Payroll Tax Hikes Hit Canadians' Pockets

by Mike Godfrey, Tax-News.com, Washington

04 January 2011

The Canadian Taxpayers' Federation has warned, in a study published on December 28, that changes to the federal payroll tax system, and provinces' individual changes to their personal income tax regimes, will substantially hit the pockets of Canadian taxpayers regardless of their income.

According to the Federation, taxpayers across all income levels, in all provinces, will pay more tax, but low- and middle-income families will be hit the hardest.

This is as a result of personal income and payroll tax changes coming into effect from January 1, 2011. The findings incorporate projections for 2011 income levels and for provinces' varying inflation rates.

Introducing the report, Derek Fildebrandt, the Federation's National Research Director, said:

“Nearly every working Canadian will be paying more in income and payroll taxes in 2011.”

“In every province, family and income scenario, our research finds that the governments take from inflation-adjusted incomes will increase, in some case substantially.”

The 16 income and family scenarios in each province used in the CTF study averaged a 2% increase in 2011 over 2010.

Increases in Employment Insurance (EI) and Canada Pension Plan (CPP) payroll tax thresholds mean that anyone earning more than CAD44,200 (USD44,580) will pay an additional CAD76, while employers will pay an additional CAD110 in 2011 payroll taxes. Increases in payroll taxes are primarily attributable to the government’s creation of new, non-insurance based programs funded through EI premiums, causing the program to run a deficit.

“Rather than reform EI into an actual insurance program, workers are being stuck with the bill for new social programs,” stated Fildebrandt, adding:

“More than any other kind of tax, payroll taxes disproportionately hurt the working poor, meaning that they will see the steepest proportional increases on January 1.”

“In previous years, there has almost always been winners and losers depending on income levels, family scenarios and what province one lives in. This year everyone loses, although some more than others.”

While virtually every worker in Canada will pay more due to federal payroll tax increases, taxpayers in provinces with inflation rates above the national average will see a disproportionate increase in their effective tax bill, due to indexation gaps, the study finds.

“Without a doubt, Ontarians are the biggest losers when it comes to tax changes on January 1 with an average 4.3% increase in the scenarios we examined,” Fildebrandt continued.

After adjusting for inflation, a single earner Ontario family with an income of only CAD45,000 in 2010 will see a hike of a 5.1%, costing that family an additional CAD389. A dual-income family making CAD80,000 will pay an extra CAD590 (3.5%) and a single-income family making CAD100,000 will pay CAD1,035 (3.6%) more.

“While its neighbour New Brunswick made outstanding advances in lowering and flattening income taxes last year, Nova Scotia became even less competitive this year with an average 2.8% hike. That will cost a dual income family making CAD60,000, 2.9%, or CAD345 more,” Fildebrandt.

Also seeing large increases on January 1 are British Columbians and Newfoundland and Labradorians with 2.9% and 2.7% hikes respectively, using the CTF’s income and family scenarios.

“British Columbians were expecting a 15% cut in the provincial share of their income taxes on January 1, but thanks to the cabinet flip-flop, they now face the second largest hike in the country after Ontario,” Fildebrandt concluded.

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