Canada’s richest families own as much wealth as 3 provinces combined: report

Fewer than 90 families in Canada hold roughly as much wealth as what everyone living in Newfoundland and Labrador, New Brunswick and Prince Edward Island collectively owns.

That’s the finding of a new report by the Canadian Centre for Policy Alternatives (CCPA), which compares the net worth of Canada’s 87 richest families to the wealth of average families since 1999.

“Canada’s dynastic families have got it all — more wealth, more inheritance, and are as lightly taxed as they were the last time we looked in 2014,” study author and CCPA senior economist David Macdonald said in a statement.

The country’s most affluent families are worth $3 billion on average, while the median net worth in Canada is just under $300,000, meaning that half of families own more and half less than that. And while wealth at the top grew by $800 million per family between 2012 and 2016, a rate of 37 per cent, Canada’s median net worth grew by only $37,000, an increase of 15 per cent. Net worth is the total value of a family’s assets minus any debts and other liabilities.

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Taken together, the country’s top 87 families hold $259 billion in wealth, just shy of the $269 billion in net assets collectively owned by everyone living in Newfoundland, New Brunswick and Prince Edward Island, including “all houses, cottages and other properties, all cars, every savings account in the region, RRSPs, pensions, etc.,” Macdonald writes.

The study analyzes wealth inequality using information on Canada’s richest dynasties as compiled by Canadian Business magazine and data on household net worth from Statistics Canada’s Survey of Financial Security.

While much of the current debate about inequality has been focused on the growing gap between the top one per cent of earners and the rest, wealth disparities are just as concerning, Macdonald argues.

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Wealth inequality is, in part, a by-product of income inequality. After all, the more you make, the more you can save, and the faster your net worth grows.

“And since returns on larger sums of invested money are naturally higher, we should expect the growth in the net worth of the wealthiest Canadians to outpace everyone else by a larger and larger factor with each passing year,” Macdonald writes.

But the story doesn’t end there, he adds.

Wealth is also accumulating at an increasing rate across generations, according to the report.  While in 1999 46 of Canada’s 87 wealthiest families were nouveau riche, by 2016 that number had gone down to 39, meaning that most of today’s top scions were born into wealth.

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Not only that, of the richest 20 wealthiest families in Canada, nine have a member who is also one of the country’s top CEOs. The list includes the Westons, the family behind Loblaws and Holt Renfrew, and the Saputos, founders of the namesake cheese empire.

“In other words, not only do these families control vast wealth, but their members are disproportionately likely to be among the highest-paid people in Canada,” Macdonald notes.

The solution?

More taxes on the rich, which would directly reduce the wealth gap and also generate much-needed revenues for public programs aimed at increasing opportunities for those born in middle- and low-middle class families, according to Macdonald.

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Canada has a 50 per cent tax break on capital gains income, the money you make when you sell an investment or real estate asset like a cottage or second home at a higher price than you bought it. (Any gain from selling your principal home is fully exempt from the tax.) There’s also a tax break on certain types of dividends. And, unlike the U.S., Japan, France and many other countries, Canada does not have an inheritance or gift tax, Macdonald notes.

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Eliminating the tax exemption on capital gains and the tax credit on dividends would raise $11 billion and $5 billion per year, respectively, while mostly hitting Canada’s highest earners, he writes. A 45 per cent tax on estates worth over $5 million would add another $2 billion to federal coffers, he estimates.

Other tax experts who reviewed the report for Global News, however, were skeptical about the eventual impact of such sweeping changes to the tax code.

Wealth inequality is “an important issue,” said France St-Hilaire, vice-president of research at the Institute for Research on Public Policy (IRPP), which published a seminal book on income inequality in Canada in 2016.

Still, the policy fixes proposed by the CCPA study are “over-simplified,” St-Hilaire added. Raising certain taxes without a comprehensive review of the tax code can lead to “unintended consequences,” she said.

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Even with a rather broad approach things can go awfully astray, the government of Prime Minister Justin Trudeau painfully learned last year. Inequality, capital gains and dividends taxes were very much the focus of the wildly unpopular tax changes Finance Minister Bill Morneau proposed in the summer of 2017.

The reforms were intended to put an end to measures that the government contended had allowed wealthy individuals to use incorporation as small businesses to unfairly reduce their income tax burden.

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Morneau’s initial tax proposals, though, triggered an angry backlash from doctors, lawyers, accountants, shop owners, farmers, premiers and even some Liberal backbenchers, who maintained the reforms would hurt the very middle-class Canadians that the Trudeau government claims to be trying to help.

Although there may be a case for reducing the current tax break on capital gains, including when it comes to the pricey homes that are people’s primary residences, one would have to proceed with caution, said Lindsay Tedds, a professor of economics at the University of Calgary.

The wealthy have access to sophisticated financial advice and are very good at re-arranging their affairs to minimize the impact of new taxes, she added. The risk is playing whack-a-mole, with the government raising one type of tax and the rich quickly finding a new way to shelter their wealth from it.

A prolonged game of whack-a-mole can lead to an overly intricate tax web that still fails to catch the big fish.

– With files from the Canadian Press