CFN – Working families with children in Canada face high tax hurdles that could dissuade them from earning extra income, according to a report released today by the C.D. Howe Institute. In “Treading Water: The Impact of High METRs on Working Families in Canada,” authors Alexandre Laurin and Finn Poschmann find low-to- mid-income Canadians face taxes on incremental income generally higher than those faced by high-income families.
“Getting ahead by earning extra income can be very hard for Canadian working families with children, in particular low-income earners,” noted Laurin. “The reason: as personal incomes rise above prescribed thresholds, most benefits paid by governments are reduced (or clawed back) at various rates. These include the Working Income Tax Benefit (WITB), the GST/HST Credit, and the Canada Child Tax Benefit,” he explained.
Because tax and clawback provisions overlap, their impact can be substantial, exposing low-to-mid-income families with children to high taxes on incremental income. Marginal effective tax rates (METRs) on each extra dollar of income for a working family with two children can be as high as 80 percent in Quebec, and higher than 60 percent in most provinces.
“The dilemma cautions against further expansion of the targeted transfer system,” said Poschmann. “There are better alternatives aimed at supporting low-income earners, including universal, in-kind programs, such as neighbourhood facilities and services aimed at target communities, rather than at families or individuals.”
SOURCE: C.D. Howe Institute