Report

Trends in Canada’s Payroll Taxes

This short paper is the first in a new Caledon series, caledon social statistics.  Using a combination of illustrative graphs and explanatory text, the series will explore social programs, tax benefits and trends in low income and other major social and economic indicators.

In addition to income taxes, Canadians pay employment-related taxes, known as payroll taxes.  These payroll taxes finance our two main social insurance programs – Employment Insurance (EI) for the unemployed, and the Canada Pension Plan (CPP) for the retired.  (Quebec operates its own very similar Quebec Pension Plan.)  The income tax system provides both federal and provincial/territorial non-refundable credits to ease the burden of EI premiums and C/QPP contributions, as illustrated in the paper.  Over the years, EI premiums have declined considerably overall, while CPP contributions have risen.  However, the combined amount of payroll taxes has risen only modestly, mainly in the first half of the 1990s.  And since 2002, maximum combined payroll taxes have remained roughly level at around $2,900 in gross terms and $2,500 in net (after federal tax credit) terms.  Canada’s payroll taxes are low by international standards.

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