The average Canadian will probably have about $1 a week extra to spend this year thanks to the Trudeau government’s so-called middle-class tax cut. And if you think your income is high enough to qualify for this extra $1 a week, there is a strong chance you are wrong.
For illustrative purposes only.
I was always skeptical of the government’s promised tax cut for the middle class. Who, exactly, belongs to the middle class, anyway? I thought I did. I live comfortably on a pension income and mostly own my home. But my income is too low to get any benefit from this tax relief.
I already knew – because the Trudeau government informed us – that the biggest beneficiaries from this tax cut are couples with two big salaries and a combined gross income of more than $200,000 a year. Such couples are getting a tax break of as much as $1,340 this year, according to the Liberals’ campaign pledge. And it’s true, according to data provided to me by the Canada Revenue Agency.
What’s the average Canadian getting from this so-called middle-class tax cut? To answer that, you have to know the average Canadian’s annual income.
The Canadian government estimates the average gross income of working Canadians last year was $55,300. That is before all deductions such as contributions to the Canada Pension Plan, old-age security, unemployment insurance, union dues, work pension plans, personal pensions, and medical expenses. These are tax-deductible.
What really counts is the average taxable income. That is the sum that determines whether you qualify for the tax cut.
The average taxable income for Canadian adult tax filers was $41,860 in 2014, the most recent year for which data is available. This figure was provided to me by David Walters, a spokesman for the Canada Revenue Agency.
Taxable incomes were no doubt higher than that in 2016, but probably not by much – and almost certainly not high enough to give most Canadians a tax break from the middle-class tax cut.
The income tax cut kicks in this year on taxable income exceeding $45,916. So, if your taxable income is less than that, you get no federal income tax relief.
The Trudeau government’s tax cut lowers income tax from 22 per cent to 20.5 per cent on taxable incomes between $45,917 and $91,831. In other words, taxes are lowered by 1.5 percentage points on income between those two extremes.
For a person with a taxable income of $50,000 in 2016, that is a tax break of about $60 a year, or barely more than $1 a week – far less than the price of a cup of coffee in most places.
As another example, take a person who earns $1,500 a week before taxes and other deductions. That is well above the Canadian average. This person can expect to see about an extra $4 a week on his or her paycheque. That is enough to buy one fancy coffee a week, but will not do much to stimulate the economy, which I understand to be the aim of the middle-class tax cut.
At the high end of the scale, a person with a taxable income of $90,000 receives an annual tax break of about $660 a year – just as Prime Minister Justin Trudeau promised.
So, about 50 per cent of Canadians get no income tax relief whatsoever. For many better-off Canadians, the tax relief is probably minimal.
For retired Canadians, in particular, there is likely no reduction in their income taxes. That’s because taxable incomes usually decline when people retire. Of course, seniors usually have lower expenses than when they were working.
Simultaneously, the Liberal government raised taxes on the richest Canadians. On the face of it, the only winners are well-off Canadians. And the government has changed the definition of what constitutes the middle class.
2017 taxable income (Approximate savings from tax cut)
$45,916 or less (no savings)
$50,000 ($60 a year)
$60,000 ($210 a year)
$70,000 ($360 a year)
$80,000 ($510 a year)
$90,000 ($660 a year)
Michael Prentice is OBJ’s columnist on retail and consumer issues. He can be contacted at email@example.com.