OTTAWA – According to recent findings from the Fraser Institute, families in the highest income group in Canada pay the largest portion of total taxes, contributing more than half of all taxes collected.
This group, making up the top 20 percent by income, covers 56.9 percent of the tax bill, even though their share of overall income sits at 47.8 percent. This means they pay a higher percentage of taxes than the money they bring in. The Fraser Institute shared this information in a report released on July 17.
In contrast, every other income group pays less in taxes relative to what they earn. The lowest 20 percent of earners, for example, bring in two and a half times more income than the share of taxes they pay.
Jake Fuss, the Fraser Institute’s director of fiscal studies, worked on the report with Nathaniel Li. He notes there is a common idea that top earners don’t pay enough taxes, but the data shows their tax load is much heavier compared to what they earn. The claim that Canada’s highest earners do not contribute their fair share does not match the evidence.
The federal government has said that taxing the wealthiest Canadians more helps promote fairness for all. Ottawa argued that those with high incomes often access tax breaks not available to most Canadians, especially younger people and the middle class.
Raising Taxes on Capital Gains
With the 2024 budget, the government proposed raising taxes on capital gains, aiming to have richer Canadians pay extra to support investments for future generations.
However, earlier this year, Prime Minister Mark Carney cancelled the planned capital gains tax hike. He said the focus should be on encouraging investment and rewarding those who take risks and succeed.
The Fraser Institute study broke down tax contributions by income group using a simulator built on Statistics Canada data. The report uses family income rather than individual income to get a clearer sense of household finances.
For example, someone with no personal income might still belong to a high-earning household if their partner is among the top earners.
Canada’s progressive tax structure
Families in the second-lowest income group, earning between $65,089 and $112,125, collect 9.9 percent of total income and pay 6.9 percent of all taxes. The third group, with incomes from $112,126 to $169,492, brings in 15 percent of income and covers 13.1 percent of taxes.
The fourth group, earning from $169,493 to $261,609, receives 22.5 percent of total income and pays 21.2 percent of taxes.
At the top, families earning more than $261,609 pay a tax share that outpaces their share of income by 9.1 percentage points. The report points to Canada’s progressive tax structure as a main reason for this, as the share of taxes paid rises along with income.
The authors also say that Canada’s tax rules don’t fully consider how people may change their behaviour in response to higher taxes, such as through tax planning or shifting assets.
They believe these changes can hurt Canada’s ability to attract and keep skilled professionals, including doctors, scientists, managers, and tech workers. The report argues that hiking taxes on top earners can make Canada less appealing for talented people who drive innovation and growth.
