I’m going to have to pay myself a salary soon, and I’ve been learning a lot about the different taxes that one has to pay, both on the employer and the employee side of the equation! Canada has always been known for having a relatively high level of taxation, but as I’ll soon show you, there’s a significant difference between the east and the west sides of the country.
In this post, I’ll be working with Joe, a typical middle-class Canadian worker. Joe earns $50,000 a year.
Below is a chart of the situation between the different provinces, sorted by total payroll and income taxes in ascending order:
The provinces with the lowest payroll and income taxes are the three western provinces: British Columbia, Alberta, and Saskatchewan. The highest taxes are out east, with Québec taking the cake. Joe would be better off if he could find work out west, though he might want to watch out for those nasty Vancouver real-estate prices!
What does the chart itself mean? Well, the blue portion is what Joe would actually get to keep. The red portion is what Joe would pay in payroll and income taxes, and blue and red together represent Joe’s gross salary. The orange portion is what the employer has to pay in payroll taxes on top of Joe’s gross salary.
This data was calculated with the aid of this calculator, using basic deductions. These numbers therefore don’t take into account additional credits or subsidies that Joe or his employer might be entitled to.
|Province||Total employer cost||Net employee salary||% to government|
|Prince Edward Island||$53,478||$36,548||32%|
Here’s another way of looking at this:
Keeping in mind that Joe’s gross salary is $50,000, in British Columbia, a company has to pay a total of $53,478 so that Joe can receive $38,199. He takes home 71% of what the company pays, and the other 29% goes to the government.
In Québec, a company has to pay a total of $54,993 so that Joe can receive $35,955. Assuming that Joe can pick up some French and work in Québec, he would take home 65% of the total pay, and the other 35% would go to the government. If you add in 15% sales taxes, gasoline taxes, licensing fees, etc… it’s not too hard to see how Joe might end up paying over half of his total earnings to the government, even with a typical middle-class salary.
What goes into these taxes? Let’s look at the details:
Employer payroll taxes
Employer payroll taxes are extra payments that any future employer is going to have to pay Joe; these add on top of Joe’s gross salary and increase the total cost of keeping him employed.
No matter which province Joe lives in, he’ll probably pay at least the following:
- The Canada Pension Plan, Canada’s pension program.
- The Employment Insurance program. This is optional for self-employed workers, including those who own their own corporation.
He would also have to pay additional taxes if he lived in certain provinces:
- Employer Health Tax
- This is a special health care contribution made by the employer.
- In Québec, the pension plan is administered by the Québec government and known as the QPP. Québec companies pay this instead of the CPP.
- The Québec Parental Insurance Plan.
- Health Services Fund
- This is a special Québec-only payroll tax used to fund Québec’s health care system.
Employee payroll taxes
Not only does Joe’s employer have to pay, but Joe also has to pay. Here’s what he pays:
- Federal Tax
- The income tax component that goes to the federal government.
- Provincial Tax
- The income tax component that goes to the provincial government.
- Same as the employer CPP.
- Same as the employer EI.
Again, you also have specific taxes for the provinces:
- BC Health Premium
- Residents of BC need to pay into their health care system as a separate contribution. While not strictly a payroll deduction, I’m including it here for fairness in comparing with Ontario, Québec, and the other provinces.
- Ontario Health Premium
- This is Ontario’s health care contribution, and is deducted from the employee’s paycheck.
- Same as the employer QPP.
- Same as the employer QPIP.
How about my friends down south?
How does the payroll situation look like south of the border? Up here in Canada, payroll taxes can impose a significant burden, and many employees are not aware of the extra burden that their employer has to pay. On the other hand, some of these taxes get replaced by income tax as income continues to rise. For example, CPP ends at around $50,000 of income.
Someone making $100,000 in British Columbia would receive 70% of what the company pays, which is very close to the 71% they receive at $50,000. Someone making $100,000 in Québec would receive 61%, with the other 39% going to government, so taxes in Québec rise a little more steeply. Add in sales taxes, gasoline taxes… you get the picture.
What also surprised me is how much someone making a low salary will still pay, that is, if they don’t have deductions for having a kid or things like that. Someone making $30,000 will still need to hand over roughly 25% to 30% over to the various government programs (some of that by the employer), and what they have left over will still be subject to sales tax. No wonder it can feel so hard to get ahead when one’s income is low.
However, those at this level will arguably receive the same or more of the benefits when it does come time to retire and take advantage of the other programs provided for by these deductions, so it’s fair that they do pay some of the costs (whether the programs themselves are fair is another debate). Lower income Canadians also receive sales tax rebates, which helps with the regressive nature of these programs. I loved getting those cheques when I was still in university.
Seems like there’s only a couple of sure things in life… death, and taxes!