Sean Speer

Back of the Envelope

Estimated costs and distributional effects of Canadian income tax changes.

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Brackets
How this works Federal income tax only · Method, accuracy, what it leaves out, sources ·

The estimate

Federal income tax only. The tool changes and measures the federal personal income tax. Provincial income taxes stay at current law; the only provincial figure shown is the knock-on effect on provincial revenue.

The explorer starts from the Canada Revenue Agency's statistics on 2024 tax returns. These give the number of filers and their income, credits and federal tax in 19 income ranges. It turns those ranges into about 500 representative groups of filers and computes each group's federal tax under current law and under your reform. Results are grouped by total income in 2024, and filer counts are 2024 counts.

Brackets are entered in 2026 dollars. Incomes grow with nominal GDP: Statistics Canada actuals, then a year. Brackets and credits are indexed to inflation (). The reduced basic personal amount for top earners stays at $14,829. Quebec residents' federal tax is reduced by the 16.5% Quebec abatement. Non-refundable credits are valued at the lowest rate, so changing that rate changes every taxpayer's credits too.

Static estimates assume nobody changes behaviour. The behavioural estimates let filers whose marginal tax rate changes adjust their taxable income. The size of that response comes from the research literature (the "elasticity of taxable income"):

    Debt costs use the current 10-year Government of Canada bond yield. Provincial effects arise because most provinces tax the federal definition of income, so when filers report more or less income, provinces gain or lose too.

    How accurate is it?

    Before any reform, the model is calibrated to reproduce CRA's federal tax by income range for 2024:

    Total incomeModelled taxCRA taxModelled taxpayersCRA taxpayers

    A test against a published estimate:

    What it leaves out

    • Effects on the economy (growth, investment, wages). These are static and behavioural estimates only.
    • Benefits and refundable credits (Canada Child Benefit, GST credit, OAS clawback), and provincial tax changes.
    • Detail within each income range. Credits other than the basic personal amount are set at each range's average, so who owes tax at all is approximate.
    • About $2.5 billion of the tax CRA reports from filers with total incomes under $40,000 (of $223 billion in all), which the model can't attribute. It also counts fewer of those filers as taxpayers than CRA does.
    • The very top of the income distribution, which is estimated from one group average above $250,000. The top bracket's base is sensitive to it.
    • Tax years, not fiscal years. Government budget tables use fiscal years and include timing lags.

    This is not an official estimate. It is a back-of-the-envelope estimate built from published aggregates. Use it to check official estimates, not to replace them.

    Sources