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|Income in Canada
After-tax income: Median for Canadian families up slightly to $54,100
The median after-tax income for all Canadian families with two or more people increased 2% in 2004, after adjusting for inflation, according to new SLID data. (Median is the point at which half of families had higher income and half less.)
The gain was largely the result of strong economic growth, as measured by real gross domestic product, which rose 2.9% in 2004.
According to the Labour Force Survey, this gain extended to the labour market as employment increased 1.8% on average, and unemployment fell to 7.2%. All employment gains were in full-time jobs, which rose 2.3%. Part-time jobs edged down 0.6%.
Not all family types shared in the increase in after-tax income. Among senior or "elderly" families – those in which the main income earner was aged 65 and over – median after-tax income remained virtually unchanged at $38,500. However, this represented a 12% increase in real terms relative to 1996.
Among “unattached individuals”, or single people, median after-tax income amounted to $21,300, also virtually unchanged from 2003. During the last two decades, the proportion of Canadians who live as “unattached individuals” has increased from 10% to 15% of the population.
Seniors living on their own received a median after-tax income of $19,500 in 2004. These figures were virtually unchanged from 2003.
Provinces: Alberta families had highest median income for the first time
For the first time, Alberta families with two or more people had the highest median after-tax income in 2004. In 2003, Alberta and Ontario were in a tie.
Half of all families in Alberta had after-tax income of $61,800 or more, up 4% from 2003. Median after-tax income in New Brunswick also increased 4%, but only to $46,400.
After-tax income was virtually unchanged for families in other provinces.
Families of two people or more in Alberta and Ontario were the only ones with after-tax income higher than the national median. Those in Ontario had a median after-tax income of $59,700, followed by families in British Columbia with $53,700.
After-tax income was lowest among families in Newfoundland and Labrador at $40,700.
Market income: Lion’s share of pretax income for families and singles
Canadian families and singles earned the lion’s share of their total (pretax) income from the marketplace. (Market income is the sum of earnings from employment, investment income and private retirement income.)
For families of two or more people, median market income rose about 2% to $55,800.
In 2004, market income received from earnings, private pensions and investment income made up nearly $90 out of every $100 of income received before taxes. The remaining $10 came from government transfers.
These proportions varied, especially between senior families and non-senior families—those in which the major earner was not a senior.
Among non-senior families, earnings made up the largest share of income before taxes. For every $100 of total income, non-senior families received $93 from the market income, and the remaining $7 from government transfers. (The $93 from the market income comprised $85 from earnings, $3 from investment income, $3 from private pensions and $2 from other income.
The median market income for non-senior families in 2004 was $62,800, up 2.8% from 2003. Increases in employment and the number of full-time jobs contributed to this gain. From 1996 to 2000, market income jumped 12% to $61,200 then stayed relatively constant until 2003.
In comparison, senior families relied less on earnings, receiving almost six times as much of their total income from government transfers. For every $100 of total income in 2004, they received $41 from government transfers and only $59 from the market.
Seniors rely more heavily on private pensions and government transfers
Out of every $100 of total income, senior families received $34 from private pensions, up from $27 in 1996. Single seniors received $33 from private pensions, up from $24 in 1996. Almost 8 in 10 senior families received income from private pensions in 2004, up from 7 in 10 in 1996.
The other key source of income for seniors—government transfers—remained relatively constant over the last decade. The median level of transfers in 2004 was $21,600 for senior families and about $14,000 for senior singles.
Despite their constant level, government transfers remain an important portion of seniors’ incomes. Senior families received $41 out of every $100 in total income from government transfers, including the Canada Pension Plan or Quebec Pension Plan. They received $12 from earnings, $10 from investment income, and the rest from other income.
Single seniors relied even more heavily on government transfers in 2004 than did senior families. For every $100 of total income, single seniors received $51 from government transfers or $10 more than senior families; and $3 from earnings or $9 less than senior families. Some of this difference may be explained by the fact that senior families may have a non-senior member with earnings. Single seniors and senior families received about the same proportion of their income from other sources.
Earnings of single mothers continue to rise
Earnings of “female lone-parent families”, or single mothers, rose dramatically from 1996 to 2004. In 1996, half of these families had $8,400 or less in market income. By 2000 this amount had increased to $18,200 and since then has stabilized at about $19,000, which was the level in 2004.
For every $100 in total income, single mothers received $65 from earnings, $11 more than in 1996. This increase in earnings led to a reduction in their dependence on government transfers, which contributed $25 of every $100 in total income, compared with $37 in 1996.
The increase in earnings reflects the increase in economic growth. In general, income composition changes as economic conditions and government programs change. In 2004, most families and individuals relied somewhat more on earnings than in 1996, and among the non-seniors, families and individuals of the same age group shared a similar composition of total pre-tax income.
Market income varies by type of family
The level of market income of non-senior families continued to vary by type of family, though all families experienced similar trends. The median market income of two parent families with children was $71,700 in 2004. Couples without children received $59,200 or about 80% of the amount received by two parent families with children, while other families received $47,500 or about two thirds that amount.
Senior families received a median of $20,700 in market income in 2004, an increase of $800 from 2003. Between 1996 and 2004, the market income of the average elderly family rose 30% after adjusting for inflation. This reflects, in part, growth in employment among seniors aged 65 to 69. According to the Labour Force Survey, in 2004 employment rose faster for seniors aged 65 to 69 than for any other age group. This continued a trend started in 2001.
Market income of single persons did not increase significantly between 2003 and 2004. In 2004, their median market income was $17,400.
Large majority of Canadians receive government transfers
In 2004, over three-quarters of non-senior Canadians and 99% of all seniors, both single and in families, received some income in the form of government transfers. For seniors, these transfers came largely from the Canada Pension Plan, the Quebec Pension Plan, Old Age Security, and the Guaranteed Income Supplement.
For non-seniors, 74% of all single people and 82% of all families received government transfers, which included the following: Employment Insurance (EI) benefits, including parental leave benefits; child tax benefits; social assistance; and Workers’ Compensation benefits. Almost all lone-parent families, six out of seven two-parent families with children and just over half of all couples without children received government transfers.
For families who received EI benefits, the average benefit was $6,100 in 2004. This was virtually unchanged from 2003. EI benefits rose 19% from 2000 to 2003, largely because of the expanded parental leave benefits that became effective at the end of 2000.
Child tax benefits contributed one-fifth of the transfers received by two-parent families, and almost half of the transfers received by lone-parent families. For all families who received child tax benefits, these benefits remained stable at $2,500 from 2001 to 2004. They increased from $1,900 in 1996 to their 2001 levels, largely because of program enrichments in 1998 and 2001.
Canadians saw in 2004 further benefits from federal tax cuts introduced in 2000
Canadians continued to benefit from the tax cuts introduced in the federal budget update in the fall of 2000. This budget reduced all federal income tax rates and indexed to inflation the income thresholds at which each federal tax rate applies. As a result, between 2000 and 2001 Canadians experienced a decline in their implicit income tax rate, which measures the average amount of taxes paid as a share of total income.
In 2001, out of every $100 in total income, senior families paid $13 in taxes, down from $15 in 2000; non-senior families paid $18 in taxes, down from $20 in 2000; and single persons paid $16, down from $18 in 2000. After-tax income rose as a result, by as much or more than pre-tax income.
The fall 2000 budget also announced a further increase in income tax thresholds in 2004, which are the income levels at which the next marginal income tax rate applies. For example, the threshold for the 22% tax rate increased $2,817, from $32,183 in 2003 to $35,000 in 2004, a 6% increase after adjusting for inflation.
Partly as a result of these threshold increases, 2004 saw little or no increase in implicit income tax rates. In both 2003 and 2004, out of every $100 in total income, senior families paid $13 in taxes, non-senior families paid $18 in taxes, and single persons paid $17 in taxes. All three groups experienced increases in their median total income in 2004, though this increase was statistically significant only for non-senior families.
Tax-transfer system redistributes income across families, reduces income disparities
The personal income tax and government transfer system redistributes income across families at different periods in their lifetime and reduces income disparities. Younger workers, students, and the unemployed earn less, pay lower taxes, and receive more government transfers than more experienced workers with higher earnings. Changes in labour market situations and family circumstances also affect the amount of taxes paid and transfers received.
In 2004, families paid a median income tax of $8,600 and received a median of $4,000 in government transfers.
For the purpose of analysis, families were then equally divided into five groups according to their after-tax income, with each group representing 20% of all families. These groups are called “quintiles”.
The highest quintile, or 20% of families with the highest after-tax income, earned 46% of all market income, paid 56% of all income taxes, and took home 40% of all after-tax income.
The lowest quintile, or 20% of families with the lowest after-tax income, earned only 3.6% of all market income, paid 1.8% of all income taxes, and took home 7.1% of after-tax income.
For every $1 of market income received by the 20% of families with the lowest after-tax income, the highest 20% received $12.90. After government transfers and taxes, the highest income group received $5.60 for every dollar earned by the lowest group.
For “unattached individuals” or singles, the impact of the tax-transfer system was even more significant. The highest income individuals received $22.00 for every dollar received in market income by the lowest. This fell to $8.40 in after-tax dollars.
Wider gap between the lowest- and the highest-income families
From 1996 to 2004, the average after-tax income gap widened between the lowest- and highest-income families. The income gap between the top and bottom quintiles increased from $82,500 in 1996 to $99,000 in 2003 and to $102,700 in 2004. By 2004, the average after-tax income was $125,000 for the highest quintile and $22,300 for the lowest. In the study of income inequality, studies typically examine average income within a quintle and the average income gaps, or differences, between these quintiles.
Though all quintiles benefited from the positive economic conditions that have prevailed since the early 1990s, families in the top quintile gained the most. The top quintile saw a 23% increase in their after-tax income, the bottom quintile saw a 17% increase and the three middle quintiles each saw increases of about 15% since 1996.
The inequality in after-tax income widened for non-senior families, but fell for senior families.
Low income rate for families falls
The percentage of Canadian families in “low income” after taxes fell to 7.8% in 2004 from 8.5% in 2003 and a high of 12.1% in 1996.
Statistics Canada’s low-income rate measures the percentage of families below the low-income cutoff (LICO). The LICO is a statistical measure of the income thresholds below which Canadians likely devote a larger share of income than average to the necessities of food, shelter and clothing.
In 2004, 684,000 families were below the low income cut-off (LICO). These families needed an average of $7,200 to bring their income above the cut-off, compared to $7,400 in 1996.
The low income rate fell in 2004 for both senior and non-senior families. Among senior families, 2.1% were below the LICO, down from 2.7% in 2003, and the lowest rate in the 1980-2004 period. Among non-senior families, the low income rate fell in 2004 to 8.8% from 9.5% in 2003.
Low-income rate falls as number of earners rises
Among families, the risk of low income varies by family composition and falls as the number of income earners rises. Married couples with no children faced a low-income rate of 2.2% if both earned income but this rose to 37% for those with only one income earner.
For the 3 million two-parent families with children the low-income rate was 6.7%. It was 3.7% for the 1.9 million families with two income earners and 18.4% for the 440,000 families with a single income earner. For the 43,000 two-parent families with no earners the low-income rate was 78%. Over the previous two decades, this rate did not drop below the 1997 rate of 69% for two-parent families with no earners.
Low-income rate for single mothers declines
Of the 550,000 lone-parent families headed by women in 2004, 36 % lived in low income, down from 53% in 1996. This reduction was partly the result of an increase in the number of single mothers with earned income. In 1996, about 6 in 10 single mothers had earnings. By 2004, this rose to 8 in 10. Almost 8 in 10 single mothers without earnings experienced low income in 2004.
Number of children in low income stabilizes
After climbing throughout the early 1990s, the prevalence of low income among all Canadians peaked at 15.7% in 1996, declined to 11.2% in 2001 and remained at or close to that level till 2004. In 2004, about 3.5 million people, or 11.2% of the population, were in low income but the low-income rate was higher among women, at 11.7%, than men at 10.6%.
About 865,000 children under 18 years of age lived in low-income families in 2004, down from 1.3 million in 1996 and 1.0 million in 1999. The proportion of children in low-income families fell from its peak of 18.6% in 1996 to its current level of about 12.8%, following a low of 12.1% in 2001.
In 2004, just over half of all the children in low-income families lived in two-parent families. The low-income rate of children in two-parent families was much lower, at 8.1%, than that of children in female lone-parent families, at 40.0%. There were 367,000 children in low-income lone-parent families headed by women in 2004.
Seniors’ low-income rate hits all-time low
The low-income rate among seniors continued its downward trend, which began in the early 1980s, with the estimated number of seniors in low income at an all-time low of 219,000 people. In 2004, 5.6% of seniors lived below Statistics Canada’s low income cut-off, down from 6.8% in 2003, and 21% in 1980. This is the lowest rate of seniors in low income for the 25-year period, 1980 to 2004, for which we have estimates.
Single seniors are more vulnerable to low income, with a low-income rate almost 10 times that for seniors living in families, 16% compared to 1.6%. Among single seniors, women are twice as likely to be in low income as men. Senior women have a low-income rate of 17% though this decreased over two decades from 57% in 1980. The rate for senior men decreased from a high of 47% in 1980 to 12% in 2004.
Technical note: Inequality
The ’Gini coefficient’ provides an alternative way to measure income inequality. It is particularly useful in examining inequality trends over a longer period of time.
The Gini coefficient is a number between zero and one. The number zero represents perfect income equality, where everyone receives the same income. The number one represents perfect inequality, where one person receives all income and others receive nothing. The higher the value of the Gini coefficient, the higher the degree of income inequality in a society.
Using after-tax income for families, the Gini coefficient rose during the 1990s to about 0.33 in 2000 after remaining stable during the 1980s at 0.30. The coefficient has remained at about 0.33 since 2000.
Income inequality shows different trends among senior families and non-senior families. In 1980, seniors saw a higher level of income inequality, at 0.33, than did non-seniors, at 0.28. This inequality fell over time among seniors, but rose among younger families. Currently, senior families experience less income inequality, at 0.27, than do non-senior families, at 0.33.