Every year at this time, we start to prepare for summer and get ready to celebrate Canada Day. Maybe there's another day to celebrate this time of year. Tax Freedom Day happened on June 7th this year.
The Fraser Institute in Canada calculates tax freedom day every year. Tax Freedom Day is the day of the year that Canadians finally start working for themselves. All money earned prior to this day goes to one of three levels of government: federal, provincial, or local. The taxes used to calculate Tax Freedom Day include income taxes, property taxes, and sales taxes, as well as profit taxes, health, social security and employment taxes, import duties, license fees, taxes on the consumption of alcohol and tobacco, natural resource fees, fuel taxes, hospital taxes, and a host of other levies.
I first wrote about Tax Freedom Day back in 2001, which was June 30th. 15 years later, Tax Freedom Day suggests that we are paying less tax overall and have reached this day is 23 days earlier. the latest Tax Freedom Day was back in the year 2000 when it occurred on June 25th and the earliest Tax Freedom Day happened in 1961 on May 3rd.
Where does your tax go?
If you breakdown the three levels of government, 53% of the tax goes to the federal government, 38% to the province and 9% to the city.
The earliest tax freedom day goes to Alberta on May 17 and the latest is on June 14th for Newfoundland.
|Nova Scotia||June 9|
|New Brunswick||June 11|
The average family in Canada with two or more individuals has a tax bill that looks something like this:
|Fuel and Vehicle Tax||$1,193||$910|
|Natural Resource Levies||$243||$490|
Who pays the most tax?
According to the institute, “In addition to the overall size of the tax burden, there are concerns about fairness in the system. The top 20 percent of income earners pay 56 percent of all taxes and earn 47 percent of all income while the bottom 20 percent of all income earners pay 2 percent of all taxes and earn 5 percent of all income.”
What is the relevance of tax freedom day?
According to the Fraser Institute, “It is all but impossible for an ordinary citizen to have a clear idea of the demands imposed on them by the tax-taking efforts of government. Tax Freedom Day gives Canadians a true picture of their total tax burden. Tax Freedom Day is not intended to measure the benefits Canadians receive from governments in return for their taxes. Rather, it looks at the price that is paid for a product – government. It is not a reflection of the quality of the product, how much of it each of us receives, or whether we get our money's worth.”
Canadians worked 158 days to feed the different levels of government before starting to earn income for themselves.
The bottom line is you need to be aware of how much tax you pay. Once you realize the severity of tax on your lifestyle, it is your job to investigate legitimate ways to reduce your tax bill. I've often said that good tax planning is the foundation to any financial, investment or estate decision.