Saturday, March 2, 2024

Income Inequality Still Persistent in Canadian Society Since Covid-19

Incomes of the top 1% of tax filers rose 9.4% to $579,100 in 2021. This occurred in the context of COVID-19 pandemic restrictions easing, many government benefit programs winding down, the labour market recovering, and the Canadian house prices and stock market indexes increasing in 2021.

High-income Canadians and capital gains, 2021

Recovery produces uneven income gains in 2021

According to data based on the tax filings of individuals, the average total income of the top 1%, excluding capital gains, rose by 9.4% to $579,100 in 2021. Filers in the top 0.1% saw their average total income increase by 17.4% to $2,086,100, while those in the top 0.01% saw their average total income increase by 25.7% to $7,731,400. These increases offset the small declines observed in the top ranks of income earners in 2020.

In contrast, filers in the bottom half of the distribution saw their average total income decline by $1,400 from 2020 to $21,100 in 2021. This decrease was due in part to the lowering or ending of government transfers.

Accordingly, the share of total income earned by the top 1%, a commonly used measure of income inequality, rose from 2020 to 2021. In 2021, the top 1% of tax filers received 10.4% of aggregated income earned by tax filers, up from 9.4% in 2020 and the highest level posted since 2015.

In 2021, wages and salaries drove increased incomes for the top-income earners. People in the top 1% saw their average wage and salary income rise by 12.0%, while those in the top 0.1% saw an increase of 24.6% and those in the top 0.01% saw an increase of 34.5%.

Dividend income is also an important component of total income for the highest income groups. In 2021, these top groups saw large increases in dividend income, which returned this item to its pre-pandemic level. Filers in the top 1% received an average dividend income of $90,200 (+12.9% compared with 2020), those in the top 0.1% received $429,500 on average (+19.2% compared with 2020) and those in the top 0.01% received $2,009,700 on average (+26.0% compared with 2020).

Income Inequality Still Persistent in Canadian Society Since Covid-19

Women continue to increase their representation at the top

Women’s representation in the top income groups continued to rise in 2021, continuing this long-standing trend. Overall, women composed 26.1% of the top 1% of income tax filers, up from 25.4% in 2020. The share of women in the top 1% has been increasing steadily since this series started in 1982 when the share was 11.4%.

Capital gains rise sharply in 2021

Income estimates, including those reported above, normally exclude capital gains, which are the net realizations from the sale of an asset or other property. However, for the study of top incomes, it is common to also examine income with capital gains added in.

Looking first at patterns in capital gains received, the amounts received in capital gains rose sharply in 2021. That year, 12.2% of tax filers received capital gains, which had an average value of $37,600. Capital gains values tend to be skewed, with a small proportion of tax filers receiving relatively large capital gains. For example, 5% of capital gains recipients received $131,100 or more in 2021. These figures are all much higher than those in 2019 and 2020. For example, in 2020, average capital gains were $29,300.

In 2021, the increase in capital gains was in line with the values seen in the housing and stock markets, which rose in 2021 and peaked at historically high levels in early 2022. Large increases in realized capital gains were also seen in the United States in 2021.

Considering income including capital gains, average income for the top 1% was $811,800 in 2021, up 20.5% from 2020. In 2021, the average income for the top 0.1% was $3,230,000, up 27.6%, and that for the top 0.01% was $12,542,100, up 30.0%. These income levels including capital gains were much higher than they were at any other point in the past 40 years, accounting for inflation. The previous peak was in 2007 when the top 1% made on average $712,000.

The share of income including capital gains in the top 1% also rose sharply in 2021, reaching 13.4% that year, compared with 11.5% in 2020.

Income Inequality Still Persistent in Canadian Society Since Covid-19


  Note to readers

Data for 2021 ha