Around this time of the year, the right-wing Fraser Institute announces the arrival of Tax Freedom Day. They report that, this year, it falls on June 25, until which Canadians have been working to just pay their taxes.
Recently, the left-leaning Canadian Centre for Policy Alternatives challenged the Fraser Institute’s numbers saying that the “calculations understate the income of Canadians, overstate their taxes and misuse the concept of averages”. The report argues that the Fraser Institute understates incomes and overstates taxes and thus makes exaggerated claims. The CCPA estimates Tax Freedom Day for a median Canadian family to fall on April 28.
Since I keep extensive records of what I earn, spend and pay in taxes, I thought I’d use those numbers and arrive at my own conclusions. For our household income, I am including all employment income and all taxable interest, dividends and capital gains. I am excluding all contributions to retirement savings because tax is simply deferred. For our total tax bill, I am including federal and provincial taxes, an approximation of sales taxes based on our total annual household expenditure and property taxes. I am not counting motor vehicle license fees, gas tax, tobacco tax (I don’t smoke), liquor tax, amusement tax and a million other taxes, since the sales tax is probably overstated. I am also including CPP contributions and EI premiums as a tax, though it is debatable.
Based on the above observations, I estimate Tax Freedom Day for our household to fall on April 13, much closer to the CCPA’s estimate. Some caveats though: our household expenses relative to our income is very low, so our sales tax bill is probably far lower than a typical Canadian family. We also contribute the maximum allowed to our retirement accounts resulting in hefty savings at our marginal tax rates.