Effect of Federal Income Tax Changes on Canadian Families Who Are in the Bottom 20 Percent of Earners

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.
• Specifically, the report measures the number and percentage of families in this income group who are paying higher personal income taxes due to the federal government’s changes— and how much more they are paying.
• Among the bottom 20 percent of income earning families with children, 406,000 (of a total 660,000) are paying more federal income tax following the changes. Specifically, 61 percent of families who are the bottom 20 percent of earners are paying more—$269 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 $45,916.
• However, 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, public transit, and education and textbooks) which were eliminated by the Trudeau government.
• For the 61 percent of families in the bottom 20 percent who are paying more overall income tax due to federal changes, the tax rate cut amounts to an average tax reduction of just $22. By contrast, the elimination of income splitting represents an average increase of $154, while the elimination of other tax credits amounts to an average tax increase of $148.