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

When the federal government announced an increase in capital gains taxes 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 determine what a “fair share” is? Especially, as some data suggests, the wealthiest are already paying a larger share of the overall income tax burden.

“That word fair is completely 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 person means when they say that word.”

Jake Fuss, director of fiscal studies at the Fraser Institute, echoed that a lot of these discussions are not informed by definitions, which is why the institute releases an annual report about Canada’s tax system that has found high-income Canadians are paying disproportionately more in taxes.

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Fair share definition ‘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.

“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 middle class,” the budget said.

That’s why, in the interest of fairness, the government said it would increase the inclusion 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 corporations and trusts.

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

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The federal government unveiled billions in spending in its 2024 budget, and to help pay for it all, it’s proposing changes to how capital gains are taxed. CBC’s Nisha Patel breaks down how it works and who will be affected.

While those tax changes may impact the very wealthiest, Fuss suggested that what is often overlooked is how much high income earners are actually paying in taxes.

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 income taxes, while accounting for just under half of its total income.

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

Similar data was also compiled by Statistics Canada 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 planning.

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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Some business groups are worried that new capital gains tax changes could hurt economic growth. But according to Small Business Minister Rechie Valdez, most Canadians won’t be impacted by that change — and it’s a move to create fairness.

Income inequality a factor

Clement Nocos, director of policy and engagement at the Broadbent Institute, says the Fraser Institute figures, along with the Statistics Canada data, ignores the totality of actual income inequality.

Nocos referred to a recent Statistics Canada report showing thatthe wealthiest 20 per cent of Canadians account for more than two-thirds 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 lookat wealth as a whole of what people have and what contributes to inequality. That’s sort of what’s missing in these arguments,” he said. “Inequality when it comes to wealth is actually massive and growing.”