not pay their fair share,” says study author Mark Milke. “The CRA data shows the opposite: Six-figure incomes make up less than one-tenth of all tax filers but pay almost 52% of all federal income tax and 54% of all provincial income tax.”

The report goes on to suggest that the best way to lower taxes on the poor and middle class is for jurisdictions to attract the rich. Why? Because if there aren’t enough wealthy taxpayers to share the burden, the government must rely heavily on taxing the poor.

The CTF report findings echo those of a 2012 C.D. Howe Institute study, which showed that the top 10 per cent of earners were responsible for 66 per cent of all net income taxes, while the bottom 75 per cent of all taxpayers paid only 12 per cent of all taxes. According to that study, overtaxing the top 25 per cent of earners leads to reduced revenues to governments, either because they will move somewhere with lower taxes, or will turn to illegal methods of tax avoidance, such as the underground economy.

Additional Educational Resources:  CE Summits in November will cover the topic of Personal/corporate tax reforms and in particular planning in light of the government’s proposed changes to the taxation of Private corporations.

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