There have been tax cuts for some and tax hikes for others. The Canada Child Benefit (CCB) was born, and the Canada Workers Benefit (CWB) is about to edge out its predecessor, the Working Income Tax Benefit.
But what does the sum of Prime Minister Justin Trudeau’s tax and benefits changes amount to?
In a document that seems geared to the upcoming 2019 federal election, Finance Canada recently estimated the impact of these measures on Canadians’ disposable incomes. Unsurprisingly, the effect depends on where you stand in the income ranking. But it also has a lot to do with whether you have children eligible for the CCB.
Figuring out the exact impact of the government’s measures on your bottom line is tough. But our calculator, which uses the government’s simulations, might give you a rough idea. You’ll need an estimate of your 2014 after-tax income, which you can calculate here. For more info on this calculator, please see our Note to Readers below.
“Today, middle class families in Canada are finding it easier to make ends meet, thanks to more generous benefits and a middle class tax cut,” says the Finance Canada document.
One tax cut and one tax hike
The tax cut was introduced in December 2015, when the Trudeau Liberals cut the federal tax rate applicable to incomes between about $45,000 and $90,000 by 1.5 percentage points, from 22 per cent down to 20.5 per cent. According to the government, more than nine million Canadians are benefitting from the cut, which is saving $330 a year for single Canadians and $540 for couples on average.
But to help pay for that cut, the government hiked taxes on the rich, introducing a new top tax rate. The tax rate on income over $200,000 went up four percentage points, from 29 per cent to 33 per cent.
Elimination of tax breaks
While lowering one tax rate, the Trudeau government also eliminated a number of tax breaks, including the children’s fitness tax credit, the education tax credit, the textbook tax credit and the public transit tax credit.
The most important of those changes was the elimination of the so-called Family Tax Cut introduced by the Conservatives, which allowed eligible couples with minor children to split their income and save up to $2,000 in taxes each year.
(Income splitting generally allows one earner to transfer some of her or his income to a spouse or other family members in a lower tax bracket, which results in tax savings.)
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The Canada Child Benefit
On the benefits side, arguably the government’s biggest move was the creation of the CCB in 2016. This replaced a number of measures in place under the Conservative government, including the Canada Child Tax Benefit and the Universal Child Care Benefit, with a single, non-taxable monthly cheque for families with children under 18.
In July of this year, the government also indexed the CCB to inflation. As a result, the maximum annual benefit will increase to $6,496 per child under age six and to $5,481 per child age six through 17.
The actual size of your CCB cheque depends on how much you make. Families with net income below $30,000 generally receive the maximum benefit, while those with net income above $150,000 might receive less than under the Conservatives’ system.
Overall, the current government says the CBB puts more money in the pockets of 90 per cent of families with children.
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An enhanced Guaranteed Income Supplement
In 2016, the government boosted the Guaranteed Income Supplement (GIS) for low-income single seniors by up to $947, which was more than double the previous maximum GIS benefit. Single seniors with annual income of about $4,600 or less, on top of OAS and GIS, receive the full increase. This gradually phased out for incomes above $4,600 and up to about $8,400.
The government also increased benefits for senior couples who are living apart for reasons beyond their control.
The Canada Workers Benefit
This is a revamped version of the current WTI, which helps low-income working Canadians by letting them keep more of their pre-tax pay. The Trudeau government increased benefits by up to $170 a year starting in 2019 while also raising the income threshold at which the benefit is completely phased out from around $32,300 to around to $36,400 for single parents and couples.
Some are and some aren’t, according to economists.
“The CCB, increase in the GIS and the CWB have all been very positive and significant progressive measures to reduce poverty and improve conditions for lower and middle income families,” Toby Sanger, executive director of Canadians for Tax Fairness told Global News via email.
However, he added, “there is an important group between age 50 and 65 who no longer have children at home and aren’t yet seniors [who] miss out on seniors and child transfers,” according to David Macdonald, senior economist at the left-leaning Canadian Centre for Policy Alternatives.
Some of them can’t work due to disabilities, so the WITB/CWB is of little use, Macdonald noted via email. These Canadians “would be the group that is most left behind and generally ends up on social assistance.”
The Liberals have faced a similar criticism from more conservative commentators.
“Thirty per cent of Canadian adults are not elderly and are not living with children at home,” economist Stephen Gordon wrote in the National Post about a year ago. His argument? The Trudeau government’s tax strategy is leaving behind a growing cohort of marginalized Canadians.
And the Trudeau government’s middle class cut should be renamed “upper middle class cut,” Gordon argued. The measure doesn’t do anything for those making $40,000 a year, which is, roughly, the median income for individuals in Canada. Meanwhile, the largest tax cut goes to those making $90,000 a year.
In terms of families who do have minor children, a report by the Fraser Institute, a conservative think-tank, found that the elimination of the Harper-era tax credits outweighed the income gains of the Liberals’ middle class tax cut.
More than 80 per cent of families with incomes between just over $77,000 and $108,000, which the authors defined as the middle class, are paying more in tax as a result of the federal income tax changes, with households paying $840 more on average.
Lower-middle-class families — those with household incomes between, roughly, $52,000 and $77,000 — are paying $382 more on average, with nearly 70 per cent paying more.
Upper-middle-class families, making between nearly $108,000 and around $150,000, are paying $938 more on average.
The report, however, did not take into account the impact of other Liberal measures such as the expansion of the Canada Pension Plan and, most notably, the CCB.
Once you factor in the CCB, “in key areas, the benefit increases exceed the additional taxes for middle-income families,” Rhys Kesselman, Canada Research Chair in Public Finance at Simon Fraser University, told Global News in a previous interview.
The CCB also boosts the income of single parents, which the Conservatives’ family income-splitting measures did not benefit.
Note to readers: How to read the results from the calculator
The calculator is based on Finance Canada estimates of how the Trudeau government’s federal tax and benefit changes have affected Canadians’ disposable incomes. These changes include policy measures that haven’t yet been implemented but will take effect by 2019, such as the switch from Working Income Tax Benefit to the new Canada Workers Benefit (CWB). Also, the calculator shows the change compared to incomes in 2014, before the current government took office. Please note that Global News did not fact-check the government’s calculations.
You might see an income loss under Canada Child Benefit (CCB). This is because the calculator reflects the net impact of replacing previously existing benefits for families with children with the CCB, as well as the concurrent elimination of the Family Tax Cut credit. “Elimination of tax credits and other changes” reflects the elimination of the Public Transit Tax Credit, the Children’s Fitness Tax Credit and the Children’s Arts Tax Credit, as well as the net effect of other changes to federal taxes and transfers (excluding Employment Insurance and the Canada Pension Plan).
Please note that the results reflect the average estimated impact on people in your income group. Your income group depends on both your after-tax income and your family size. For example, a couple with two kids and a total disposable family income of $80,000 would have an adjusted individual income of $40,000, while an unattached individual with an income of $80,000 would have an adjusted income of $80,000.
When it comes to federal transfers, the calculator might show benefits for which you’re not eligible. For example, if you don’t have children under 18, you don’t receive the CCB.
For those who do receive a certain benefit, actual income gains may be larger than what’s shown in the calculator. That’s because the calculator reflects the average income effect of that benefit on anyone in your income group — both recipients and non-recipients.
The same holds for the impact of changes to the federal tax code. Those who don’t have kids, for example, weren’t affected by the elimination of federal tax credits aimed at families with children. Those who do have children may have lost out more than the calculator shows.
Also, say you’re single and have a disposable income of $80,000. This would put you in the top income group, but you likely weren’t affected by the government’s decision to introduce a new marginal income tax rate of 33 per cent for individuals who earn more than $200,000 a year in taxable income. The calculator, though, shows the average tax impact on everyone in your income group, which reflects the net income loss of Canada’s highest earners.
Finally, we’d like to thank Katherine Scott, senior economist at the CCPA, for her assistance in ensuring the accuracy of the calculator and of our note to readers.