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Most Canadians Facing A Tax Hike, Think Tank Says

by Mike Godfrey, Tax-News.com, Washington

15 January 2018


The Fraser Institute, a think tank, has said that more than 90 percent of Canadian families with children will pay higher taxes once the planned Canada Pension Plan payroll tax increases are fully implemented.

The claim is made in a new report, "The Effect on Canadian Families of changes to Federal Income Tax and CPP Payroll Tax."

The Institute said that, assuming the CPP increases were fully implemented today, in addition to the personal income tax changes already in place, 92.2 percent of families would pay higher taxes. It added that this figure would rise to 98.8 percent in the case of middle income families.

Charles Lammam, report co-author and Director of Fiscal Studies at the Fraser Institute, said: "The Trudeau Government has repeatedly claimed to have lowered taxes for Canadian families, but in reality, virtually every family in Canada – regardless of income – will have a higher tax bill."

The CPP is a contributory public pension plan that provides a basic level of earnings replacement in retirement. It is financed by employer, employee, and self-employed contributions, as well as income earned on CPP investments. The current contribution rate is 9.9 percent of earnings, shared between employer and employee contributions, and levied on income between a basic exemption of CAD3,500 (USD2,815) and a set Year's Maximum Pensionable Earnings.

As a result of a 2016 agreement reached by Canada's finance ministers, changes to the CPP system will be phased in over a seven-year period, from 2019 to 2025. The income replacement level will be increased from one-quarter to one-third of eligible earnings, and the upper earnings limit will be increased by 14 percent over five years.

The total (employee and employer combined) CPP rate will increase from 9.9 percent to 11.9 percent by 2023. Beginning in 2024, a separate contribution rate (expected to be four percent each for employers and employees) will be implemented for earnings above the Yearly Maximum Pensionable Earnings. The Working Income Tax Benefit will be increased to help low-income workers, and the enhanced portion of employee CPP contributions will be made tax deductible.

The Fraser Institute said that families will, on average, pay CAD2,218 more after the CPP changes are fully implemented. Middle income families would pay slightly more, around CAD2,260 on average, while the highest earners could expect to pay an average of CAD4,373 more.

The Institute said that its figures include both the employee and the employer portions of the CPP payroll tax.

TAGS: tax | investment | pensions | employees | retirement | tax thresholds | payroll | tax rates | Canada | tax reform | individual income tax | Work

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