Are High Income Canadians Really Paying Their Fair Share?

Geoff Currier

We often hear that the rich should pay their fair share of taxes and few would dispute that principle. Interestingly, a recent Fraser Institute report revealed that that Canada’s highest earners already shoulder a significant portion of the country’s tax burden.

According to the report, “the top 20 percent of income-earning families—those earning above $270,472—pay 65.3 percent of the country’s personal income taxes and 58.3 percent of total taxes, despite earning 49.5 percent of total family income. By contrast, the bottom 20 percent pay just 0.7 percent of income taxes and 1.7 percent of total taxes. “

For tax and financial advisors, saving your clients from over-paying through tax planning is an important objective. No one should pay a penny more than they legally owe.

Tax Saving Tools and the Planning Conversation: A valuable service advisors can provide is helping clients understand the legitimate strategies available to reduce their tax liability, explore:

• Are they maximizing tax-assisted savings opportunities through the RRSP or TFSA?
• Have they considered income splitting opportunities with family members where appropriate? Your high-income earning clients can divide investment income with a lower earning spouse or children by setting up a loan at the CRA. The returns are then taxed at the lower earner’s marginal rate.
• Could strategic charitable giving support their philanthropic objectives and their tax plan?
• Do they work from home, have missed medical expenses, or moving for work purposes? There are additional records to keep and deductions to explore.

Corporate Tax Planning Considerations: If your client has a business practice or professional service, corporate tax planning is also a benefit. Among the options to explore: incorporating allows your client to keep earnings within the corporation and they might also be able to benefit from the Small Business Deduction which defers higher personal taxes.

The Financial Planner’s Role: You might also suggest that they speak with their financial planner regarding their investments. An investment portfolio that features Canadian dividends and capital gains can be helpful. Those two are taxed at a lower rate than standard interest income.

Good Records Lead to Better Outcomes: No tax strategy is effective without proper record keeping. Encouraging clients to maintain organized records not only helps maximize legitimate deductions but also makes responding to a CRA review or audit much easier.

The bottom line? High-income Canadians already contribute a substantial share of Canada's tax revenues. Your role is to ensure they continue paying their fair share!

Tune into Real Tax News with Evelyn Jacks and Friends wherever you listen to your favourite podcasts.