Income taxes include both federal and provincial taxes. The implicit tax rate is the average or aggregate amount of taxes expressed as a percentage of their average or aggregate total income.

Average amount of income tax paid by families stable after a decline in 2001

Canadian families of two persons or more paid an estimated $12,800 on average in income tax in 2003, or about $1,600 less than in 2000 (after adjusting for inflation). In 2000 the average income taxes paid by families reached its highest point since 1980 (the earliest year for which comparable data are available). There had been an 8% decline in 2001, a year when the federal government and several provincial governments made changes in their income tax policies. There has been virtually no change in the average income tax paid between 2002 and 2003. 

Average taxes paid by unattached individuals increasing

Average taxes paid by unattached individuals increased by 8.2% (from $4,900 to $5,300) at the national level between 2002 and 2003. This is related to their increase in market income. Between 1996 and 2003, average taxes paid by unattached individuals increased by 15% from $4,600 to $5,300 while their market income grew by 25%.

Chart 5.1
Average income tax of families and unattached individuals, 1981 to 2003

Four family types, representing over half of all non-elderly families, had an implicit tax rate of about 20%

The implicit tax rate for Canadian families was 17.6% in 2003, virtually no change from 2002 and a small decrease when compared to 2001. For several years before 2001, the rate varied between 19 and 20 percent. Unattached individuals registered an increase, posting an implicit tax rate of 17.1% in 2003, up from 16.2% in 2002. This is related to their increase in market income. Over the 1990s the rate varied from 17.0% to 18.5%.

In 2003 families of two or more persons in which the major income earner was under age 65 (non-elderly families) and unattached individuals aged less than 65 had average implicit tax rates of 18.1% and 18.5% respectively.

In contrast, elderly families and elderly unattached individuals had lower average implicit tax rates of 12.9% and 12.6%, respectively. The difference between seniors and the rest of the population is consistent given that retirement income is on average lower than income received over the course of one's working-age years—the ratio of tax to total income during retirement is also considerably lower on average. 

Several family types have similar implicit tax rates. In 2003, among families in which the major income earner was under age 65, single-earner and dual-earner couples without children, single-earner and dual-earner two-parent families all paid, on average, about one-fifth of their total income in income tax (19.2%, 20.0%, 19.2% and 20.5%, respectively). These four family types represent 57% of all non-elderly families.

Shares of income tax by income quintile

In 2003, families of two or more, in the highest after-tax income quintile paid on average $35,300 in income tax, or just over half (55%) of the aggregate amount of income tax paid by Canadian families. As an indication of the progressive tax-transfer system, these high-income families had a larger share of market income (46%) relative to their share of after-tax income (39%). Meanwhile, families at the lowest end of the distribution paid on average $1,100 in income tax. These lower income families had a smaller share of market income (3.6%) relative to their share of after-tax income (7.2%). It is interesting to note that families in third and fourth quintiles held approximately the same share of market income (16.5% and 24.3% respectively) relative to their after-tax income (17.5% and 23.3% respectively).

Chart 5.2
Shares of total income and income tax of families by after-tax income quintiles, 2003

Chart 5.3
Average income tax by family type, 2001 and 2003

British Columbia, Ontario and Quebec experienced the largest decrease in average income tax paid by families between 2000 and 2003

The implicit tax rate (percentage of total income paid in taxes) is determined in part by the amount of total income and the federal and provincial taxation policies. In 2001, the federal government and several provincial governments made important changes in their income tax policies leading to a decrease in the implicit tax rate in most provinces. In the two years that followed (2002 and 2003) there was no clear upward or downward trend. In fact there has been virtually no change in the average income tax paid between 2002 and 2003. Looking back to the year 2000, a year before changes in taxation policy, the families of two persons or more, living in three largest provinces, British Columbia, Ontario and Quebec, registered the largest decrease in average income tax paid between 2000 and 2003. In 2003 the average income tax paid by families was 81%, 87% and 88% of the amount they had paid in 2000, for these three provinces respectively.

For unattached individuals the changes in average income tax paid were noticeably correlated to variations in their average market income. The average market income growth by 51% in Nova Scotia, by 38% in Ontario and 28% in Quebec between 1996 and 2003, translated to increase in average taxes paid (77%, 36% and 22% respectively).