Every year there is a milestone date when Canadians can shift their focus from paying taxes due to using their income to secure their financial future. Several countries track “Tax Freedom Day” annually, and Canada’s is coming up in June. It falls weeks behind other countries, which can have negative repercussions to wealth management and retirement planning.
In 2017, Canada’s Tax Freedom Day was June 9, one day later than 2016’s June 8. Compared to the U.S. date of April 19 and Australia’s April 13, it turns out we work almost two months longer to pay taxes, and that’s not likely to change anytime soon.
According to the Tax Foundation, a Washington, D.C.-based think tank that tracks Tax Freedom Day down south, Americans will pay $3.4 trillion in federal taxes and $1.8 trillion in state and local taxes, for a total bill of $5.2 trillion, or 30 percent of the nation’s income in 2018. But the American Tax Freedom Day has come three days earlier than past years thanks to recent tax reforms.
Meanwhile, back home in Canada, the Fraser Institute, which publishes Canada’s Tax Freedom Day, has estimated that all households will pay over $2,000 more in taxes each year going forward, starting in 2019. It found, “. . .when looking at all 2.988 million families with children in Canada (excluding those in Quebec), 2.756 million, or 92.2 percent, will pay higher taxes—$2,218 more, on average, each year. Indeed, once the increase in CPP pay¬roll taxes is fully implemented, nearly all Canadian families—regardless of where they stand in the income distribution—will pay higher taxes.”
The federal government appears to concur. Its largest revenue line item is personal taxes, but due to a labor force slowdown that will result with large numbers of boomers retiring over the next decade, it will be difficult to maintain the current tax base.
The Finance Department has noted in a long-term forecast, issued on December 22, 2017, that “no single initiative can guarantee sustainable growth in our prosperity. . .(but) in particular, improving the economic participation of groups traditionally under-represented in the labour market, including women, Indigenous peoples, older workers, newcomers and persons with disabilities, is key to Canada’s long-term fiscal and economic performance.”
We’ll soon know what Tax Freedom Day looks like for 2018; but with a declining population and all levels of government carrying increasing debt into a significant demographic reduction, Tax Freedom Day could be pushed out further into the summer as time goes by.
Sadly, for many Canadian households that means less money available for retirement savings. For these reasons it is important to find ways to invest sooner, rather than later. With an eagle-eye to tax efficiency, money can be freed up for saving and investing, and investment performance can also be propelled forward. Be sure to see a qualified Real Wealth Manager for help in developing and securing a well-rounded family wealth management plan.
Additional educational resources:
Canadians looking to expand their financial literacy and make tax-efficient decisions at all life stages should pick up a copy of Essential Tax Facts, by Evelyn Jacks.
Evelyn Jacks is President of Knowledge Bureau, Canada’s leading national financial education institute and author of a new book in 2018: Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof, Too. Follow her on twitter @evelynjacks
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