Trudeau leaves a larger tax load for many Canadians

Commentary
By Jake Fuss and Grady Munro
The Fraser Institute

On January 6 outside Rideau Cottage in Ottawa, after Prime Minister Justin Trudeau told Canadians he plans to resign, a reporter asked Trudeau to name his greatest accomplishments. In response, among other things, Trudeau said his government “reduced” taxes for the “middle class.” But this claim doesn’t withstand scrutiny.

After taking office in 2015, the Trudeau government reduced the second-lowest personal income tax rate from 22.0 percent to 20.5 percent—a change that was explicitly sold by Trudeau as a tax cut for the middle class. However, this change ultimately didn’t lower the amount of taxes paid by middle-class Canadians. Why?

The government simultaneously eliminated several tax credits—which are intended to reduce the amount of income taxes owed—including income splitting, the children’s fitness credit, the children’s arts tax credit, and public transit tax credits. By eliminating these tax credits, the government helped simplify the tax system, which is a good thing, but it also raised the amount families pay in income taxes.

Consequently, most middle-income families now pay higher taxes. Specifically, a 2022 study published by the Fraser Institute found that nearly nine in 10 (86 percent) middle-income families (earning household incomes between $84,625 and $118,007) experienced an increase in their federal personal income taxes as a result of the Trudeau government’s tax changes.

The study also found that other income groups experienced tax increases. Nearly three-quarters (73 percent) of families with a household income between $54,495 and $84,624 paid higher taxes as a result of the tax changes. Across all income groups, 61 percent of Canadian families faced higher personal income taxes than they did in 2015.

The Trudeau government also introduced a new top tax bracket on income over $200,000—which raised the top federal personal income tax rate from 29 percent to 33 percent—and other tax changes that increased the tax burden on Canadians including the recent capital gains tax hike. Prior to this hike, investors who sold capital assets (stocks, second homes, cottages, etc.) paid taxes on 50 percent of the gain. Last year, the Trudeau government increased that share to 66.7 per cent for individual capital gains above $250,000 and all capital gains for corporations and trusts.

According to the Trudeau government, this change will only impact the “wealthiest” Canadians, but in fact it will impact many middle-class Canadians. For example, in 2018, half of all taxpayers who claimed more than $250,000 of capital gains in a year earned less than $117,592 in normal income. These include Canadians with modest annual incomes who own businesses, second homes or stocks, and who may choose to sell those assets once or infrequently in their lifetimes (when they retire, for example). These Canadians will feel the real-world effects of Trudeau’s capital gains tax hike.

While reflecting on his tenure, Prime Minister Trudeau said he was proud that his government reduced taxes for middle-class Canadians. In reality, taxes for middle-class families have increased since he took office. That’s a major part of his legacy as prime minister.