As we reach the conclusion of March – tax month at our blog – I would like to take the opportunity to explore the origins of income tax law in Canada.

Taxation is as old as government itself. From the very start of both British legal rule in Canada (1763) through Canadian Confederation (1867), the state in Canada has devised several means of direct and indirect taxations of subjects and citizens, to the present day.

Constitutionally, both the federal and provincial governments within Canada have respective tax jurisdictions, with one of the primary federal systems of tax being taxation on income.

The genesis of federal income tax was the passing of the Income War Tax Act, in 1917. Originally devised as a temporary measure in support of Canada’s efforts in the First World War, federal income tax ultimately became a permanent fixture in Canadian life.

In stark contrast with today’s long and complex Income Tax Act, the original (annotated) 1917 Act totaled no more than 50 pages, with a relatively simple system of:

4.(1)(a) “four per centum [4%] upon all income exceeding fifteen hundred dollars [$1,500.00] in the case of unmarried persons and widows or widowers without dependent children, and exceeding three thousand dollars [$3,000.00] in the case of all other persons,”

Followed by six graduated rates:

1. 2% on income from $6,000.00 – $10,000.00
2. 5% on income from $10,000.00 – $20,000.00
3. 8% on income from $20,000.00 – $30,000.00
4. 10% on income from $30,000.00 – $50,000.00
5. 15% on income from $50,000.00 – $100,000.00
6. 25% on income over $100,000.00

For comparison, the 2022 graduated federal income tax rates* (for individuals) are:

1. 15% on the first $50,197.00 of taxable income
2. 20.5% on taxable income from $50,195.00 – $100,392.00
3. 26% on taxable income from $100,392.00 – $155,625.00
4. 29% on taxable income from $155,625.00 – $221,708.00
5. 33% on taxable income over $221,708.00

*This is in addition to applicable provincial income tax (in Ontario, ranging from 5 – 13%)

Evidently, our present income tax rate is much higher than it was in 1917 – especially when adjusted for inflation – and there are today far more rules and exemptions than just for “unmarried persons and widows or widowers without dependent children,” and “all other persons.”

Thanks for reading!

Fred Tonelli