Canadian taxpayers overall saw their effective tax rate (ETR) decrease slightly in the 2016 tax year compared to 2015, but high-income earners saw their tax rates increase more significantly over the same period of time, according to a report released by Thursday by Statistics Canada.
ETRs measure the size of government tax programs — federal tax, provincial/territorial tax, employment insurance and Canada Pension Plan/Quebec Pension Plan employee contributions — relative to individual incomes. They are calculated by averaging every individual tax filer’s ratio of taxes paid to their total income. For purposes of calculating ETRs, modified total income is defined as employment, investment and pension income, government transfers, other income, plus capital gains and RRSP withdrawals made by persons under 65, less social benefits repayments.
Individual Canadian tax filers spent on average 11.8% of their total income on government tax programs in 2016. This was down from 11.9% in 2015, largely as a result of changes to federal income tax rules, the Statistics Canada report indicated.
The effective federal income tax rate for Canada’s top 1% of tax filers rose to 18.8% in 2016 from 18.4% in 2015, as a result of their transition into a new top tax bracket. At the same time, Canada’s top 1% of tax filers saw an 18% drop in their average modified total income.
For the 2016 tax year, the federal Liberal government reduced the tax rate to 20.5% from 22% on taxpayers in the second lowest tax bracket as part of its Middle Class Tax Cut, while adding a new fifth top federal tax bracket at 33%.
Tax filers with a total income of more than $3 million had the largest increase in their effective federal income tax rate and saw their average ETRs rise to 20.4% from 19.4%.
For Canadians overall, federal income tax was the largest component of ETR, representing 5.3% of tax filers’ total income. Provincial income tax accounted for 3.6%, while the effective payroll tax rate represented 2.8%.
Statistics Canada reported that ETRs are down from 1992 but have been rising since 2009. The ETR was 1.7 percentage points lower in 2016 (11.8%) compared with 1992 (13.5%), with the bulk of the reduction due to federal income tax rates, which fell from 6.9% in 1992 to 5.3% in 2016.