Tax freedom day 2016
Every year at this time, we start to prepare for the 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 23days 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 14thfor Newfoundland.
| Newfoundland | June 14 |
| PEI | June 1 |
| Nova Scotia | June 9 |
| New Brunswick | June 11 |
| Quebec | June 13 |
| Ontario | June 5 |
| Manitoba | June 7 |
| Saskatchewan | June 1 |
| Alberta | May 17 |
| BC | June 7 |
The average family in Canada with two or more individuals has a tax bill that looks something like this:
| 2016 | 2001 | |
| Income | $103,088 | $70,187 |
| Income Tax | $14,759 | $11,795 |
| Sales Tax | $6,905 | $5,440 |
| Excise Tax | $2,430 | $2,091 |
| Fuel and Vehicle Tax | $1,193 | $910 |
| Social Security | $9,943 | $6,691 |
| Property Tax | $4,070 | $2,524 |
| Import Duties | $409 | $286 |
| Profits Tax | $3,872 | $2,713 |
| Natural Resource Levies | $243 | $490 |
| Other Taxes | $1,017 | $750 |
| Total Tax | $44,842 | $33,690 |
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 56percent of all taxes and earn 47percent of all income while the bottom 20 percent of all income earners pay 2percent of all taxes and earn 5percent 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 the 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.
Comments
Fact checking the Fraser insitute report shows that they (knowingly) used an incorrect average family income, calling all their dates into question:
http://www.pressprogress.ca/canadian_media_outlets_arent_fact_checking_fraser_institute_misleading_tax_study_again
Shamefully in Canada we take more than half of high end earners money just from income tax alone. If someone is accomplished and hard working and makes say $6,000,000 per year in Ontario the pay 53% of it to income tax. (Source taxtips.ca – tax calculator). When the other taxes they pay are added in I expect that could make their tax freedom day towards the end of July.
Dave,
Your numbers are probably accurate. But richer and rich people have alternatives not available to the less rich, especially single people.
For instance, everybody gets the same percentage – to a maximum – to shelter money in an RRSP. The same logic applies to TFSAs.
But the less rich almost never reach the maximum contributions.
Some of the taxes paid are quasi voluntary; booze, cigarettes, luxury goods and residences.
Finally, the richer can afford the personal services of money managers and thus can more easily take advantage of the income tax system.
And there’s almost $3,000,000 left off the $6,000,000. Not exactly Food Bank income levels.
A portion of the value of someone’s earning power is simple luck. Certain skills, talents are highly valued. Very few of us can be the CEO of a bank or a Justin Bieber. But a bank CEO still needs bank tellers and Bieber needs paparazzi.
53% is not relevant to 99.9% of the population. Someone earning $250,000 of employment income (which is also pretty high) and not claiming any deductions for RRSPs or pensions would face an average income tax rate of 39.1% according to taxtips.ca
Yes and today’s doctors making 250,000 are asking themselves why work longer hours when the government will take 46.4% of their next $1000 of income. This is very relevant to the population many of whom can’t find a doctor because they have chosen a shorter work week.
Its shameful that out of $250,000 a person has to give $99,000 off the top to income taxes.
Oh the irony. Doctors are paid from tax revenues. Without taxes, there is no Medicare.
Davis,
Health care premiums also cover health care services. In some provinces, health care premiums are included in the income tax report. In others, like BC, we receive an invoice which is $900 a year for me.
With regard to retiring happy and keeping taxes to a minimum I ponder the following. With no “safe” investment paying a reasonable rate of return is a self directed mortgage from an RSP/RIF using the proceeds for investment purposes a possible solution? While their are set up costs, they should be tax deductible. The law states you need to pay or charge yourself the posted rate, so a ten year mortgage would “earn” you a 6% or higher return. You could deduct the interest payments effectively making RIF income taxed at a much lower rate. As long as you don’t invest in stocks paying a high dividend – and can afford the payment it seems like a way to grow your investments in a tax efficient manner.
We should see what philosophy the Frasier institute follow. If they use the incorrect average family income, everything else could be incorrect.
Just logic.
Personally I have never considered CPP and EI to be “taxes”, especially not CPP where the money doesn’t go into general revenue. CPP contributions may be mandatory but they are no more a “tax” then contributions to a company pension plan or to an even more voluntary RRSP.
The $6,905 in sales tax seems really high to me. The highest sales tax in the country is 15% and to incur that much sales tax one would have to spend $46000/ year, or $3833/ month, on taxable goods. We are a pretty average family of four and we don’t spend anything near that every month, especially since groceries are exempt from sales tax.
The excise tax of $200 a month seems very high too. If it is accurate than somebody in this country must be smoking and drinking a lot to make up for the $0 this family forks over for excise tax.
I also think it is very misleading to include Import Duties,
Profits Tax, Natural Resource Levies and other corporate taxes. Although I contribute to paying these taxes, when I buy products and services from companies that pay them, when I consider how far my after tax income is going to go I am considering sticker prices that already include these mark ups.
You may not consider EI and CPP taxes but for the majority of people who will never claim or benefit from EI and the majority of people who will receive negative returns on investment on their CPP contributions, they are.
Also, try using your CPP savings in a pinch or try allocating them to your estate when you die.
Shawna
I agree that most people forget about hidden taxes (and benefits) and just consider the sticker price. I haven’t seen the details of the Fraser report but I think the point is that our day to day expenses includes lots of different taxes and to provoke some discussion.
If because if you don’t pay the tax directly to government that means you don’t pay a lot of taxes, I wonder if employees don’t really pay income taxes because the company actually pays them to government.
If you fill up your car with 50 litres of gas and the oil company remits $25.00 out of the pump sticker price to government as tax owing, who really paid the tax, you or the oil company? Think about it the next time you fill your vehicle (in BC out of 1.20 per litre .50 goes to taxes). A 50 litre fill up you just gave the government $25.00.
If you pay rent for an apartment, does this mean you don’t pay property taxes?
As for CPP I agree this is not a tax, it is a forced wage expense and by extension should be included in the wage calculations. So a 11.00 minimum wage is really 11.54 per hour. But if you asked the employee how much per hour they got paid, none would say 11.54 per hour which is the “sticker” price to the business person employer. The same applies to EI and some other employment expenses.
For arguments sake let’s assume, as the Fraser Institutes seems to, that all of the taxes that businesses pay eventually get passed on to Canadian taxpayers. In that case it is very easy to calculate the average family of four’s share of government spending with the following formula…
Canadian Governments (of all levels) 2016 spending / Canadian population X 4 =
So $347887 million / 35 million X 4 = $39758.51
Even though this calculation doesn’t take into account that some of these taxes are passed on to international customers of Canadian businesses, this is still less than the $44842 that Fraser Institute calculated as the obvious and hidden tax bill of the average family of 4.
Dave the problem is that when the Fraser Institute talks about their imaginary scenario, where in the first months of the year all of your pay cheque goes to pay government expenses, they never say “and after that you will get a refund cheque of $XXXX to cover your share of child benefits, CPP, OAS, GIS, and GST rebates”. They also don’t mention that throughout the year you will not be paying gas, alcohol, tobacco or any other sales tax and everything will cost less because businesses won’t be paying any taxes. (They certainly don’t mention that your gas fill ups will cost $25 less.)
Instead they count on all the Canadians, the same ones who don’t know the difference between marginal tax rate and average tax rate, who will just read the headline and think “I only get spend, or save, half of what I earn.”
I like the concept of tax freedom. Do they propose detailed information about all categories of tax payers?
My 67 yr old relative, collects CPP,OAS,GIS, pays no medical, no dental and no drug costs and also pays no income tax. They own a small apartment and the government grant pays 90% of the property tax!
Doesn’t smoke, drink or gamble so no voluntary taxes there. They do pay some sales taxes but then of course receive the full quarterly GST rebate so I expect a tax freedom day comes pretty early in the year for them. They tell me they actually save some money each month!
And I read some where online that 33% of seniors collect some or all of the GIS supplement so we’re not collecting any income tax from them.
And then there is some who have tax exempt status.
No wonder the masses just think the talented hardworking people should pay more and more … its a learned behaviour and such an easy political sell.
Frasier Institute does not deduct in its calculations amounts the government pays to people for CPP, OAS, child benefits, etc. It only shows money paid to the government, and not money received.
True, the BC MSP premium contributes $2.3 billion to the Ministry of Heath’s budget of $15.5 billion. The rest comes from taxes.