Income Research Paper Series
Working income tax benefit recipients in Canada

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by Jiaosheng He and Dan Fox

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Acknowledgements

The authors would like to thank Andrew Heisz, Jim Brennan, Sharanjit Uppal, François Pagé and Dominique Pinard for advice and comments on earlier versions of this paper. Any errors are the responsibility of the authors.

Introduction

The Working Income Tax Benefit (WITB) is a federal program that provides a refundable tax benefit to working Canadians with low income (Canada Revenue Agency, 2018a). Similar programs exist in other countries, for example, the U.S. Earned Income Tax Credit (EITC) and the U.K. Working Tax Credit. Studies have been undertaken to investigate the effect of such programs on the living standards, employment, and income of low-income people.^Note 

This paper provides a brief portrait of the Canadian WITB and WITB recipients using 2014 tax data. It first presents the main components of the WITB program. It then describes WITB recipients from demographic and income perspectives. Finally, the paper examines the impact of the WITB on low-income rates and low-income gap ratios.

Description of the WITB

Both single individuals and families can obtain the WITB. Moreover, WITB recipients with disabilities can receive an additional benefit. The program is a federal initiative; however, provinces and territories can vary the design of the WITB to fit in with their own income security systems. As of 2014, Alberta, British Columbia, Nunavut and Quebec had modified their WITB benefit structures (Appendix 1).

Low-income working persons can claim the WITB for themselves or for their family^Note  on their annual income tax return provided their employment income is at least $3,000 and they meet the eligibility criteria. A person is eligible for the WITB if they are:

• 19 years of age or older by the end of the tax year,
• a resident of Canada for income tax purposes throughout the year,
• under the age of 19 but with a spouse or common-law partner or eligible dependent, and
• not subject to the ineligibility criteria (Canada Revenue Agency, 2018b).

A person is not eligible for the WITB if they are:

• a full-time student for more than 13 weeks in the year,
• in prison for 90 days or more during the year, or
• not required to pay tax in Canada (Canada Revenue Agency, 2018b).

In 2014, the WITB gave taxpayers a benefit of $0.25 for every dollar earned above $3,000, up to the maximum benefit of $998 for single individuals and $1,813 for families. For single individuals, this benefit was then reduced at a rate of $0.15 per dollar earned above $11,332 such that by income of $17,986 the WITB was reduced to $0. For families the benefit was reduced at the same rate ($0.15) for every dollar of income above $15,649, returning to zero for incomes above $27,236 (Table 1 and Chart 1). Thus, the WITB for families covers a wider working income range and has higher benefit limits than the WITB for single individuals. Alberta, British Columbia, Nunavut and Quebec had WITB programs with similar dynamics (Appendix 1).

This paper describes WITB benefits received by Canadian tax fliers using data from the 2014 T1 Family File (T1FF). The T1FF is an annual income dataset produced using administrative records sourced mainly from the Canada Revenue Agency, including the T1 Income Tax and Benefit return and the Canada Child Tax Benefit administrative file. The population covered by T1FF includes all tax filers and their dependents, or about 95% of the total estimated population in Canada in 2014. It covers provinces and territories, and includes individuals living in collective dwellings and on Indian reserves. The T1FF data is built on the basis of the census family concept, which classifies people into three family groups: couple (married or common-law) families with or without children, lone-parent (male or female) families with one or more children, and persons not in census families (single individuals) who are living alone, or in a household but who are not part of a couple or lone-parent family (Statistics Canada, 2017).

About 1.5 million workers received the WITB in 2014, with a total payout of nearly 1.2 billion dollars (Statistics Canada, Income Statistics Division, T1 Family File 2014). The average benefit thus was $810.

In the 2018 federal budget, the WITB was renamed the Canada Workers Benefit (CWB). The CWB will enhance the maximum benefit and increase the income level at which the benefit is phased out. Under the CWB, single workers whose annual incomes are less than $24,111 will receive a maximum of $1,355, while couples and single parents with annual family incomes below $36,483 will receive a maximum benefit of $2,335. The Canada Revenue Agency will also begin to automatically determine whether tax filers are eligible for the benefit, negating the need for tax filers to apply for the benefit (Minister of Finance, 2018). Since the CWB won't come into effect until 2019, this paper's focus of analysis is on the WITB.

WITB recipient rates and benefit amounts vary across provinces and territories

The WITB recipient rate is defined as the percentage of tax filers who are WITB recipients. In 2014, nearly 1.5 million out of 26.9 million Canadian tax filers received WITB benefits. This translates into a WITB recipient rate of 5.4%. Figures for the individual provinces and territories are presented in Chart 2. Seven provinces (Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Ontario, Manitoba and British Columbia) had WITB recipient rates between 5.0% and 6.0%. Three provinces and one territory had WITB recipient rates below the national rate by at least one percentage point: Newfoundland and Labrador (3.5%), Saskatchewan (4.4%), Alberta (4.4%) and Yukon (4.5%).

The average WITB benefit amount received by WITB recipients was $810 nationally. Quebec ($850), Ontario ($820) and British Columbia ($810) had average WITB amounts higher than or equal to the national average. The average benefit amounts for the rest of the 10 provinces and territories were all lower than the national average.

The WITB program was set up quite differently in Nunavut, resulting in different recipient rates and average benefits than other provinces and territories (Chart 2). In 2014, the minimum income needed to qualify for the benefit was $6,000 in Nunavut, twice the national threshold of $3,000. The benefit phased in slowly at a rate of 5.1% of earnings in contrast to the national rate of 25%. Nunavut's maximum benefit of $640 for a single person was lower than the standard maximum benefit of $998, and it was reached at a higher income level ($18,549) than that for Canada ($6,992). Moreover, the benefit ended at a higher income ($37,195) (Appendix 1), over twice as high as the income for Canada ($17,986) (Table 1). The net result of these differences was that Nunavut's WITB recipient rate was the highest (15.3%) while its average benefit was the lowest ($490).

WITB recipient rates decline with age

The WITB recipient rate was highest for tax filers aged 19 to 29 and decreased with age (except for those aged 18 and under who were generally not eligible for WITB). They declined from a high of 13.2% for those aged 19 to 29 to a low of 1.2% for tax filers aged 60 and older (Chart 3). The rate for those aged 19 to 24 was higher than the rate for those aged 25 to 29 (15.9% versus 10.0%).

It is noteworthy that there were 1,750 WITB recipients under the age of 19 — a WITB recipient rate of 0.3% for these young individuals. Based on the benefit configuration, individuals under the age of 19 at the end of 2014 could still be eligible to apply for WITB if they were living with a spouse or common-law partner in the year (Canada Revenue Agency, 2018b).

The WITB recipient rate for males is higher than for females nationally

In 2014, 732,910 male tax filers received the WITB, while a slightly lower number of female tax filers (728,980) received the benefit; the recipient rate for males (5.7%) was higher than that for females (5.2%) (Chart 4). At the provincial and territorial level, higher male than female WITB recipient rates were found in Quebec, Ontario, Manitoba and the three territories. There were higher female than male WITB recipient rates in the Atlantic provinces and Alberta. WITB recipient rates were similar between males and females in Saskatchewan and British Columbia. Nunavut had the highest rates for both males and females (17.7% versus 13.0%).^Note 

Lone-parent families, especially female lone-parent families, have higher WITB recipient rates

About 1.4 million out of the 15.7 million Canadian families (8.9%) received the WITB in 2014. Different family types had different benefit recipient rates. Lone-parent families showed the highest WITB recipient rate (20.7%), followed by a lower rate of 8.2% for couple families and 7.0% for non-family persons (Chart 5). The average benefit amount for a census family in which at least one family member received the WITB was $850, higher than that for non-family persons. Couple families had an average benefit amount of $910, while lone-parent families and non-family persons showed lower amounts of $900 and $720, respectively.

For Canada as a whole, 290,790 lone-parent families received the WITB; 84% of lone parent families were female-headed, whereas 16% were male headed. All provinces and territories had a similar pattern in which female lone-parent families accounted for a predominant share of WITB recipients—from 73% in Quebec to 88% in the Atlantic provinces.

Female lone-parent families showed higher WITB recipient rates (21.3%) than male lone-parent families (17.9%) at the Canada level (Chart 6). All provinces except for Quebec and the three territories followed the national pattern. Prince Edward Island had the highest female lone-parent family WITB recipient rate (31.0%), while the second-highest rate (29.0%) was in New Brunswick.

WITB recipient rates rise with employment income up to a threshold

Eligibility for the WITB is dependent on the level of employment income^Note  earned, although, even within lower earnings bands, recipient rates will be less than 100% due to non-eligibility or failure to apply for WITB. Based on the standard configuration of the program in 2014, the benefit rate of single persons can be calculated for five employment income groups: less than $3,000; $3,000 to $6,991; $6,992 to $11,331; $11,332 to $17,986; and $17,987 and more. Except for the first and last income group, WITB recipient rates increased steadily with employment income: 19.0%, 28.3% and 30.2%, respectively (Chart 7). The average WITB amounts varied across employment income groups, from a low of $540 for those who earned between $3,000 and $6,991 to a high of $1,050 for those who earned between $6,992 and $11,331.

It is possible to receive the WITB in certain circumstances (i.e., when employment income is less than $3,000 or greater than or equal to $17,987). A small percentage (0.5%) of tax filers received the benefit even though their employment income was less than $3,000. About 2% of tax filers whose employment income was $17,987 or more received the WITB.^Note 

The impact of the WITB on low-income rates and low-income gap ratios is higher for WITB recipients than for the general population

In T1FF, low-income Individuals are identified based on the census family low income measure after tax (CFLIM-AT). The principle of the CFLIM methodology is that a person is in low income if their census family income is less than 50% of the median family income, adjusting for family size.^Note  The low-income rate refers to the proportion of tax filers and their dependants with adjusted after-tax census family income falling below the CFLIM-AT threshold, while the low-income gap ratio describes the percentage shortfall of income below the CFLIM-AT threshold.^Note 

In this section, the study examines the impact of the WITB on the low-income rate and gap ratio by computing what the rate and gap ratio would have been if no WITB income was received. This provides a simple way of accounting for how important the WITB is to reducing the size of the low-income population, but it should be acknowledged that this does not take into account any behavioural responses to the WITB.

WITB recipients had a higher after-tax low-income rate and lower gap ratio compared to the total population. The after-tax low-income rate was 56.3% for WITB recipients and 17.7% for the total population only (Table 2). The low-income gap ratio was 28.5% and 39.0%, respectively.

Excluding WITB from income, the low-income rate would have been slightly higher, at 17.8% for the population and 58.3% among WITB recipients. Likewise, the low-income gap ratio would have been slightly larger if WITB were excluded from income.

Research has shown that lone-parent families, in particular female lone-parent families, were more susceptible to being in low income (Murphy et al., 2013; Heisz and McLeod, 2004). According to the CFLIM-AT, the low-income rate for persons in female lone-parent families was 42.2%. Excluding the WITB, the rate was 42.9%. The low-income rate among WITB receiving female headed lone parent families was 53.7%, and 57.2% not including the WITB benefits. Low-income gaps ratio for these groups are also higher excluding WITB from income. The provinces and territories had a similar pattern with respect to the impact of the WITB on their low-income rates and gap ratio (see Appendix 2).

The modest impact of the WITB on the after-tax low-income rate and gap ratio can be explained by examining the gap ratio more closely. A gap ratio of 39 percent would suggest that an average single low-income individual would have a low-income gap of $7,679 (39% of the CFLIM-AT threshold of $19,689). Thus, the WITB (which has a maximum benefit of $998) would have a modest effect on the after-tax low-income rate and gap ratio.

Conclusion

This paper uses the 2014 T1FF data to profile the WITB from demographic and income perspectives, and examines the impact of the benefit on the after-tax low-income rates and low-income gap ratios. Of all Canadian tax filers, 5.4% received the WITB. Only Nunavut showed a much higher rate, which was due to the unique design of the WITB in that territory. For Canada as a whole, the average benefit was $810 for individual WITB recipients and $850 at the family level. Young adults and those who were lone-parent families, especially female lone-parent families, were more likely to receive the WITB. Looking at the WITB in terms of employment income showed that those whose employment income ranged between $11,332 and $17,986 had the highest benefit recipient rate.

This study also looks at the impact of the WITB on after-tax low-income rates and low-income gap ratios by including and excluding the WITB from the income calculation. The calculations suggest that the impact of the WITB on the low-income rate and the gap ratio was small, mainly because WITB recipients had income that placed them well below the low-income measure threshold.

Appendices

References

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Murphy, Brian B., Xuelin Zhang and Yue Xing. 2013. "Persons living in low-income neighbourhoods." National Household Survey in Brief. Statistics Canada Catalogue no. 99‑014‑X.

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