60% of lower-income families with children face higher federal personal income tax burden

Impact of Federal Income Tax Changes on Canadian Families in the Bottom 20 Percent of Earners, 2022

Summary

• Since coming into office in 2015, Prime Minister Justin Trudeau’s government has made several major changes to the federal personal income tax system. This report examines how those tax changes affect Canadian families with children, focusing particularly on families who are in the bottom 20 percent of income earners.
• Among the bottom 20 percent of income-earning families with children, 384,000 (of a total 636,000) are paying more federal personal income tax following the changes. Specifically, 60 percent of families who are in the bottom 20 percent of earners are paying more—$233 more on average.
• Families in the bottom 20 percent of earners benefitted very little from the federal government’s reduction to the second lowest personal income rate. This is because most of the individuals in lower income families earn too little income to qualify for the tax reduction, which starts at incomes of $47,630 (2019).
• Conversely, many families in this group pay more income tax because they no longer benefit from income splitting and other tax provisions (including tax credits for children’s fitness, children’s art, public transit, and education and textbooks), which the federal government eliminated.
• For the 60 percent of families in the bottom 20 percent who are paying more federal personal income tax due to federal changes, the tax rate cut amounts to an average tax reduction of just $18. By contrast, the elimination of income splitting represents an average increase of $182, while the elimination of other tax credits amounts to an average tax increase of $82.
• In addition, these changes adversely affected couples with children in the bottom 20 percent of income earners far more than single Canadians with children. Specifically, 75 percent of couples with children in the bottom 20 percent paid higher federal personal income taxes in 2019 due to the tax changes compared to 31 percent of single Canadians with children in that earning group. This is largely due to the elimination of the tax credit for income splitting, which single individuals do not qualify for.