Income Tax Just Part of Our Total Tax Bill(2)

As we diligently complete our tax returns, many of us will come to the shocking realization of just how much income tax we paid last year. Somehow, the amount of income tax displayed on our pay stubs does not seem nearly as bad as when it’s neatly summed up on our income tax returns.

Of course, there are many of us who happily pay our income tax, thinking of the numerous government programs that our tax dollars finance: health, education, the military, etc. But the question all Canadian taxpayers must answer for themselves is whether or not we are getting our money’s worth for the taxes we pay. To answer this question, you need an accurate picture of your total tax bill. For this, we must look well beyond our income tax returns.

The reality is that income taxes form only a portion of the total tax bill imposed on us by Canadian governments - federal, provincial and local. In 2006, the average Canadian family consisting of two or more people earned approximately $79,400 in income, and paid $12,570 in income taxes. Personal income taxes however, represent only about one-third of our total tax bill.

Two other significant taxes that we deal with on our tax returns are the Canada Pension Plan (CPP)—Quebec Pension Plan if you’re a resident of la belle province—and Employment Insurance (EI). For one reason or another, we are forced to prove that we paid the correct amount of CPP and EI at income tax time. In addition, residents of British Columbia, Alberta, Ontario, and Quebec, also pay health care taxes through either direct premiums or payroll taxes. All told, the average Canadian family paid some $7,900 in CPP, EI, and health taxes in 2006.

There are two other relatively visible taxes that we pay, thankfully not at the same time as our income tax bill: property taxes and sales taxes. The average Canadian family paid about $2,260 in property taxes in 2006. One of the common misnomers is that only homeowners pay property taxes. The truth of the matter is that property taxes for renters are included in their monthly rent, so in one way or another we all pay property taxes. For homeowners, at least the cost of property taxes is transparent since we each receive an annual bill.

Sales taxes are visible whenever we make a purchase upon which the tax is implied. Calculating the amount of sales taxes paid however is difficult in that it requires people to track all of their purchases of taxable goods and services. Our estimates indicate that the average Canadian family pays about $5,900 a year in sales taxes, representing more than 16 per cent of their total tax bill. Sales taxes are second only to income taxes as the single largest government levy.

In addition to personal income taxes, payroll taxes, property taxes, and sales taxes, which are all visible to a certain degree, there are a host of taxes that we pay but do not see. For instance, profit taxes amounting to approximately $2,790 in 2006 were assessed indirectly on average Canadian families. Taxes on liquor, tobacco, and amusement amounted to $2,300 for the average Canadian family, while automobile and gas taxes totalled about $960. Finally, average Canadian families were assessed about $320 in import duties in 2006, another cost which is not easily discernable.

Summed up, the average Canadian family faced a tax bill of $36,650 in 2006 against income of $79,396. The total taxes imposed on the average Canadian family consumed 46 per cent of income. In other words, average Canadian families hand over nearly half of their income to Canadian governments.

It is critical that Canadians understand that the taxes delineated on our income tax returns represent less than half our total tax bill. Understanding our total tax bill will enable each of us to better assess whether or not, we as taxpayers, are receiving value-for-money. Our hope is that such understanding will lead to more pressure for real and meaningful tax relief for Canadians in the future. At the very least, we should be able to hold our politicians much more accountable for the resources they extract from us.