My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Wednesday, April 25, 2012

Taxing the Rich in Ontario

I had neither the energy nor the intention to write another blog post this week. However, I cannot resist piping in on the Ontario Liberals imposing a 2% surtax on those in Ontario earning more than $500,000. I mean, the Liberals only want to "pay down the deficit faster", while it is the evil NDP that want to tax the rich.

It is always smart politics to tax the rich. However, in my opinion, the “rich” in Canada are already highly taxed. In Ontario the highest marginal income tax rate of 46.41% starts at only $132,406. Does a yearly income in Ontario of $132k make you rich? Tack on the HST and tax freedom day will soon be October 31st.

A tax on the rich is pure tax revenue to the government unless it causes a change in behaviour. Where an income tax increase changes behaviour, it becomes dangerous and despite what Andrea Horwath of the NDP thinks, her constituency requires job creation by the "rich" and fat-cat corporations to be employed.

As someone who deals with many so called "rich people", this is my take on the situation:


High earning employees such as investment bankers, lawyers, the occasional accountant, are client driven and their behaviour is typically not changed by an increase in taxes as client work must be done. Thus, in the employee's case, it is usually a grin and bear it attitude.


As an accountant, you don’t know how many times I hear it is not worth the time and effort to get more business or pick up new clients as “I am only keeping half of what I make anyways”.

The self-employed group typically has direct control over whether it is willing to incur more income tax and continue growing their businesses. This group can impact tax revenue and job growth and in my opinion, every increase in income tax is a huge disincentive to the growth of their business, since many already feel over-taxed.

Included in this group maybe some medical professionals (mostly specialists). I would suggest that for this group which is capped in earnings already (although to a lesser extent than it used to be) any increase in tax creates another disincentive to take on new patients, but that is a separate battle the Liberals are taking on. 


Although there is always a new generation of entrepreneurs arriving on the scene, I have learned over the years that successful entrepreneurs are often repeat entrepreneurs – they may fail once or twice, but have huge successes multiple times. Does income tax drive their decisions? Often yes, but sometimes no. For some it is just the challenge and their genetic make-up.

This is the group that probably matters the most (ignoring big corporations). They create companies and create jobs. For this group, I think there is just an invisible tipping point where income tax becomes so high it becomes a disincentive. I don’t think this new surtax is the tipping point, however, I would suggest as we edge ever closer to 50%, the closer the government comes to hitting the magical disincentive button.

Income Tax Reality

Many self-employed people and entrepreneurs utilize corporations and family trusts that will allow them to somewhat mitigate this issue. What this surtax will do is probably cause many people to push the income splitting envelope.

In conclusion, I think the Liberals walk away essentially Scott-free from this 2% surtax increase. However, if they try and tack on another income tax increase in the near future, I would suggest they would be approaching the tipping point where taxpayer's behaviour may change.

Bloggers note: I should not post 5 days before the end of tax season when I can't think straight. I was remiss in not noting the following--There is an Ontario surtax of 56% levied on ON428 tax form, lines 50 and 51.  As the 2% surtax will be levied before the 56% surtax, the 2% surtax is really a 3.12% tax increase (2%  plus 2% x.56%).

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.


  1. Good post -- I wrote on the same subject. I'm in the employee bucket right now (but with an income less than the new half-million threshold). However, tax rates make me more interested in negotiating extra vacation each year than extra pay.

    1. Thx Michael, usually I check out your blog first thing, but a little swamped down with tax returns right now. I like your thought on the offset of people moving, just dont think it will happen yet, one more increase, maybe.

  2. Mark, I'm not sure why you are complaining about having your marginal tax rate increased a tiny bit. You can afford it! ;)

    Seriously - this article talks about a tax increase in England which ended up not increasing tax revenues at all for some of the reasons you mention:

    1. Mike, thx for the link

      In regard to your first comment, is this not the pot calling the kettle black? I would assume with all your RESP book royalties you would already be packing and heading to Alberta :)

  3. Does this 2% surtax also become in essence an inheritance tax? Suppose one has no spouse and no dependent kids but has over $500,000 of RRSPs. In the year of one's death, these RRSPs will be recognized as "income". Does that mean the estate will get hit with the 2% surtax on RRSPs over $500,000?

    1. This is a very unfortunate consequence of the surtax. I know of seniors who are by no means rich but have scrimped and saved their whole lives so that they have something to leave for their grandchildren. They will be affected by this surtax.

      If my assumption regarding the surtax is correct, I want to bring attention to this to my local MPP and CARP. It just seems so wrong to hit seniors with a death tax with a tax supposedly intended for the "rich".

    2. Hi Anon,

      I think it is an unfortunate result, but IMHO you are overacting a bit here. These seniors are not hit with the surtax each year, but only on death and one would argue if they have a RRIF over $500k on death, they are not exactly destitute.

    3. Thanks for replying to my original post about the surtax. I'm just frustrated with these perpetually higher taxes.

      On a positive note, your blog is really fantastic! I appreciate that you are sharing your knowledge. Thank you Mark.