On the Middle Class & paying one’s fair share of taxes

By Tim Paziuk

Special to the Financial Independence Hub

The Liberal Government has stated it wants to build a strong middle class, but who comprises the middle class?  Mr. Morneau in his 2017 budget speech stated, “All Canadians must pay their fair share of taxes,” but what is a “fair share”?  Does fair share mean the total amount of taxes one pays as a percentage of their gross income?  Is this based on an annual consideration or a lifetime consideration?  Or does fair share mean positively contributing to the general revenue?

The answer to the first question is an ongoing contentious debate.  According to former Finance Minister Mr. Joe Oliver, the middle class could include households earning as much as $120,000.  Given research completed by MoneySense Magazine[1], the middle class could include households earning incomes ranging from $38,800 to $125,000 (average second, third, and fourth quintiles for Canadian households), but this varies considerably between Provinces and Territories, and even between cities.  But does owning a private corporation automatically exclude you from the middle class?  The continued witch hunt on private corporations by the Liberal Government would indicate this is the case since it directly contradicts their mandate to build a strong middle class.

Comparing a private-sector and public-sector worker

It is at this time I would like to introduce Sally.  Sally could be a physician or accountant, an engineer or architect, a therapist or life coach, or a hairstylist or clothing retailer.  Suffice to say that either out of choice or necessity, she is self employed.  Let’s make her a plumber who is in a position where it makes sense for her to incorporate because she can defer income within her corporation and income split with her spouse under present tax legislation.  Her spouse works part-time.  Their situation can be summarized as follows:

  • Sally’s taxable corporate income: $100,000
  • Spouse’s gross income: $25,000
  • Net income required to meet their lifestyle: $80,000
  • Spouse’s CPP income: $4,300

To meet their lifestyle expenses, Sally is able to distribute a combination of eligible[2] and non-eligible dividends between her and her spouse:  $41,000 to her and $20,000 to her spouse.  This leaves her with approximately $24,000 annually that she can invest inside her corporation for their retirement.  Since she is required to pay both the employer and employee contributions to the Canada Pension Plan (CPP) she chooses to not participate in the program and pay herself solely through dividends.  After a 35 year career, Sally is able to retire with a corporate investment portfolio of approximately $2.2 million.  Sally and her spouse are able to live off the returns of this portfolio[3] until their death 25 years after retirement.

Sally is certainly at the upper limit of what might be defined as the middle class in terms of income, but is she substantially better off with her private corporation?  To answer this, let’s introduce JT.  JT’s spouse also works part-time.  JT had a successful 20 year career as a teacher before moving into politics.  As a politician, he spent 15 years as a member of parliament before retiring.  Being in the public service his entire life, JT is in the fortunate position to be part of a defined benefit pension plan.  His family’s situation can be summarized as follows:

  • JT’s gross income as a teacher: $95,000
  • JT’s gross income as an MP: $176,000
  • Spouse’s gross income: $25,000
  • Net income required to meet their lifestyle: $80,000
  • JT’s teaching pension: $38,000
  • JT’s MP pension: $79,200
  • JT’s CPP income: $7,700
  • Spouse’s CPP income: $4,300

JT and his spouse also enjoy a 25 year retirement.

The comparison between Sally’s family and JT’s family can get quite complicated.  For the sake of comparative simplicity, we’ll ignore inflation and variations in salary over time, and assume their 35 year working careers and 25 year retirement compose the entirety of their incomes.  For taxation, we’ll assume both live in Ontario.


Sally JT
Taxes Over Career $661,000 $970,000
Taxes During Retirement[4] $208,000 $574,000
Estate Tax[5] $725,000 $0
Lifetime Taxes Paid $1,594,000 $1,544,000
Lifetime Net Income $3,723,000 $6,969,000
Total Net Income received from Public Funded Sources[6] $107,000 $7,638,000
Total contributed to Public Sources[7] $1,631,000 $2,470,000
Net Lifetime Contribution to Public Sources $1,524,000 -$5,168,000


Sally’s taxes are lower over her lifetime, but this is more than made up by the taxation of her corporate portfolio and wind-up of the corporation on death.  The net result is that Sally ends up paying more taxes than JT despite receiving almost half the net income he does.  When we look at who positively contributed to the general revenue of the country to pay for infrastructure upgrades, social programs, and other government overhead, Sally put in over $1.5 million during her lifetime while JT costed over $5.2 million over his lifetime.  Although JT doesn’t get any tax breaks, his taxes do not cover his salary, and while he contributes to his pension plan and CPP, his employer contributes an equal percentage.

This should not be misconstrued as an indictment of our public sector, but rather a reality check in the face of generalized rhetoric on who is adding to the general revenue and who is depleting the general revenue.  If Sally has not contributed her fair share over her lifetime via total taxes paid and positive net contribution to general revenue, then “fair” has become the latest four-letter word.  Bear in mind that we have not accounted for the extra benefits JT receives at the expense of his employer, expenses that Sally must bear personally.  We could also get into indirect benefits such as maternity and parental leaves, all of which come at an added cost for the private business owner.

Owning a private corporation doesn’t mean you’re wealthy

The fact is that owning a private corporation does not make one part of the wealthy.  Employees of the public sector and large corporations enjoy benefits and retirement plans that are unavailable to the private business owner.  The only means the private business owner has to narrow the gap is the few tax breaks currently available, tax breaks that help save for retirement but don’t ultimately negatively impact the general revenue.  The real middle class is perhaps the employees of private business who, due to the costs to the business, also often suffer inferior benefits and lack of group retirement plans.  The implementation of the augmented CPP will help these employees to some degree, but the added expense on private business may ultimately neutralize the benefit by compromising the ability of private business to provide competitive compensation packages.  If the tax burden on private business, and therefore the private business owner, increases further, it will be both to the detriment of the private business employees and the private businesses themselves.  There is only a limited number of public sector and large corporate job positions.  Rather than destroying the employment sector that is helping the economy grow, help them to compete with the large corporate and public sector employers to provide competitive employment.


[1] Are you in the middle class?  January 27, 2015 MoneySense Magazine, authors:  David Hodges and Mark Brown.

[2] Due to her corporate investment portfolio

[3] That is, the $2.2 million base is preserved.

[4] Old Age Security has not been included in the considerations.

[5] Excludes probate fees and ignores savings from excess earnings.  Includes wind-up of corporation & corporate portfolio on death.

[6] Public payroll and pensions, and CPP.

[7] Taxes and CPP contributions

Tim Paziuk is a Lecturer, Financial Advisor, and author of Professional Corporations: The Secret to Success & The Financial Navigator – Managing Your Success. He is also the president of TPC Financial Group, a fee-for-service planning company based out of Victoria, BC.

2 thoughts on “On the Middle Class & paying one’s fair share of taxes

  1. I have carefully read your article. It only deserves to be credited for being so utterly contrived to only make your point. I stretches to the extremes the “realities” of two Canadians bound by marriage. I wonder how it would work if the article reflected the more mainstream. The article is so extreme in its fictional characters and numbers, that it doesn’t even even make it a plausible exercise in a finance class. Sir, you can still make your point using real world examples. Sir, you do yourself no credit in your professions. Finances… not creative writing.

  2. Here’s another scenario. As an individual in his 30’s, having paid more than $1 million of combined provincial and federal income taxes so far in my career, what have I received for this? When I compare to others who have contributed so much less tax, and enjoy the same use of our country’s resources as I do, how is this fair? I realize I’m more fortunate than most, but I worked hard and made sacrifices to get here. Why do I have to carry others on my back? It’s people like me that provide for Canada and its provinces, and when we decide enough is enough, we leave for fairer jurisdictions, whether interprovincially or abroad. When we relocate in droves, where will the money come from?

Leave a Reply