Income Tax Just Part of Our Total Tax Bill(3)

As Canadians diligently complete their tax returns, many will come to the shocking realization of just how much income tax they paid last year. Somehow, the amount of income tax displayed on our pay stubs does not seem near as bad as when it’s neatly summed up our income tax returns. Of course, there are many Canadians who happily pay their income tax naming the numerous government programs that their tax dollars finance: health, education, the military, etc.

The question all Canadian taxpayers must answer for themselves is whether or not they are getting their money’s worth for the taxes they pay. To answer this question however, Canadians must have an accurate picture of their total tax bill. For this, Canadians must look well beyond their 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. Last year, the average Canadian family consisting of two or more people earned approximately $75,400 in income, and paid $12,300 in income taxes. Personal income taxes, however, only represent about one-third of the total tax bill of Canadians.

Two other significant taxes that Canadians deal with on their 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, Canadians are forced to prove that they 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 $7,800 in CPP, EI, and health taxes in 2004.

There are two other relatively visible taxes that Canadians pay, thankfully not at the same time as our income tax bill: property taxes and sales taxes. The average Canadian family paid about $2,800 in property taxes in 2004. 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. It is, however, difficult, if not impossible, given the costs of tracking just how much we pay in sales taxes over the course of a year. Our estimates indicate that the average Canadian family pays about $6,000 a year in sales taxes, representing nearly 16 percent 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 Canadians pay, but do not see. For instance, profit taxes amounting to approximately $3,000 in 2004 were assessed indirectly on average Canadian families. Taxes on liquor, tobacco, and amusement amounted to $2,400 for the average Canadian family, while automobile and gas taxes totalled a little over $1,000. Finally, average Canadian families were assessed about $284 in import duties in 2004, another cost which is not easily discernable.

Summed up, the average Canadian family faced a tax bill of $36,782 in 2004 against income of $75,436. The total taxes imposed on the average Canadian family consumed nearly 49 percent of income. In other words, average Canadian families hand over nearly half of their income to Canadian governments.

It is critical for Canadians to understand that the taxes delineated on their 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.