If you reported income of over $201,400 in 2010, you were part of the top 1% of Canadian income earners. This cohort earned 10.6% of Canada?s total reported income that year and paid 21.2% of all personal taxes. The top 10%, whose income was at least $81,200 that year, accounted for 55% of the total personal tax collected in 2010.
These figures surprised many Financial Post readers last week, many who seemed shocked to find that they were in fact one percenters. Readers had numerous questions, and even some answers, as to what?s behind these numbers. Today Jamie Golombek digs deeper to find the answers.
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To enter the top 1% club, your reported 2010 income had to be at least $201,400. At this level of income, ignoring for a moment any tax credits beyond the basic personal amount, you would have paid about $81,000 of combined federal and provincial taxes if you lived in Quebec, $74,000 if you lived in Ontario, $69,000 in B.C. and a mere $65,000 if you were a resident of Alberta. (see Chart) These translate into effective tax rates of 40.1%, 36.7%, 34.3% and 32.4% respectively.
These effective average rates are the result of our graduated, progressive tax system which imposes a progressively higher tax rate on each dollar of taxable income above a certain threshold both federally and in all provinces other than Alberta, which has a 10% flat tax. So while an Ontario resident?s combined federal and provincial marginal tax rate may be 46.41% once income reached $127,000 (in 2010), the graduated brackets leading up to this threshold lower that effective rate to 36.7%.
Of course, even these average effective rates are likely somewhat overstated since they fail to take into account the myriad tax credits available for everything from public transit to charitable donations.
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Do capital gains, which are earned disproportionately by the wealthiest of Canadians, play a large role in these numbers?
Not really. In fact, the numbers above exclude capital gains in the determination of the income thresholds. If we were to use total income including capital gains to determine the top 1% of tax filers, the threshold would be only slightly higher at $215,800.
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Wouldn?t the income reported and the tax payable by the top 1% be even higher if the rich didn?t take advantage of all those tax deductions and credits?
Maybe a little, but not as much as one might think. If we examine detailed 2010 income tax return data from the Canada Revenue Agency, we can zero in on tax filers who made $250,000 and over, which would be the top 0.7% of income earners. These 186,520 individuals reported a collective total income of $104-billion, claimed $12-billion in various tax deductions, including $2.9-billion in RRSP deductions and $1.2-billion in carrying charges and interest expenses, for a total reported taxable income of $92-billion.
The tax payable on this income was $20.7-billion federally, after deducting $1.1-billion in federal non-refundable tax credits, more than half of which were in respect of charitable donations. Add in another $9.2-billion of provincial and territorial tax for a total tax bill of roughly $30-billion.
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What about Canadians who just file returns to collect government benefits but pay no tax at all ? doesn?t that skew these numbers?
It does. Of the 25 million returns filed in 2010, the CRA reports that 8.4 million of them were non-taxable. Taking a look at the non-taxable returns, 96% of them were from individuals who reported under $25,000 in income.
The fact that one third of tax returns filed had no tax payable would explain why the top 1% of filers contribute so much to the collected tax.
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You only looked at personal income taxes, but what about other taxes, like corporate income taxes, or the GST/HST?
Personal taxes make up nearly 50% of government revenues and as such constitute, by far, the largest source of tax monies. By contrast, corporate income taxes account for 13% of revenues with the GST/HST contributing 11%.
Jamie.Golombek@cibc.com
Jamie Golombek is the managing director, tax & estate planning with CIBC Private Wealth Management in Toronto.
Source: http://business.financialpost.com/2013/03/21/299367/
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