The average Canadian pays so much in taxes that all their earnings so far this year have been eaten up by government coffers, according to the Fraser Institute.

But critics say the fuzzy math behind that theory doesn't add up.

In an annual report, the Vancouver-based think-tank adds up all forms of taxation — from income and sales taxes, to more hidden costs such as gasoline taxes, carbon taxes, tobacco and alcohol taxes, municipal property taxes, payroll taxes and even CPP and EI premiums — to come up with a figure for the overall tax burden.

This year, the Fraser Institute calculated that the average Canadian family with two or more people will earn $108,674 and pay 43.4 per cent in taxes — or a cool $47,135 going to the tax man. Based on that math, the group said, 100 per cent of income earned thus far in 2017 has been gobbled up by government, and only now are you working for yourself until the end of the year.

"It's difficult for average Canadians to add up all the taxes they pay in a year because the different levels of government levy such a wide range of taxes, and that's why we do these calculations — to give Canadians a better understanding of exactly how much they pay to government," said Charles Lammam, the Fraser Institute's director of fiscal studies.

Last year, it came a day earlier, on June 8. Because of variances in all types of taxes in different provinces, Tax Freedom Day differs across the country, ranging from May 21 in Alberta to June 25 in Newfoundland and Labrador.

Canadians' tax bill has risen, on average, by $1,126 this year, the Fraser Institute report says. Of that, $542, came from higher income taxes, but sales taxes (up $311) and other energy-related taxes (up $204) also took a bigger bite. Meanwhile "liquor, tobacco, amusement, and other excise taxes, payroll and health taxes, and import duties," all decreased, the Fraser Institute says.

The think-tank insists its annual report isn't meant to question the value Canadians get for their hard-earned tax dollars. "Rather, it looks at the price that is paid for a product — government."

"Tax Freedom Day," the Fraser Institute says, "is not a reflection of the quality of the product, how much of it each of us receives, or whether we get our money's worth. These are questions only each of us can answer for ourselves."

'Skewed perception'

But critics of the report point out flaws in the think-tank's methodology.

The Ottawa-based Broadbent Institute says the annual Fraser Institute report "helps foster a skewed perception of tax rates paid by the typical Canadian family."

Out of 35 OECD nations, Canada ranks 25th in terms of its tax burden relative to the size of its economy, the Broadbent Institute says. The typical Canadian's tax rate is closer to 24 per cent, the Broadbent Institute said, and only 1 in 5 pays 20 per cent or more in income taxes.

One of the Broadbent Institute's main criticisms with the Fraser Institute's methodology is a bit of mathematical pedantry — that the Fraser Institutes uses "average" tax rates instead of median tax rates.

To come up with its "average" tax rates, the Fraser Institute simply adds up the amount of cash income earned by a taxpayer, and then divides that by the number of people. It then takes "outliers" and excludes those extremes from the calculations.

Personal finance bankruptcy Shutterstock file photo

The Fraser Institute includes all kinds of taxation in calculating its numbers, even ones that consumers don't directly pay. (Shutterstock)

The Broadbent Institute said that skews the numbers in a certain way, and a better way than the average would be to use the median — the exact mid-point between the top and bottom. "The average income of Canada will always be higher than the median because of the small number of very high-income earners in Canada," the Broadbent Institute said. "These outliers skew the average income upward.

"In other words, the average tax rate reflects disproportionately the tax rate of the highest paid."

Adding up only federal and provincial income taxes, the "average" Canadian in prime working years between ages 25 and 54 earned $62,600 last year, and paid $12,000 in income taxes — about 19 per cent, according to tax filings. The median in that group, however, earned $50,500 and paid $7,000, or 14 per cent, in income taxes.

But the Fraser Institute report doesn't just include income taxes. It tabulates all sorts of fees that taxpayers don't directly pay, such as payroll taxes and resource royalties that companies pay when they extract things like oil, minerals and timber.

It also only considers what it calls "cash income" on the other side of the ledger. That excludes employee benefits, investment income from pension plans and other forms of cash income. 

But that, too, is misleading, Broadbent Institute said, because the report excludes different forms of income on the one side, but includes them to calculate the tax burden.

As Osgoode Law School Prof. Neil Brooks put it in a paper on the topic, "their calculations treat families as having paid a good deal of their taxes out of income they are not treated as having received."

For its part, the Fraser Institute said "while these types of incomes are accumulated, they are not paid to Canadian families in the current year, and thus should not be considered as part of their income for Tax Freedom Day calculations."

The Fraser report also said it incorporates indirect costs like payroll taxes and other levies that businesses include in calculations because, "although businesses pay these taxes directly, the cost of business taxation is ultimately passed onto ordinary Canadians."

The paper was also criticized for including natural resource royalties in its report — something consumers don't directly pay for. But the Fraser Institute sidesteps that criticism and calls it an "unresolved debate."

"If natural resource revenues are excluded, Tax Freedom Day is eight days earlier in Newfoundland and Labrador, three days earlier in Alberta and Saskatchewan, and two days earlier in British Columbia," the Fraser Report said.