Income taxes include both federal and provincial taxes. The implicit tax rate shows taxes as a proportion of total income.

In addition to what is provided in this chapter, Chapter 7  (Tables 7.1 and 7.2-1 ) includes data on income taxes.

Second recent decline in average tax paid by families

Canadian families of two persons or more paid an estimated $12,800 on average in income taxes in 2002, or about $300 less (or -2.3%) than in 2001 (after adjusting for inflation). This followed a decline of about 7% in 2001, a year when the federal government and several provincial governments made changes in their income tax policies in the direction of lower taxation. In 2002, the average amount of federal income tax paid by families was about the same as in 2001. However, the average amount of provincial tax paid by families dropped 6%.

Estimated declines of 2% or more in average income tax in most provinces in 2002

There were estimated declines of 2% or more in average income tax paid by families in six of the ten provinces in 2002. The largest change in average tax paid by families in 2002 occurred in Nova Scotia, where it increased by about 12%, or $1,200 from $9,900 in 2001.

Average taxes paid by unattached individuals were stable at the national level between 2001 and 2002. Unattached individuals paid on average $5,000 in income taxes in those years, representing a 4.2% increase from 1996. Provincially, there were no significant changes in average taxes paid by unattached individuals between 2001 and 2002.

The relatively large increase in estimated average taxes in Nova Scotia in 2002 may be partially due to the fact that their tax-transfer system changed little while the average market income of non-elderly families — most of which would be taxable — increased by about 6.0%. Nova Scotia did not increase its basic personal, spousal and eligible dependent exemption amounts or its statutory tax rates from 2001 levels.

The relatively large decrease in average tax paid by families in Manitoba, where it dropped by 5.7% in 2002, can be attributed to changes in taxation, which included increases in exemption amounts, a decrease in the statutory tax rate for the second income tax bracket (from 16.2% to 15.4%) and a rise in the income threshold for the third income tax bracket (from $61,089 to $65,000). Although market income increased in Manitoba, changes in the tax-transfer system appear to have more than offset the effects of increased market income in that province.

Chart 5.1
Average income tax of families and unattached individuals, 1980 to 2002

Implicit tax rates by family type

The implicit tax rate for Canadian families was 17.4% in 2002, down from 17.8% in 2001 and a lengthy plateau of 19 to 20 percent for several years before that. Unattached individuals had a similar decrease, posting an implicit tax rate of 16.3% in 2002, down from 16.6% in 2001, and a plateau fluctuating about 18% since 1996.

Families of two or more persons in which the major income earner was under age 65 and unattached individuals aged less than 65 had average implicit tax rates of 17.9% in 2002. In contrast, elderly families and elderly unattached individuals had lower average implicit tax rates of 12.9% and 10.8%, respectively. The difference between seniors and the rest of the population is consistent given that retirement income is on average lower than income received over the course of one's working-age years-the ratio of tax to total income during retirement is also considerably lower on average.

Several family types have similar implicit tax rates. In 2002, among families in which the major income earner was under age 65, dual-earner couples without children, two-parent families with two earners, and two-parent families with one earner all paid, on average, about one-fifth of their total income in income taxes (20%, 19% and 19%, respectively).

Shares of total income tax by income quintile

In 2002, families in the highest after-tax income quintile paid on average $33,500 in income taxes, or just over half (53%) of the aggregate amount of income tax paid by Canadian families. As an indication of the progressivity of taxes, these high-income families had a smaller share of aggregate market income, 44%. Looking at the other end of the distribution, one can expect to see the reversed situation in the presence of a progressive tax system. Indeed, families in the bottom quintile paid an average of $1,200 in income tax. This was equal to 1.9% of the total income tax collected from families, while the share they held of the aggregate market income of families was 3.8%.

Chart 5.2
Shares of total income and income tax of families by after-tax income quintiles, 2002

Chart 5.3
Average income tax by family type, 2001 and 2002