Middle-income tax rates in P.E.I. higher than in other provinces

Residents of Prince Edward Island face some of the highest income tax rates in Canada—and not just “the rich.” As shown in a recent study published by the Fraser Institute, Islanders with market earnings at the national average income level face substantially higher tax rates than people with identical incomes in Ontario and Western Canada.

Let’s look at the numbers. At the national average market income level (in 2022) of $52,750, Islanders face a provincial tax rate of 13.8 per cent on the next dollar they earn compared to 7.7 per cent in British Columbia, 9.15 per cent in Ontario and 10 per cent in Alberta.

This means that the tax bite for middle-income workers from earning additional money is far higher in P.E.I. than in most of the country.

One way to understand the impact of these different tax rates is to consider (after accounting for both federal and provincial taxes) how much additional income a person must earn to increase their take-home pay by $100. To boost their after-tax income by $100, in P.E.I. an individual at the national average income level must earn an additional $152.20 compared $139.30 for someone in B.C.

Moreover, because the middle-income tax rate in P.E.I. is so high by national standards, it’s only slightly below rates that the highest-income earners face in some other provinces. In Saskatchewan and Alberta, CEOs earning $500,000 face a tax rate of 14.5 per cent and 15 per cent respectively—compared to a tax rate on the next dollar earned of 13.8 per cent for Islanders only earning the national average.

These tax rate differences at various income levels, combined with other factors, ensure that people in P.E.I. earning the national average income face a much higher overall provincial income tax burden than someone with a similar income in several other provinces. In fact, the provincial income tax bill in P.E.I. is approximately twice as large as the bill for someone earning the same amount in B.C.

Across Canada, governments take a large bite out of the pockets of average income earners by way of personal income taxes, and high-income tax rates mean that government takes a substantial bite out of each additional dollar earned. P.E.I.’s government can help leave more money in the pockets of Islanders, while also reducing the tax bite an individual faces if they work hard to earn extra money, by reducing tax rates on middle-income residents.