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How a tax reset could help hard-working Canadians with a second job

Jason DeanIf you need two jobs to cover your bills, maybe the government should be a bit less greedy with you around tax season.

It’s no secret that the rise in the cost of living has been hitting Canadian families hard, and we’ve all been looking for ways to save on our expenses to keep them in line with our incomes.

Unfortunately, cutting back on some expenses hasn’t been enough for all our fellow citizens. As a result, the number of Canadians taking on a second job in addition to their main full-time job has increased in recent years.

Today, the number of moonlighting Canadians is estimated to be over 658,000. That’s equivalent to the population of Brampton, the ninth-largest city in the country according to the latest census.

tax second job
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These are people who have to work a combined total of over 35 hours per week just to make ends meet. As you might expect, it’s not so much the people earning six figures taking on this secondary employment, but rather the folks in or near the bottom and lower-middle income brackets.

Unfortunately, the way things stand, the income taxes on their second jobs are hitting them hard. That’s because our tax system doesn’t differentiate between primary and secondary employment. It just keeps adding things up and increasing the marginal rate you have to pay.

To illustrate what this means, consider a single Ontarian who earns $35,000 a year in their main employment but still needs a second job to make ends meet. The provincial and federal governments will take at least 20.5 cents from every dollar they earn in that secondary employment.

For the average worker in this situation, their second income brings in a little over $18,000, according to Statistics Canada. And out of that $18,000, they end up paying more than $3,700 in taxes.

Of course, the exact amount varies by province, but no matter where in the country they live, it’s still a significant amount of money they could use for other purposes. But instead of putting it toward the rent, paying for groceries, or paying off credit card debt, they are forced to send it straight into government coffers.

One way to change that would be for our governments to reset the marginal tax calculations for people who have two jobs, with one of them being full-time.

This would mean restarting the income tax ladder at zero and considering their secondary income in a silo so that every extra dollar earned wouldn’t be subject to a tax rate of 20 percent or more.

To understand this policy’s effect, let’s look at our average Ontarian moonlighter earning an annual $35,000 in their main job and $18,000 in their secondary job. Our proposed tax reset would leave them with $2,722 extra in their pockets at the end of the year compared to what they have now.

With the cost of living what it is today, you’d be hard-pressed to find any Canadian who would snicker at the idea of a $2,722 bonus. This is even truer among people at the lower to lower-middle end of the income scale.

While this represents a significant sum to each of the 658,000 Canadians living in this scenario, it’s also an amount that would barely make a scratch on federal and provincial revenues.

For instance, at the federal level, providing such a tax reset would represent a $981 million drop in revenue. This might seem like a lot, but it’s almost invisible besides the $489 billion the government projects to spend this year.

Looking at it another way, the amount is slightly less than the production subsidies Ottawa has pledged to send to one company, battery manufacturer Stellantis, every year for the next decade.

If Ottawa can extend such magnanimity to a single foreign battery manufacturer, surely it can find a way to help 658,000 hard-working Canadians by providing them with a tax reset on their second jobs.

By Jason Dean, Assistant Professor of Economics at King’s University College at Western Ontario and Associate Researcher at the Montreal Economic Institute.

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