Canada’s tax loopholes are expensive, regressive, and increase income inequality: study

December 5, 2016

OTTAWA—Canada’s personal income tax expenditures disproportionately benefit the rich and cost the federal treasury nearly as much as it collects in personal income tax, says a study released by the Canadian Centre for Policy Alternatives (CCPA).

The study, by CCPA Senior Economist David Macdonald, examines the income distribution of benefit for the 64 personal income tax expenditures for which there is available data. Out of the 64 tax expenditures, 59 of them provide more benefit to the top 50% of income earners than the bottom half, with the largest share going to the richest 10%. The cost of those 59 expenditures totalled $100.5 billion in 2011 alone.

“The richest 10% pocket an average annual benefit of $15,000 per person from tax loopholes. By comparison, the poorest 10% receive on average $130 in tax loopholes and $1,200 in federal income transfers,” says Macdonald. “In essence, there are two federal transfer systems in Canada: one for the poor and middle class and another shadow system for the rich.”

Among the study’s key findings:

  • Federal personal income tax loopholes cost $103 billion in 2011, while the total amount of income taxes collected was $121 billion. In other words, if the federal government closed all tax expenditures it would almost double the amount of income tax collected.
  • In 2011, 39% of the benefit of all tax loopholes went to the richest 10% while the bottom half of income earners only saw 16% of the benefit.
  • Only five tax expenditures provide more support for the bottom 50% of income earners than the top 50% and only one—the Working Income Tax Benefit—exclusively supports Canada’s working poor.
  • The cost of tax expenditures ($103 billion) is roughly equal to the cost of all federal transfers ($113 billion), including all of the following combined: the Canada Pension Plan, the Guaranteed Income Supplement, Old Age Security, Employment Insurance, the GST credit, the Universal Child Care Benefit, the Canada Child Tax Benefit, and the National Child Benefit Supplement.
  • While income transfers are tightly controlled as to the maximum value a person can receive and who in the income spectrum receives them, many of the most regressive and expensive tax expenditures do not have a maximum individual value.

“As with all government expenditures, tax expenditures reflect fiscal choices,” Macdonald explains. “The five worst tax loopholes all provide 99% or more of their benefit to the richest half of Canadians and cost the federal government $10.4 billion in 2011. If those loopholes were closed, the federal government could use that money to eliminate university tuition and create an affordable national child care program.”

The report makes several recommendations, including: a 5% target savings in tax expenditures a year through the closure, capping, or phasing out of the most regressive tax expenditures; Finance Canada publish the distribution of tax expenditures in its annual review; and the inclusion of tax expenditures as costs in federal financial reporting.


Out of the Shadows: Shining a light on Canada’s unequal distribution of federal tax expenditures is available on the CCPA website.

For more information, contact Kerri-Anne Finn, CCPA Director of Communications, at 613-563-1341 x306.