November 13, 2014 – Low income seniors face extremely heavy tax burdens across Canada, according to a new C.D. Howe Institute report. In “Who Loses Most? The Impact of Taxes and Transfers on Retirement Incomes,” authors Finn Poschmann and Alexandre Laurin show that seniors can be hit hard by taxes and benefit clawbacks in retirement.
“Our analysis shows that effective tax rates are very high for low-income seniors, and taper off for seniors with higher incomes. The trend is especially true in the Western provinces, notably in Saskatchewan, Manitoba and British Columbia,” remarked Laurin.
The study focuses on the taxation of income received in senior years – when individuals become eligible for age-related benefits paid through or alongside the tax system, such as the Guaranteed Income Supplement and Old Age Security pension.
The authors’ calculations also indicate that low income employees who save under new Ontario and Quebec pension plans will receive very little net benefit from the savings they put aside.
The result of these heavy tax burdens – punitive in some cases – is that many seniors are unrewarded for their past earnings, savings, and foregone consumption. The authors recommend that the provinces think very carefully about the design of the tax, benefit and pension programs they initiate, to avoid stacking benefit reductions, clawbacks and taxes that generate punitive results.
Poschmann adds, “high effective rates alter individual savings behavior. We should expect more future savings will be channelled away from registered retirement savings plans, and into Tax-Free Savings Accounts and unregistered savings vehicles.”
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada's trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada's most influential think tank.
Click here for the full report.
For more information contact: Finn Poschmann, Vice President, Policy Analysis, and Alexandre Laurin, Director of Research, C.D. Howe Institute. Phone: 416-865-1904 Ext. 9997; E-Mail: kmurphy@cdhowe.org.