Taxes 2023: How much do the rich pay?
As tax deadlines approach, one of the top questions on people’s minds is, “How can I reduce my taxes?” Often follows the sentiment that if the rich simply paid more taxes, the rest of the population would have more room to breathe.
Despite the rhetoric, Canada’s top earners pay a decent share of all federal and provincial taxes. This is after going through all available legal avenues to reduce their tax liability.
Below, I’ll break down some statistics about how much Canada’s wealthiest pay and share some tried-and-true strategies they use to lower their taxes (and how you can too).
Percentage of taxes paid by the top 10%
NDP leader Jagmeet Singh in April 2022 He said he thinks Trudeau’s proposed tax hikes for insurance companies and big banks are insufficient.
But the statistics tell a slightly different story.
The top 10% of earners (those earning more than $102,400 or more annually as of 2020) in Canada account for 53% of the country’s total provincial and federal tax revenue. according to CRA data.
Should they pay more?
It is still subject to discussion. However, the fact is that one-tenth of the population generates more than half of Canada’s personal income tax revenue.
Canada’s 2023 tax brackets. how much will the rich pay this year
Consider the last inflationThe 2023 Canadian federal income tax brackets have been added to:
- 15% on the portion of taxable income between $0 and $53,359
- 20.5% on the portion of taxable income over $53,359 to $106,717
- 26% on the portion of taxable income that exceeds $106,717 to $165,430
- 29% on the portion of taxable income that exceeds $165,430 to $235,675
- 33% on the portion of taxable income over $235,675
This means that the wealthiest people in Canada who earn more than $235,675 will be subject to a marginal federal income tax rate of 33%.
In addition, they will also pay provincial income taxes, which vary depending on the state in which they reside. For example, British Columbia mandates: 20.5% regional tax on any portion of taxable income over $240,716. By comparison, Ontario has a lower rate 13.16% regional tax On any portion of taxable income over $220,000.
Strategies the wealthy use to reduce their taxes
Without the following tax strategies, Canada’s top earners would likely pay an even higher percentage of the country’s total taxes. However, the wealthy often use legal tax loopholes to limit their tax liability.
1. Business tax write-offs
Currently there are more than 1.3 million small businesses in Canada As of June 2022, according to Statistics Canada. Business owners who incorporate have many legitimate tax deductions they can take advantage of.
Those who are self-employed (sole proprietor) or freelance on the side can also benefit from a business tax write-off. For example, remote freelancers can write off a percentage of their rent, internet or electricity bills because they are used for business purposes.
2. Tax-sheltered investment income
Canada offers several opportunities to take advantage of the growth in tax-sheltered investments. The most common is the TFSA program, which allows any Canadian resident over the age of 18 to open a tax-free savings account.
Other examples include RRSP retirement accounts, RESP education savings accounts, and most recently a first home savings account, which is tax-free (FHSA:)
Although there are annual and lifetime payout limits for these tax-sheltered accounts, many wealthy people take advantage of these plans and try to maximize their investments.
3. Permanent life insurance
If you’ve maxed out your registered accounts, such as your RRSP and TFSA, another way to make money on your investments tax-free is by purchasing permanent life insurance, such as whole life or universal life.
There is a cash value component that grows over time with permanent life insurance. This cash value can be achieved through policy credits or withdrawals, and Any increase in cash value is generally not subject to income tax. This can provide a tax-advantaged way to save and invest money.
4. Donation to charity
Donating money to charity is one of the classic methods that high-income groups use to reduce their taxes. As long as individuals donate to registered charities and have receipts to prove their donation, they can be used to claim tax credits.
Taxpayers can claim a 15% tax credit on donations of up to $200 and up to 29% On donations over $200.
How low- and middle-income people can lower their taxes in 2023
Many of the same strategies used by the wealthy can be followed by low-income earners to reduce their taxes.
Maximizing what you can contribute to your TFSA, RRSP, or RESP is a great place to start, and starting as a sole proprietorship can give you a tax advantage. for checkout. Donating to charity can also lower your tax bill.
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