What do Canadians like to complain about the most? The weather? Politicians? How about TAXES? It’s usually in the top 3 if not #1. In this article we’ll take a close look at how much you’ll pay in federal and provincial income taxes, as well as sales tax, in each province and territory at various income levels.
Income taxes and cost of living
There are many factors that have an impact on our cost of living. Food, shelter, the cost of gasoline are things we often hear discussed in conversations about the cost of living. Something we often don’t hear discussed in these conversations, though, is the amount of tax we’re paying.
Interestingly, the Consumer Price Index (CPI), which is the metric most commonly referenced as an indicator of changes in the cost of living, doesn’t factor in personal income taxes at all.
Regardless, to really understand the cost of living in various geographies it’s important to consider the income tax rates we’ll face. By knowing what we can expect to pay in taxes, we’ll have a better understanding of how much of our income we’ll have left over to cover the goods and services we’ll need to live on, as well as for saving and investing.
The taxes we pay
As Benjamin Franklin famously said, “in this world nothing can be said to be certain, except death and taxes.” Since we’re certain to have to pay them, let’s look at the main categories of taxes we pay and what those tax dollars are used for.
Federal income taxes
The largest portion of income taxes are federal income taxes (except in Quebec). These tax dollars go to cover things like the costs of federal programs for the elderly such as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), as well as children’s benefits, national defence, the cost of running all federal departments, and transfers to the provinces for social and healthcare programs.
Federal income taxes also cover interest payments on our national debt. A large and growing component of the federal budget.
Provincial income taxes
The provinces also collect income taxes to cover the cost of healthcare and education, children’s and social programs, policing, emergency services, maintaining roads, highways, and provincial parks. A sizeable portion of these tax dollars also go toward paying interest on provincial debts.
Property taxes
Property taxes are assessed by municipalities and go toward covering city services such as emergency services, roads, clean water, parks and recreation, public health programs, garbage and recycling, libraries, and public transit.
Retail sales taxes
Retail sales taxes are added to the cost of many goods and services purchased by consumers. Retail sales taxes generally have a federal and a provincial component, although some provinces (and territories) do not have their own retail sales tax.
The federal component is known as the Goods and Services Tax (GST) and is currently 5%.
BC, SK, MB, and QC have a Provincial Sales Tax (PST) that is charged on most goods and services along with the GST.
Ontario and the Atlantic provinces opted to blend their provincial sales taxes with the GST a number of years ago into what is now known as the Harmonized Sales Tax (HST).
Here’s the breakout of total sales tax rates by province and territory:
With no provincial sales tax, Albertans enjoy the lowest total sales tax of any province, with only the GST at 5% on applicable goods and services. Compared to other provinces with sales taxes that are 3x HIGHER, this can add up to a significant tax savings over time for residents of Alberta.
Residents of the three northern territories also enjoy a low sales tax rate of just 5%.
What provinces have the HIGHEST and LOWEST income taxes?
Since income taxes tend to make up the bulk of the taxes we pay, we’ll look at how much income tax we can expect to pay in each province and territory at various income levels.
It’s important to look at various income levels because we have a progressive tax system in Canada, which means that income earned at higher levels is taxed at higher rates. For example, if you make $75,000 in a year, the first $50,000 may be taxed at an average rate of 15%, while the next $25,000 of income could be taxed at an average rate of 30%. Note that these are just example tax rates, and they will vary be province.
Since each province creates their own tax brackets and tax rates, a province’s ranking in terms of highest or lowest income taxes could change at different income levels.
Related article:
Income tax projections
The projections below are made using the federal and provincial income tax calculators at TaxTips.ca and are based on 2023 tax rates.
Assumptions:
- Income is hourly or salary employment income, that would typically be reported on a T4 tax slip.
- Assume no RRSP or other taxable income deductions, unless stated.
- Average Tax Rate = Total Tax / Total Income
Income taxes where income = $50,000
The graph below shows federal tax (red bar) and provincial tax (blue bar) on the left axis, for someone earning $50,000 in each province and territory. The percentages, right axis, indicate the average tax rate applicable to each province.
The green and red highlighted average tax rates indicate regional low and high rates, respectively.
For $50,000 of income, BC is the province with the lowest income tax at $6,353, which works out to an average tax rate of 12.7%. Ontario and Alberta are 2nd and 3rd lowest, with average tax rates of 13.7% and 14.1%, respectively.
At the high end, Nova Scotia residents would pay the most income tax at $8,937 – a whopping 41% more than BC residents!
Nova Scotians would have an average tax rate at 17.9%, while Quebec and PEI would be the 2nd and 3rd highest taxed provinces with average tax rates of 17.6% and 17.2%, respectively.
41%! That’s a pretty sizeable difference between the LOWEST and HIGHEST taxed provinces.
Note that the amount of federal tax is the same across the country except for Quebec. This is because Quebec opted out of federal funding for certain social programs many years ago, choosing instead to fund these programs through provincial taxes.
Breakout by Region for Income = $50,000
Looking at the regions of the country, in the West and Prairies, BC has the lowest average tax rate, while Manitoba has the highest at the $50,000 income level.
In Central Canada, Ontario has the lowest and Quebec has the highest.
On the East Coast it’s New Brunswick with the lowest tax rate and Nova Scotia with the highest.
For the Territories, territorial tax rates are very low across the board at this income level. These low tax rates may be a way that the territorial governments are helping citizens deal with the high cost of food, shelter, and energy in these areas. Nunavut has the lowest average tax rate in the region, while Yukon has the highest.
Let’s see if any of this changes at higher income levels.
Income taxes where income = $100,000
Going from $50K to $100K in income is a pretty big jump, but we’re doing this to see if there are any significant changes in positioning for the provinces at higher incomes.
Interestingly, there is no change in the rank ordering of the provinces and territories in terms of highest to lowest average tax rate and total tax payable. The provinces and territories rank order the same at the $100K income level as they did at the $50K income level.
BC still ranks lowest across the provinces with $20,219 in tax payable, and an average tax rate of 20.2%. Ontario and Alberta are still 2nd and 3rd, with very similar average tax rates of 21.6% and 21.8%, respectively.
Nova Scotia still ranks as the highest taxed province with $27,030 in tax on a $100K income – 34% more than BC!
Nova Scotians would have a 27% average tax rate, while Quebec and PEI would still be ranked as the 2nd and 3rd highest taxed provinces with average tax rates of 26.4% and 26.2%, respectively.
Breakout by Region for Income = $100,000
In the graph above, the lowest and highest average tax rate provinces are again highlighted green and red, respectively, by region. But, as mentioned, the low and high rankings are unchanged from where they were at the $50K income level.
One thing that is noticeable at this higher level of income is that the variances between the provinces has narrowed. For example, with income of $100K the highest taxed province is 34% higher than the lowest taxed province, while at the $50K level this variance was 41%.
In addition, the territories are more in line with lowest taxed provinces at this higher income level with Yukon and NWT, pretty similar to BC’s average tax rate, and Nunavut not far off but still boasting the lowest average tax rate of all the provinces and territories.
Let’s make one more jump up in income to see if anything changes.
Income taxes where income = $200,000
Going from $100K to $200K in income is a HUGE jump! But once again, we want to see if there is any change in positioning for the provinces at this higher income level.
This time there are some changes in the rank ordering of the provinces and territories.
First off, Alberta finally takes the lead as the lowest taxed province, replacing previous leader BC. In Alberta, a person earning $200K per year would incur income taxes of $59,934 and have an average tax rate of 30.0%.
On the high side, Quebec beats out Nova Scotia to take the dubious honour of highest taxed province, with taxes of $74,078 and an average tax rate of 37%. At this income level, a person would pay 24% more tax in Quebec vs. in low tax Alberta.
Note that at 24%, this variance between the highest and lowest taxed provinces has again narrowed, given it was 34% at $100K and 41% at $50K.
Breakout by Region for Income = $200,000
Once again, the lowest and highest average tax rate provinces are highlighted by region in the graph above in green and red, respectively.
In the West and Prairies, Alberta has the lowest average tax rate, while Manitoba has the highest at the $200K income level.
In Central Canada, Ontario has the lowest and Quebec has the highest.
On the East Coast it’s New Brunswick with the lowest tax rate and Nova Scotia with the highest.
For the Territories, Nunavut has the lowest average tax rate in the region, while the Northwest Territories have the highest.
Conclusion
Income taxes have a significant impact on our true cost of living, even though they aren’t factored into the Consumer Price Index (CPI).
The amount of tax we’ll pay on a given income, can vary significantly from province to province. As a result, this is one of many factors that should be considered if a person is considering relocating for a career move or for retirement.
The rank ordering of highest and lowest taxed provinces is relatively stable across various income levels.
The top 3 highest income tax rate provinces are: Nova Scotia, Quebec, and Prince Edward Island. Interestingly, these provinces also have the highest sales tax rates.
BC, Ontario, and Alberta have the most favourable income tax rates of all the provinces.
Alberta also has the lowest sales tax rate, making this province a compelling option for those looking to minimize the total amount of tax they will pay.
Very enlightening article, it is interesting to see how much of income is leveraged to support the government(s) and their spending programs!
That is for sure Fred! It’s notable that the provinces with the highest income tax rates also tend to have the highest sales tax rates (NS, QC, PE, NL). That was a bit of a surprise!