Do wealthy Canadians pay enough taxes? That depends how we define 'fair share'

When the federal govern‐ ment announced an in‐ crease in capital gains tax‐ es in its recent budget, the hike was defended, in part, as a way to ensure the wealthiest Canadians pay their fair share.

But how exactly do we de‐ termine what a "fair share" is? Especially, as some data suggests, the wealthiest are already paying a larger share of the overall income tax bur‐ den.

"That word fair is com‐ pletely subjective," said Trevor Tombe, a professor of economics at the University of Calgary. "What's needed in any kind of statement around what is or isn't fair is clarity around what the per‐ son means when they say that word."

Jake Fuss, director of fiscal studies at the Fraser Insti‐ tute, echoed that a lot of these discussions are not in‐ formed by definitions, which is why the institute releases an annual report about Canada's tax system that has found high-income Canadi‐ ans are paying disproportion‐ ately more in taxes.

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Fair share

'vague'

"It's kind of very vague in terms of what governments and policymakers actually mean by a fair share," said Fuss.

In the 2024 budget, the federal government lays out its case for what it believes is not fair, particularly when it comes to taxes on capital gains. definition

"While all Canadians can benefit from the capital gains tax advantage, the wealthy, who tend to earn relatively more income from capital gains, disproportionately benefit compared to the mid‐ dle class," the budget said.

That's why, in the interest of fairness, the government said it would increase the in‐ clusion rate of the capital gains tax from one-half to two thirds on capital gains above $250,000 per year for individuals, and on all capital gains realized by corpora‐ tions and trusts.

This, according to the gov‐ ernment, would affect 0.13 per cent of Canadians with an average income of $1.4 million.

WATCH | Confused about the capital gains tax changes? We break it down:

While those tax changes may impact the very wealth‐ iest, Fuss suggested that what is often overlooked is how much high income earn‐ ers are actually paying in tax‐ es.

The Fraser Institute's 2023 report suggests that the top income-earning families those making just under $250,000 - pay the majority of Canada's taxes.

It found that the top 20 per cent of income earning families pay 61.9 per cent (that's nearly two thirds) of all the country's personal in‐ come taxes, while accounting for just under half of its total income.

As well, the study found that those top income earn‐ ing families pay 53.1 per cent of total taxes.

Similar data was also compiled by Statistics Cana‐ da on those who pay higher income taxes. For example, in 2021, the top one per cent income group paid 22.5 per cent of all income taxes, but accounted for 10.4 per cent share of the country's total income. The top 10 per cent income group paid 54.4 per cent of all income tax, but had a share of the country's total income of 34.4 per cent.

Still, Allison Christians, the H. Heward Stikeman Chair in the Law of Taxation at McGill University, said some of those numbers are skewed because some top earners can shelter their income through creative tax plan‐ ning.

According to Christians, the top earners also pay a much lower percentage of their income in consumption taxes than other earners.

"The question is not what percentage of income taxes is someone paying, but what is their relative contribution to the finances of Canada as a whole," she said.

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Income inequality a fac‐ tor

Clement Nocos, director of policy and engagement at the Broadbent Institute, says the Fraser Institute figures, along with the Statistics Canada data, ignores the to‐ tality of actual income in‐ equality.

Nocos referred to a recent Statistics Canada report showing that the wealthiest 20 per cent of Canadians ac‐ count for more than twothirds of the total net wealth.

As well, according to the data, the bottom 40 per cent of net income earners make up just under three per cent of total wealth.

"You look at wealth as a whole of what people have and what contributes to in‐ equality. That's sort of what's missing in these arguments," he said. "Inequality when it comes to wealth is actually massive and growing."