The New Canadian LICOs

THE NEW POVERTY LINE
When are Canadians in Financial Difficulty?
Is this Canada Revenue Agency’s mandate?
A commentary on the Taxable Benefits Fiasco
by Victor Drummond ©
August 2007

Correction of hourly rate -- 22 Aug. 2007

The Canadian Council on Social Development,
using Statistics Canada’s Low IncomeCut-Offs,
have prepared a table of LICO’s
more commonly known as Canada’s Poverty Lines.

Incomes are listed for family sizes from 1 person to 7+ persons and community sizes from 500,000 and up – and also down to 30,000 and Rural.
Income refers to total pre-tax household income.

Using a typical family, of two adults and two children, living in a community of 100,000 people the Low-Income Cut Off level is listed as $33,251 dollars per year.
(figures updated from the year 2004).

There are a lot of variables that may enter into the calculations – for example are both parents employed outside the home, is a friend or relative providing free baby-sitting services, or are the children in a day-care center etc.

Assuming the mother is not working outside of the home and the father works a conventional
40 hr week = 2,080 hrs/year then his before tax hourly rate would be 33,251/2,080 = $16.00

This hourly rate is well above the legal minimum hourly rate for unskilled workers but there are still some families in “straightened circumstances” living in Canada.

But then again this figure is based upon pre-tax income. The only taxes this family might pay are the PST and GST – and there would be a GST rebate claimed at that income level.

Could a similar family of four, living in the same community, with a household income of $100,000 -- or more -- be living below the poverty line. You wouldn’t think so would you?

Then what about a family, with the $100,000 per year income, and identical living conditions, that have been levied a horrendous $250,000 tax on taxable benefits that they never received?

This tax alone is twice the total family income for two years. If they do not have the money in the bank and are required to borrow the money to pay this tax then they will have loan repayments and interest that cut into their income.

In terms of real income they are now worse off than the family that has a real – income tax free – income at the poverty line.

If they can not borrow the money and have no property to mortgage they must use the deferred tax option -- if available to them. Or standby, and watch, while the Canada Revenue Agency has their possessions seized and sold – either of which may kill their children’s prospects of a university education and/or any meaningful inheritance.

Until they can pay off this unwarranted debt they will remain financially worse off than the family that was only receiving the $33,251 annual income.

The flawed “Taxable Benefits” legislation has effectively brought these families financial balance below the poverty line – for as many years as it takes to pay off the unjustified debt.
They are in fact the new class of LICOs Canadians.

Is this the intended mandate of Canada’s Revenue Agency? Did the author(s), of Canada’s Income Tax Act, expect, or intend, this kind of situation to arise? Not likely.

Given the makers of this tax booby-trap had no stock market savvy they likely never expected those taxed on equities, at the time of delivery, would be penalized to the point of financial extermination. But it happened to many thousands of Canadian taxpayers.

With the impact of this defective legislation, now evident, it appears the Conservative Government, elected in 2006, recognized the unwarranted and crippling taxes that resulted and made a token effort to partially correct the problem by granting remission of these taxes to a select few victims in British Columbia.

Perhaps the magnitude of the problem wasn’t apparent, when the partial fix was first implemented, because the fix was then denied to thousands of identical tax victims in British Columbia and across Canada. The situation is now worse than before.

By denying equal treatment to all taxpayers, in an identical tax situation, the problem is further compounded by blatant discrimination.
Canada’s defective Taxable Benefits regulations are now not being applied equally.

If no corrective action is apparent when the next Federal election gets under way then every Canadian voter should clamor for this issue to be properly corrected.

It is just one more mess left behind by the previous government for the current – or incoming government -- to clean up.

Victor Drummond ©