The gap between top personal income tax rates and small-business income tax rates has widened over the past 20 years, making it more attractive for professionals to incorporate and earn income through their Canadian-controlled private corporations (CCPCs). With top marginal tax rates now exceeding the psychological barrier of 50 per cent, the incentive to incorporate can be powerful. At the same time, Canada’s general corporate tax rate for non-CCPCs (including public corporations) is now higher than recently reduced rates in other key countries. The coming federal election is an opportunity to debate improvements to Canada’s tax system that would help close these twin tax gaps.
In 2016 Ottawa lowered the personal income tax rate for individuals in the middle bracket but increased it by a full four percentage points for people making more than $210,000 (after indexing). Adding in provincial taxes, the top marginal rate for individuals now stands at 53.5 per cent in Ontario and at comparably high levels in other provinces. Statistics Canada reports that in 2017 about 1.3 per cent of individual filers — 364,140 people — paid tax at this highest rate and in so doing collectively contributed 25.5 per cent of Ottawa’s revenue from the personal income tax.
