ITA research and Tax Payable
3 Describe the differences between a regressive, progressive and flat tax. Provide some examples of each in Canada.
Cynara Almendarez and Sukhman Bhathal
Regressive taxes are applied uniformly, and they do not change based on an individual’s level of income. A regressive tax system affects low-income taxpayers more than high-income taxpayers because it takes a higher percentage of their earnings.
A great example of a regressive tax is the 5% Goods and Services Tax (GST). For example, say a doctor earns $175,000 annually and a retail worker earns $30,000 annually. They both purchase a laptop for $1,000, and are charged $50 GST ($1,000 X 5%). Although the $50 GST amount is the same for both the doctor and the retail worker it is a higher percentage of the retail workers overall income. This is known as a regressive tax because it has a larger percentage impact on lower income individuals.
![The GST for the retail worker's income is calculated as [($50/$30,000) x 100]](https://kpu.pressbooks.pub/app/uploads/sites/385/2019/04/2019-03-14-7-1.png)
![The GST for the doctor's income is calculated as [($50/$175,000) x 100]](https://kpu.pressbooks.pub/app/uploads/sites/385/2024/06/2019-03-14-7.png)
To help offset the regressive nature of the GST, the government has enhanced the GST/HST credit for low-income individuals and families. Eligible individuals can receive quarterly payments based on their income level to help alleviate the impact of this consumption tax. As of 2024, the maximum GST credit for a single individual with modest income is $519 annually.
Progressive taxes are the opposite of regressive taxes. Progressive taxes increase based on your taxable income. Canada has a progressive income tax system; therefore, high-income taxpayers pay a progressively higher percentage of tax than low-income taxpayers. Using our previous example, because of the doctor’s higher annual income, the doctor will have to pay more taxes than the retail worker based on Canada’s federal tax rates of 2024.
| Tax Rate | Tax Brackets | ||
|---|---|---|---|
| 15% | up to | $55,867 | |
| 20.50% | $55.868 | to | $111,733 |
| 26% | $111,734 | to | $173,205 |
| 29% | $173,206 | to | $246,752 |
| 33% | $246,753 | and over | |
The doctor will have to pay $36,336 in taxes (an average tax rate of 20.76%) while the retail worker will only have to pay $4,500 of taxes (an average tax rate of 15%). Progressive taxes get progressively higher as your taxable income increases.
| Doctor | ||||
|---|---|---|---|---|
| Tax Rate | x | Taxable Income in Tax Bracket | = | Taxes Payable |
| 15% | x | $55,867 | = | $8,380 |
| 20.50% | x | $55,866 | = | $11,453 |
| 26% | x | $61,472 | = | $15,983 |
| 29% | x | $1,795 | = | $521 |
| $175,000 | $36,336 | |||
| Retail Worker | ||||
|---|---|---|---|---|
| Tax Rate | x | Taxable Income in Tax Bracket | = | Taxes Payable |
| 15% | x | $30,000 | = | $4,500 |
| $30,000 | $4,500 | |||
A flat tax system applies the same tax rate regardless of an individual’s income. For example, if the tax rate is set at 15%, a taxpayer earning $20,000 pays $3,000 (15%) and someone making $300,000 pays $45,000 (15%) worth of taxes. Canada does not have a flat tax system, but the province of Alberta had a flat provincial tax system from 2001 to 2015. Flat taxes are sometimes referred to as proportional taxes.
Interactive Content
Author: Cynara Almendarez, January 2019
Author: Joyce Hards, April 2019
Author: Matthew Amisano, January 2020
References and Resources
Dawson, T. (2024, September). Alberta government may consider bringing back flat tax system, Kenney says. National Post. https://nationalpost.com/news/politics/alberta-government-may-consider-bringing-back-flat-tax-system-ended-by-notley-ndp-kenney.
Media Attributions
- Retail Worker’s Income GST is licensed under a CC BY-NC-SA (Attribution NonCommercial ShareAlike) license
- Doctor’s Income GST is licensed under a CC BY-NC-SA (Attribution NonCommercial ShareAlike) license
Feedback/Errata