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Hyun Hwang
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Liberal Victory Potentially Taxing for High-Income Earners
By Rob Carrick
Oct 23 2015

Liberal Victory Potentially Taxing for High-Income Earners

With the upcoming federal election, political parties are presenting their proposals if they
were to achieve majority. One of Liberals promises is to increase tax rates for the high-income
earners and give cuts to middle class Canadians. Currently, the highest federal tax rate is 29%
however, the Liberal party intends on introducing a new tier in the bracket at a max rate of 33%.
Combined with the provincial tax rates, some high-income earning individuals may face an
effective tax rate of 50%.
The Liberals also promise other benefits such as the new Canadian Child Benefit,
increase in the eligible age for OAS to 67, and reducing the annual TFSA contribution amount
nearly by half. The only real victims of the Liberals proposal are the wealthy Canadians.
Although the ideal of this plan is to tax more capable individuals to support the less
unfortunate middle-class tax payers, this aggressive proposal may backfire on the Liberals.
Generally, individuals who face a higher tax obligation have greater incentives to underreport
their income. To worsen the situation, with the potential tax rate of almost half of their earnings,
these wealthy Canadians may attempt to evade taxes.
There are indeed consequences set in place to discourage these activities. There is a
penalty for underreporting of up to 50% of the increase in tax liability. However, frequent
offenders may face a heavier penalty of 10% of the unreported income. Of course, if this
underreporting involved third parties such as the preparer and planner, they will face severe
penalties as well including losing their professional designations. For even more serious
offences, there are criminal consequences. Tax payers who participate in fraud and willfully
evade taxes may be imprisoned.
Even so, by increasing the marginal tax rate for the wealthy Canadians to over 50%, it
may give encourage them to participate in these fraud activities regardless of the penalties
involved. To make the matters even worse, the Liberals plan on removing family income
splitting. This was a way to take a spouses income and allocate some portion of it to the other,
putting themselves in a lower bracket. With this out of the picture, wealthy Canadians with
spouses lose one of the ways to soften their tax burdens.
So in response to this, the government may either increase the existing penalties or
introduce a more severe one to discourage fraud activities. The goal is to increase the risk of
fraud so that the reward does not seem as appealing as it did before. Additionally, they can also
introduce a new method of reducing the tax burden such as the existing income splitting method.
It is great that the Liberals are giving more attention to the middle class and attempting to
allocate the wealth amongst citizens. However, this proposal seem too aggressive and appears to
be a direct attack towards the wealthy Canadians.

Citations
Carrick, Rob. "Liberal Victory Potentially Taxing for High-income Earners." The Globe and
Mail. The Globe and Mail, 16 Oct. 2015. Web. 21 Oct. 2015.
URL: http://www.theglobeandmail.com/news/politics/liberal-victory-potentially-taxing-forhigher-income-earners/article26840286/