Tax Freedom Day - June 14, 2019

Christine Steendam

This year, Tax Freedom Day for Canadians fell on June 14, 2019; one day earlier than last year, but almost two months after the US reached the same milestone. The Fraser Institute calculated Canada’s 2019 Tax Freedom Day based on a household income of $117,731 with a 44.7% total tax bill.* This means that the average Canadian works 163 days each year to pay $52,675 in taxes, before they start making disposable income for themselves.

When faced with the sheer number of days the average Canadian has to work for the government before working for themselves, it puts the role taxes play in erosion of wealth into perspective.  As we reported at the end of May, utilizing a professional to file your taxes can ensure your Tax Freedom Day comes sooner. However, tax-efficient planning should start long before it’s time to file taxes.

Financial advisors should be taking the opportunity to work with their clients now , focusing on tax-efficient investment opportunities and savings both pre- and in-retirement to ensure that their clients are approaching their finances in a tax-efficient manner.

Fraser Institute’s preliminary calculations had Tax Freedom Day 2018 fall on June 10, 2018; however, when they recalculated in 2019 using updated provincial and federal budget numbers and data from Statistics Canada, Tax Freedom Day ended up falling on June 15, 2018. So, Tax Freedom Day comes one day sooner for Canadians this year.

The earlier 2019 Tax Freedom Day is in part due to several provinces forecasting personal income growth that is higher than forecasts for personal income tax revenue. This is encouraging and could lead to Tax Freedom Day coming a little earlier in the future should these forecasts prove accurate.

Tax Freedom Day varies from province to province and, for 2019, are preliminary estimates. It’s interesting to note how a government’s budget impacts Tax Freedom Day. Fraser Institute reported that if the government had presented a balanced budget—leading to a potential rise in taxes and fewer tax expenditures that translate into tax breaks, credits and deductions for Canadians—"Tax Freedom Day would arrive 8 days later. Put differently, the Balanced-Budget Tax Freedom Day arrives on June 22.”

*Preliminary Estimate
**Data based on total taxes as a percentage of cash income for families with two or more individuals
Source: Table data developed from https://www.fraserinstitute.org/sites/default/files/tax-freedom-day-2019.pdf

As shown in the table above, the number of tax expenditures can make a significant difference on when your Tax Freedom Day comes around. A balanced budget could add as many as 16 days (in Alberta) to the time you spend working for the government. It averages out to 8 days in Canada. Of course, failing to claim deductions, credits, and preferential tax rates that you are entitled to could also increase the number of days you spend working for the government.

It’s crucial to utilize the knowledge and expertise of the financial services industry to ensure that Tax Freedom Day comes as early as possible.

Added Value Tip: Consider calculating your clients’ personal Tax Freedom Day as a method of illustrating the value you can add to their financial and tax planning. Fraser Institute offers a Tax Freedom Day Calculator “to determine the day you [or your client] stopped working for the government and started working for yourself.”

•Fraser Institute Report

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