Personal Taxes

60% of lower-income households with kids face increased federal personal revenue tax burden – Lake Superior Information

THUNDER BAY, ONTARIO ~~~~~ February 12, 2022 (LSNews) Contrary to rhetoric from Ottawa, the majority of lower-income Canadian families with children pay higher federal personal income taxes due to tax changes made by the federal government since 2015, finds a new study released today by the Fraser Institute, an independent, non- partisan Canadian public policy think tank.

“The federal government has repeatedly asserted personal income taxes were reduced to help alleviate financial pressure on families, when in fact Ottawa has increased the personal income tax burden for many of those very families that can least afford it,” said Jake Fuss, senior economist at the Fraser Institute and co-author of Impact of Federal Income Tax Changes on Canadian Families in the Bottom 20 Percent of Earners, 2022

In 2015, the government reduced the second-lowest personal income tax rate (from 22 per cent to 20.5 per cent)—but also eliminated income-splitting for couples with children under 18 and a number of tax credits, which more than offset the savings from the tax rate reduction.

As a result, 60 percent of taxpaying families with children in the bottom 20 percent of income earners (families with income below $70,991 in 2019) paid more federal personal income tax. Specifically, they’re paying, on average, $233 more compared with 2015.

The study compared federal personal income taxes for families with children in 2015 versus 2019 using a model by Statistics Canada, which includes information for more than 1 million Canadians in over 300,000 households with approximately 600 variables included for each individual.

“By promoting one income tax change and downplaying others, Ottawa paints an incomplete picture of the overall impact of their tax changes, which have imposed a higher personal income tax bill on the majority of lower-income families with children,” said Fuss.

Summary

  • Since coming into office in 2015, Prime Minister Justin Trudeau’s government has made several major changes to the federal personal income tax system. This report examines how those tax changes affect Canadian families with children, focusing particularly on families who are in the bottom 20 percent of income earners.
  • Among the bottom 20 percent of income-earning families with children, 384,000 (of a total 636,000) are paying more federal personal income tax following the changes. Specifically, 60 percent of families who are in the bottom 20 percent of earners are paying more—$233 more on average.
  • Families in the bottom 20 percent of earners benefitted very little from the federal government’s reduction to the second lowest personal income rate. This is because most of the individuals in lower income families earn too little income to qualify for the tax reduction, which starts at incomes of $47,630 (2019).
  • Conversely, many families in this group pay more income tax because they no longer benefit from income splitting and other tax provisions (including tax credits for children’s fitness, children’s art, public transit, and education and textbooks), which the federal government eliminated.
  • For the 60 percent of families in the bottom 20 percent who are paying more federal personal income tax due to federal changes, the tax rate cut amounts to an average tax reduction of just $18. By contrast, the elimination of income splitting represents an average increase of $182, while the elimination of other tax credits amounts to an average tax increase of $82.
  • In addition, these changes adversely affected couples with children in the bottom 20 percent of income earners far more than single Canadians with children. Specifically, 75 percent of couples with children in the bottom 20 percent paid higher federal personal income taxes in 2019 due to the tax changes compared to 31 percent of single Canadians with children in that earning group. This is largely due to the elimination of the tax credit for income splitting, which single individuals do not qualify for.

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The Fraser Institute is an independent, non-partisan research and educational organization based in Canada. We have offices in Calgary, Montreal, Toronto, and Vancouver. Visit our website


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