Watch Out For These Sneaky Tax Increases Next Year

Most governments try to avoid raising tax rates. It’s an unpopular move. It creates headlines. It causes a sharp drop in popularity. So how do governments earn more tax revenue? They increase taxes in a sneaky way. Some provincial governments have done this in the past and a few are still doing it now.

You may not have seen these tax increases reported in the media, but next year you may notice your tax bill increase, especially if you live in certain provinces.

If you find yourself with a little less cash flow next year, this might be why.

Not all provinces do this. But some provinces are sneakily increase tax next year. Some have been doing this same thing for years.

Are you in a province that is increasing taxes? Find the details at the end of the post.

Sneaky Tax Increases: An Example

Let’s go through a simple example to help illustrate how some provinces are increasing income tax in a sneaky way.

They’re not increase tax rates, in fact, they’re not doing anything at all, and that’s the problem.

Imagine a world with only two tax rates, all income below $50,000 per year is taxed at 10% and all income above $50,000 per year is taxed at 20%.

This is how you would calculate tax on $60,000 of income.

$50,000 at 10% = $5,000

$10,000 at 20% = $2,000

$5,000 + $2,000 = $7,000

The total tax owing for the year is $7,000.

Now let’s imagine inflation was 5%. Income goes up 5% to $63,000. The tax bracket also goes up 5% to $52,500. In this situation purchasing power doesn’t change because everything goes up 5%, income, spending, and tax. This is how you would calculate tax on the following years income of $63,000.

$52,500 at 10% = $5,250

$10,500 at 20% = $2,100

$5,250 + $2,100 = $7,350

Now the total tax owing for the year is $7,350.

This is totally fine. This is completely fair. Inflation was 5% and now the government is getting an extra 5% in tax revenue to cover increased costs.

That’s not the sneaky part. The sneaky part is when the tax bracket doesn’t go up. The sneaky part is when they don’t do anything at all. The sneaky part is when the tax bracket stays at $50,000 even though inflation was 5% and income went up 5%.

Take a look at what happens when the tax bracket stays at $50,000 but income goes up with inflation to $63,000.

$50,000 at 10% = $5,000

$13,000 at 20% = $2,600

$5,000 + $2,600 = $7,600

The total tax owing for the year is $7,600. This is an 8.6% increase versus the previous year. This person would have net income $250 less than if the tax bracket increased with inflation. They’ve now lost purchasing power despite their income increasing with inflation.

By doing nothing, the government can very subtly increase taxes year over year.

This is especially bad during periods of high inflation because the tax brackets don’t change but presumably income is increasing faster. More income coupled with the same tax brackets means more tax and less purchasing power.

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Provinces With Sneaky Tax Increases

Not all provinces are increasing tax this way. Most provinces are increasing their tax brackets by inflation, some are only increasing a few tax brackets by inflation but leaving others the same, and some provinces aren’t increasing their tax brackets at all.

The largest tax increase will be in Nova Scotia where tax brackets are not changing at all (and haven’t changed for the last few years).

For a few years, until 2022, Alberta wasn’t increasing tax brackets with inflation either. They only just restored indexing of their tax brackets for the 2022 tax year.

For those at higher income levels, Ontario will not be increasing the $150,000 and $220,000 tax brackets (and haven’t for the last few years).

Have you noticed any other sneaky tax increases in your province or territory? Add a comment below. There are probably other examples…