Nuanced. - 211. Taxes in Canada Explained — Are Canadians Still Benefiting?

Episode Date: October 14, 2025

Why do taxes come out before you even get paid? Chief Aaron Pete breaks down the real story behind income tax, GST, and carbon tax — where they came from, what they were meant to do, and whether the costs are still worth it. From the “temporary” wartime tax of 1917 to today’s carbon tax debates, he explores whether Canadians are truly benefiting from what they pay — or if trust in government has quietly eroded beyond repair.Send us a textSupport the shownuancedmedia.ca

You know, If you work in Canada, you probably don't notice it happen. You check your paycheck, and there it is. Gone. Before you even see it, the government gets paid first, you get what's left. And that's the deal we've accepted as citizens, that we'll pay our share so we can all live in a country that works. Healthcare when we're sick, schools for our kids, safe streets, strong communities, and public infrastructure that actually functions.

But more and more, Canadians are starting to wonder if that deal still holds because we're paying more than ever before and somehow getting less in return. A century ago, most Canadians didn't even pay income tax. It was introduced in 1917 as a temporary wartime measure. Back then, only a few percent of people even filed a return. and personal income tax made up just 2.6% of federal revenue, according to the Fraser Institute. Today, it's more than half of what Ottawa collects, and almost three out of four Canadians now pay income tax. Before we even get to payroll deductions, carbon taxes, property taxes, and the endless list of fees that somehow aren't called taxes,

so yes, we're paying more than ever. But look around. Does it feel? like we're living in a country that's getting better? Health care alone eats up more than one third of every provincial budget. Yet emergency room wait times are the longest they've ever been. According to the Fraser Institute's 2023 report on health care wait times, the average Canadian now waits 27.4 weeks between seeing a family doctor and receiving a treatment from a specialist, the longest delay ever recorded. In emergency rooms, one in three Canadian waits more than four hours before being seen,

compared to just 1% in France, according to a study published in the Canadian Medical Association Journal. And right now, roughly one in five Canadians doesn't have a family doctor at all, based on data from the Canadian Institute for Health Information. We were told higher spending meant shorter weights, But the opposite has happened, and healthcare isn't the only place the cracks show. In our justice system, violent repeat offenders are released on bail, sometimes within hours, and I know this as a native court worker, not because judges are soft, but because the system is collapsing under its own weight. In our schools, parents are seeing classrooms more focused on politics than on literacy or numeracy. And infrastructure, the stuff we can all see, tells its own story.

Just this year, B.C. Ferry's, one of the most important public services in British Columbia, awarded a multi-billion dollar contract to a state-owned Chinese shipyard to build its next fleet of vessels. The justification? The Chinese bid was more competitive. But think about that. We tax Canadian workers, Canadian shipbuilders, and Canadian families, and then send these dollars overseas to build ferries will depend on for decades? It's the perfect symbol of a country that's forgotten what taxes are supposed to do. And while all this is happening, we're running the largest deficits in our history.

So Canadians are being squeezed from both ends, higher taxes on one end, higher debt on the other. And what's left in the middle? A citizen who's paying more, getting less, and losing faith. that's the question we're tackling today. If taxes are supposed to be the price of a civilized society, what happens when society stops feeling civilized? In this episode, we're going to look at how Canadian taxes actually began, where income tax, sales tax, property tax, and the carbon tax all came from. We'll also talk about how taxation works or doesn't work on Indian reserves and why that history is often misunderstood.

We'll explore the social contract between what taxes were meant to uphold and how both left and right now claim to defend it in completely different ways. And finally, we'll ask whether this system, one that takes before you earn, still deserves the trust of people it's supposed to serve. Because if you're going to take people's money, you should probably be delivering something worth paying for. Let's get started. Before 1917, the federal government ran the country on taxes you could actually see.

Most revenue came from tariffs, custom duties, and excise taxes. Simple direct charges on imported goods like alcohol, tobacco, sugar, and manufactured products. It was a visible system. You paid when you bought something, not when you earned something. If you didn't import drink or smoke, you barely noticed that taxation even existed. According to the Canadian Encyclopedia, by 1913, more than 90% of all federal revenue came from these trade-related taxes. That was by design. Canada was a young country with a small population and a government that saw itself mainly as facilitator of commerce, not a caretaker of citizens. Prime Minister Wilford Laurieres, Canada, at the turn of the century, believed prosperity,

would come through trade, immigration, and expansion. The idea of taxing income of reaching into citizens' pay was unthinkable. It was something European monarchs did. Canadians prided themselves on having a lighter, freer system. But that world collapsed in 1914. The First World War changed everything. Canada's war effort was massive. By 1917, nearly 400,000 Canadians were overseas and military spending had ballooned from $11 million in 1914 to $439 million in just three years. The country was burning through money faster than it could borrow. Tariffs couldn't keep up, and the federal deficit was exploding. So in the summer of 1917, finance minister, Sir Thomas White, stood in the House of Commons

to announce a radical proposal, a national income war tax. It would be temporary, he promised. a measure to assist in defraying the expenses of the war. White described it as a conscription of wealth, echoing the military conscription that had torn the country apart that same year. If young Canadians were being drafted to fight, he argued, the wealthy could afford to contribute more at home. The Income War Tax Act set a base rate of 4% on taxable income over $6,000,

A fortune at the time, and higher graduated rates for very wealthy individuals and corporations. The average Canadian worker earned less than $1,000 a year. So this was meant to hit only the top few percent. White assured Parliament that it was a temporary measure to be repealed when the war ends. But like most temporary government programs, it outlasted the crisis. By 1918, the 300,000 Canadians were paying income tax. By 1920, it was bringing in over more than 100 million a year, and Ottawa had discovered something dangerous, steady, predictable revenue.

The temporary income tax quietly became permanent. The Second World War cemented that shift. By the early 1940s, Canada had built the machinery of modern taxation. In 1943, finance minister J.L. Isley introduced pay as you earn, automatic payroll deductions. Instead of waiting for citizens to mail in checks at year's end, the government would now take taxes directly from each paycheck as you earned it. That's when the relationship between government and citizen changed forever. The state didn't just collect taxes. It assumed them.

The citizen never even touched the money. As Isley put it, his 1943 budget speech, taxes must be collected as incomes are earned. This is the only practical method of ensuring fairness and of financing the war effort efficiently. The change worked. Ottawa's revenues surged. By the end of the war, income tax accounted for half of all federal revenue. And once the war ended, the machinery stayed in place. but the mission changed.

The system that had funded armies abroad, now funded social programs at home. From the 1940s to the 1960s, we saw the rise of the welfare state. Unemployment insurance in the 1940s, family allowances in 1945, old age security in 195, Medicare and national pensions in the 1960s, all funded through the same automatic deduction system. The one that ensures the government gets paid before you even see your paycheck. As one historian wrote in Dalhousie's University Dall Space Archives, Canada's post-war expansion of social welfare was only possible because of the transformation in tax administration during the war.

Pay as you earn turned citizens into taxpayers by default. It was efficient, it was invisible, and it was permanent. What began as a temporary wartime necessity had become the economic foundation of the Canadian state. Let's talk about provinces. By the 1930s, Ottawa wasn't the only government running out of money. The Great Depression had flattened provincial economies and left city scrambling to fund basic services. Unemployment soared, social assistance exploded, and property taxes, the main source of provincial and local income, collapsed. It was survival mode, and that's when provinces began experiencing with a new idea.

A sales tax. Saskatchewan was the pioneer in 1937. Saskatchewan became the first province in Canada to introduce a provincial sales tax. It was a 2% levy on goods, small by today's standards, but controversial at the time. The government of Premier William John Patterson, a liberal, framed it as a matter of necessity, not ideology. The province had been devastated by drought, falling wheat prices, and economic collapse. Schools were closing, hospitals were underfunded, and public payrolls were at risk.

Patterson's finance minister, Charles Dunning, called it a temporary emergency measure to stabilize revenues and protect education funding. In his 1937 budget speech, he said the new tax would make the continued operation over public schools and institutions of care. That 2% temporary measure became a permanent fixture and the foundation of Saskatchewan social programs. By the 1950s, the PST was bringing in over $10 million a year, allowing the province to pioneer Medicare under Tommy Douglas.

In a twist of irony, a tax born from financial desperation would later bankroll one of the greatest social achievements in Canadian history. In British Columbia, we saw a change in 1948. A decade later, British Columbia followed suit. Under Premier Brian Boss Johnson, BC introduced its own 3% provincial sales tax. The justification was explicit to fund expanded social services in the post-war era, including hospital construction, veterans programs, and public education. Johnson's government was pragmatic.

He said in his 1948 budget address, The people of British Columbia have asked for greater public service. They understand that those services cannot come without contribution. It was sold as a shared sacrifice for a shared future. But like Saskatchewan, BC sales tax never went away. By the 1970s, that temporary revenue stream was the backbone of provincial spending, so much so that when Premier Bill Bennett, proposed modest increases during the resource boom of the 80s.

Critics accused him of turning BC into a tax province. Yet Bennett pointed to the roads, hospitals, and schools these revenues built and said, we can't be a have province without paying for what we have. Today, BC's PST remains at 7%, contributing more than $9 billion annually to the provincial treasury. Ontario was reluctant in 1961. Ontario resisted for as long as it could. Through the 1940s and 50s, its booming manufacturing economy and strong property tax base allowed it to avoid a retail sales tax. But by the 1960s, even Canada's richest province was running deficits.

In 1961, Premier Leslie Frost, nicknamed Old Man Ontario, introduced a 3% retail sales tax. He called it a regrettable but necessary step toward modern fiscal management. Frost had spent years trying to avoid it, arguing that direct taxation on goods would burden working families. But with the province's population exploding, highways being built and hospitals multiplying, there was no choice left. By 1970, Ontario's RST was producing 500 million a year, becoming one of the province's most reliable revenue sources. It funded the rapid urbanization of greater Toronto area and the creation of the province's college system. In 2010, Ontario merged its RST with the federal GST to create what's called a harmonized sales tax,

a politically unpopular move under Premier Dalton McGinty, but one economist's largely supported for reducing business complexity. Then there's Alberta, the great Canadian outlier. Alberta introduced a 2% sales tax in 1936 under Premier William Aberhart during the Depression. But it lasted less than two years. When oil was discovered at Leduc in 1947, Premier Ernest Manning swore it would never return. He famously declared, in Alberta, the wealth beneath our feet will pay for the services above it. And for decades, he was right. oil royalties and resource revenues replaced what other provinces earned from sales tax.

By the 1970s, Premier Peter Loheed made it a point of pride. No sales tax? Not now, not ever. That promise became political gospel. Even in the early 1990s, when Premier Ralph Klein was slashing spending to balance the budget, he refused to consider a sales tax. And in 2021, Alberta enshrined that tradition into law, the Alberta Taxpayer Protection Act, requiring a public referendum before any sales tax could be introduced. Today, Alberta remains the only province in Canada without a provincial sales tax, a decision that still defines its identity as the low-tax-free enterprise province.

So by the mid-20th century, a clear pattern had formed. Saskatchewan taxed out of desperation. BC taxed for social expansion, Ontario taxed for modernization, Alberta refused to tax, powered by oil. Each approach reflected a philosophy, whether the role of government was to stabilize, build, expand, or stay out of the way. And each province discovered something else. Taxes that begin as temporary solutions rarely end that way. They become expectations, they become habits, they become permanent pillars of how Canada funds itself, long after the crisis that created them have faded from memory. By the 1980s, Canada's tax system was creaking under its own weight. The federal government was still relying on a tax that dated back to the Second World War, the manufacturer's sales tax or MST.

It sounded harmless enough, but economists despised it. The MST was a hidden tax built into the price of goods long before they reached the store shelf. It taxed companies at every stage of production on the parts, the machinery, even the raw materials, meaning products were effectively taxed multiple times before a customer ever bought them. The more you manufactured in Canada, the more you paid. The more you imported from abroad, the less you did. In other words, it punished making things here. By the late 1980s, that system was dragging down Canadian competitiveness.

Our exports were shrinking, manufacturing jobs were leaving, and business investment was stagnating. So in 1989, Prime Minister Brian Mulroney and his progressive conservative government proposed a radical fix to scrap the old tax and replace it with a market. modern, transparent goods and services tax. The GST. Finance Minister Michael Wilson argued it was time for honesty and taxation. He said in the House of Commons, the manufacturer's sales tax is a hidden tax on jobs, on growth, and on investment. The GST will make taxation visible, accountable, and fair. That was the economic argument. And it was sound. Tax consumption, not production. Reward companies for building in Canada and tax spending instead of

saving or investing. But the politics was a disaster. When Canadians heard new tax, they didn't hear modernization. They heard more money out of my pocket. The opposition liberals led by Jean-Cretchen seized on that anger. They called it a tax on everything. And they weren't wrong. The GST hit nearly every good in service Canadians bought, from furniture to phone bills, groceries to gas. Public outrage was fierce. Protesters filled the streets. The Senate tried to block it, and in 1990, the battle reached its climax when Mulroney used an extraordinary constitutional power, Section 26 of the Constitution Act, to appoint eight

additional senators and push the GST through the upper chamber. It passed by one single vote. The new 7% goods and services tax officially took effect on January 1st, 1991. Overnight, Canada had one of the most visible taxes in the developed world, printed on every receipt. Mulroney defended the decision as an act of long-term courage. He told the House of Commons, leadership is not about doing what's popular. It's about doing what's right. for the future of our country.

He was right about one thing. It was transformative. The government of Canada's own parliamentary research branch, looking at a decade later, concluded that the GST's modernized Canada's consumption tax system reduced distortions in production and improved export competitiveness. But it also destroyed Mulroney's political career.

His approval ratings dropped to 11%, one of the lowest in Canadian history. In the 1993 election, his party was wiped off the map, reduced from 156 seats to two. Ironically, his successor, Jean Cretchen, who had campaigned on scrapping the GST, kept it. It was too valuable to give up. Even after the rate was cut from 7% to 5% under Stephen Harper in 2006, the GST still brings in roughly 50 billion. dollars a year nearly one-fifth of all federal revenue today it's embedded in the DNA of Canadian life you see it on your bill you see it without you pay it without thinking and it

funds everything from the RCMP to the Canada Child Benefit but its story is a perfect reflection of how taxation evolves introduced as reform sold as fairness hated by voters and impossible to repeal once governments taste that revenue. The GST was never just a new tax. It was a new philosophy, a recognition that in Canada, governments can change the rules. But never the habit. Once they find a way to collect money, they rarely let it go.

Now let's talk about property tax. If income tax was born in a war and sales tax in a crisis, then property tax is the oldest of them all. and the most grounded. From the very beginning of Confederation, property tax was the backbone of local government. It was simple, tangible, and visible. A levy tied directly to land and what stood on it,

municipalities used it to fund things you could actually touch roads, schools, water systems, and the local police and fire departments that kept communities running. Unlike federal or provincial taxes, property tax had a clear logic. You paid in proportion to what you owned and received the benefits where you lived. It was in many ways the purest expression of the social contract. Contribution matched with service. But as cities grew and housing became both an economic engine and a political flashpoint, that straightforward system became a pressure point.

By the 1980s, British Columbia was in the middle of a housing boom. Vancouver's real estate, market was surging. Prices were climbing rapidly, and the provincial government was looking for a way to cool speculation, or at least to appear it was doing something about it. So in 1987, under Premier Bill Vandersams, British Columbia's introduced a new levy, the property transfer tax, or PTT. The idea was simple, a one-time tax paid whenever a property changed hands. vendors'ams government sold it as a temporary fix, a way to moderate a rapidly escalating

housing market while generating short-term revenue to fund housing programs. The rate was set at 1% on the first 200,000 and 2% on the remainder, modest by today's standards. But like so many temporary measures in Canadian history, it never went away. The property market cooled, then it came back, governments changed, the tax didn't. By the 2000s, the property transfer tax was generating more than $1 billion annually for the province. A revenue stream too lucrative to give up, and its housing prices exploded over the next two decades. The amount of tax collected exploded with it. Today, BC's homebuyers pay the same tax at a far higher price, 1% on the first $200,000,

2% up to 2 million and 3% on anything above that, with an additional 2% luxury tax on properties over 3 million. In practical terms, that means a typical of 1.5 million home in Metro Vancouver now carries nearly $30,000 in transfer taxes, before land title fees, legal costs, or insurance. And here's the irony. A tax originally designed to discourage speculation has become one of the best. barriers to mobility for ordinary homeowners. It discourages people from selling, downsizing, or moving for work, locking them in place and freezing an already broken housing

market. As the West Coast family's network, put it bluntly in a 2023 report, the property transfer tax no longer serves its intended purpose. It penalizes middle class buyers and first-time home buyers while doing nothing to curb speculation. The P.T. has become what many economists call a friction tax, a toll on movement. It doesn't build homes or reduce prices. It just sits between Canadians and the dream of ownership. Meanwhile, property taxes themselves have quietly risen year after year, often outpacing inflation and wage growth. In major cities like Vancouver, Toronto and Calgary, municipal budgets have ballooned to meet demands for policing, housing, and infrastructure, while homeowners foot the bill.

Even renters feel the squeeze as landlords pass those costs down the chain. And so the oldest form of taxation, one that was meant to connect people to their community, has become another symbol of how disconnected the system now feels. Canadians are paying more for the privilege of staying exactly where they are. Now let's talk about capital gains. By the early 1970s, Canada was riding a wave of optimism, a confident, expanding middle class, strong unions, and a belief that government could shape a fairer society. It was also a time when tax system looked increasingly outdated and unequal. For decades, working Canadians had paid income tax on every dollar they earned, while wealthier Canadians, who made much more of their money through investments, real estate,

and capital gains were taxed far less, or not at all. Dividends, stock profits, and land sales slipped through the cracks of the old system. So in 1962, Ottawa struck the Royal Commission on Taxation, chaired by economist Kenneth Carter. It would become one of the most ambitious policy reviews in Canadian history. The Carter Commission, as it became known, spent five years studying how to make taxation fairer, simpler, and more efficient. Its central conclusion was revolutionary and moral. It declared, a buck is a buck is a buck.

In other words, all income, whether earned in working in a mine, selling stock, or owning property, should be treated the same by the tax system. Equal treatment of equal income. Carter's report was a direct challenge to the social hierarchy of post-war Canada, a country were wage earners bore most of the burden, while capital owners found creative ways around it. When Pierre Trudeau became Prime Minister in 1968, he took up the cause. In the 1971 federal budget, his finance minister Edgar Benson announced sweeping reforms based on Carter's philosophy. Starting January 1st, 1972, Canada would begin taxing capital gains, the profits made from selling

investments, property, or other assets at a higher value than the original purchase price. It was a seismic shift. For the first time, Ottawa treated income from wealth, the same as it treated income from work, at least in principle. Benson told Parliament, we are closing the gap between those who work for their income and those whose income works for them. The initial inclusion rate, the portion of capital gains subject to tax, was set at 50%, meaning half the gain would be taxed as ordinary income.

Over that time, that rate would fluctuate, rising to 75% in the 1990s, before returning to 50% where it remains today. The government of Canada's Department of Finance later summarized the reform as one of the most important in modern fiscal history, not just for the money it raised, but for the message it sent that taxation could be a tool of fairness, not just funding. Critics, of course, saw it differently. Entrepreneurs and investors warned it would punish risk-taking and stifle innovation. Economist Milton Friedman reflecting on similar U.S. reforms once said, you can't tax the capital of tomorrow to fund the consumption of today. Many Canadian business leaders agreed, but Trudeau and

and argued that without it, Canada would risk becoming a country where work was taxed heavily and wealth was not a recipe for inequality and resentment. Half a century later, that debate hasn't gone away. Every federal budget that tweaks the capital gains inclusion rate, even by a few percentage points, triggers the same philosophical divide. Should government reward those who earn? or those who invest and that one line

a buck is a buck is a buck still echoes through every argument about fairness class and the role of government in the economy now let's talk about the carbon tax among all the taxes in Canada

none has divided this country quite like the carbon tax for some it was a symbol of moral leadership proof that Canada was taking climate seriously. For others, it became a symbol of everything wrong with modern governance, a costly top-down policy that punished ordinary Canadians for simply living their lives. It began so many Canadians' experiments due in British Columbia. In 2008, Premier Gordon Campbell introduced

North America's first broad-based carbon tax, a move detailed in the government of British Columbia's 2008 budget and fiscal plan. It was designed to be revenue neutral. Every dollar collected would be returned to citizens through cuts in personal and corporate income taxes. The idea was simple economics, make pollution more expensive, but make work and investment cheaper. It started small, $10 per ton of carbon dioxide, about two cents a leader on gasoline, and rose gradually each year. Campbell called it a market-based solution to an environmental problem, and for a while it seemed to work. Between 2008 and 2012, BC's per capita fuel use dropped by roughly 16%, even as the province's economy grew faster than the Canadian average. The OECD and World Bank praised the policy as a model for balancing growth with sustainability, but politically it was a minefield.

rural and working class communities, people saw it as not as an environmental nudge, but as a direct hit to their wallets. By 2011, public backlash was so intense that Campbell resigned. His successor, Christy Clark, froze the tax rate and quietly dropped the revenue neutral promise that had justified it in the first place. A decade later, Justin Trudeau's liberal government took BC's blueprint national. In 2019, Ottawa passed the Greenhouse Gas Pollution Pricing Act, or GHGPPA, creating a national framework that would ensure every province had a price on carbon. Under the law, provinces could design their own systems like Quebec's cap and trade or BC's tax.

But if they didn't, Ottawa would impose a federal backstop. That backstop started at $20 per ton and was scheduled to rise. to $170 by 2030, according to the government of Canada, environmental and climate change Canada. The government framed it not as a tax, but as a price on pollution. Every dollar collected, they said, would be returned to households through climate action incentive payments. Ottawa claimed that eight out of ten families would get back more than they paid, through, though economists like Trevor Toome pointed out that those estimates excluded indirect costs such as higher food and transport prices.

Still, Trudeau called it the cornerstone of Canada's climate plan. Proof that markets, not mandates, could drive decarbonization. But politically, the backlash never faded. From the beginning, Pierre Pauliev made the carbon tax his defining issue. He called it a tax on food. fuel and families, and built an entire political movement around ending it. To Polyev, this wasn't just a policy disagreement. It was a moral one. He argued that while Canada accounts for less than 2% of global emissions, Canadians were paying amongst the highest

fuel and food costs in the G7, and unlike large polluters, ordinary families couldn't simply opt out. They still needed to drive to work, heat their homes, and put food on the table. In rally after rally, Pollyev hammered a simple line. You don't fight climate change by making life unaffordable for working people. His message resonated. As inflation surged and food and fuel prices climbed, the carbon tax became a political lightning rod, one that symbolized not just environmental policy, but the growing disconnect between elites and everyday Canadians. And then came Carney.

Before becoming Prime Minister, Carney was the governor of the Bank of Canada, then the Bank of England, and later the UN Special Envoy on Climate Finance. He was one of the intellectual architects behind carbon pricing, arguing in his book, Values, Building a Better World for All in 2021, the markets need to reflect moral truth.

A credible price on carbon tells the truth about the cost of pollution and the value of sustainability. That's a quote from his book. For years, Carney championed the carbon tax as essential to Canada's just transition, a bridge between the fossil fuel economy and a green one. But after taking office in 2024, something shifted. The country was tired, inflation was biting, food banks were breaking records. And in March 2025, Carney did something.

No one expected. He removed the federal consumer carbon tax. Effective April 1st, 2025, Ottawa set the fuel charge rate to zero, ending the national levy on gasoline, home heating, and other household fuels. In his announcement, Carney said, Canadians need relief. The fight against climate change cannot come at the cost of fairness and affordability. The move didn't abolish carbon pricing altogether. The output-based, pricing system for large emitters still remains. But for ordinary Canadians, the tax on daily life is gone. The government's official background, or called it measured reset, to preserve competitiveness while pursuing emission cuts through innovation and investment. Within days, Reuters reported

falling fuel prices across much of the country. Carney's decision sent shockwaves through Ottawa. Supporters praised it as pragmatic leadership in hard times. Critics called it proof that the carbon tax had failed politically, even if it succeeded economically. For Polyev, it was vindication, the final chapter in a fight he'd waged four years. The story of the carbon tax is really a story about two philosophies. For the Carney and the liberals, taxes can be a moral instrument. Tools to guide society towards long-term goals like sustainability and equity. For Polyev and the conservatives, taxes should be practical tools used to fund essential services, not reshape human behavior. To one side, the carbon tax was the price of responsibility. To the other, it was proof

of government's arrogance. And now, after 16 years of debate, BC has scrapped its consumer carbon tax. Ottawa has followed and Canada has quietly stepped back from one of its most ambitious climate experiments. What remains is the question underneath it all. Can a country still lead on climate or anything when its people no longer trust how their taxes are being used? Now, a quick word on taxation and Indian reserves because this is one of the most misunderstood areas of Canadian law and too often weaponized in political debates. Under Section 87 of the Indian Act, the personal property of status Indians or banned situated on reserve is exempt from taxation.

That provision is not new. It's been there in one form or another since 1876, but its meaning has evolved through more than a century of case law. Courts have consistently said that Section 87 includes income earned on reserve. and even a certain investment income, as long as there's sufficient connection to the reserve itself. The modern legal test comes from the Supreme Court of Canada's 1992 decision in Williams v. Canada.

In that case, the court rejected a rigid geographical interpretation of what on reserve meant. Instead, it developed what's now called the Connecting Factors Test, a nuanced analysis of where income is earned, who the employer is, and where the work benefits the community. The key question isn't where the money was made, but whether it's connected to the reserve life and economic activity. Two decades later, in Bastion Estate v. Canada, and Dubai v. Canada, the Supreme Court reaffirmed that principle, holding the interest earned on-reserved term deposits at an on-reserved financial institution was exempt from tax. the court emphasized that Section 87 isn't a loophole or privilege its protection.

And as the court explained earlier in Mitchell v. Pegu Indian Band, the purpose of this exemption is to shield the property and economic base of Indian reserves from erosion by taxation from external governments. It's not a blanket everywhere for everything exemption. It's a constitutional safeguard to preserve the land-based economic level. life of reserves. So how does that play out day to day? For income tax, employment or business income can be exempt if it's sufficiently connected to a reserve under that case law. The Canadian Revenue Agency applies the connecting factors test when determining eligibility. This includes where the work is performed, where the employer resides, and where the benefits of that work are realized. GST, HST, and PST purchases made by Status Indians on bans on reserve or delivered

to a reserve are generally relieved from federal and provincial sales tax under Section 87. Provinces layer their own rules on top of that. For example, the government of British Columbia provides motor fuel and carbon tax relief for eligible First Nations purchased on First Nations land. For business on reserve, entities genuinely situated on reserve with on reserve offices, staff, and operations may also benefit under the CRA's guidelines, but the rules are fact-specific and technical. The CRA's guidance on business income makes it clear. Simply having an office on reserve does not make a business exempt.

It must be substantially tied to reserve activity. In other words, there isn't a free pass. There's a narrow constitutional statutory protection aimed at preserving the economic base of reserves, refined by the courts over decades to balance fairness, self-determination, and the unique legal status of indigenous lands. When people misunderstand this system, they often reduce it to talking points. Indigenous people don't pay tax. That's not true.

They pay GST and income taxes off reserve like anyone else. And their governments operate under strict financial and accountability frameworks. Section 87 is not a modern exemption. It's a historical covenant. One meant to ensure that the limited land and property still controlled by indigenous people wouldn't be eroded by the same governments that once took nearly everything else from them. And when you zoom out, you can see how it fits into this larger story of taxation. We have a wartime income tax that was supposed to be temporary, but never went away. Sales and property taxes built to fund growing social promises that governments now struggle to meet.

a capital gains tax born from fairness that still divides the country by class, a carbon tax that tried to turn climate policy into a market policy and ended in retreat, and a reserve tax system designed not to avoid responsibility, but to preserve survival. Each of these taxes began with a clear justification. Each was supposed to serve a purpose. And the question we have to ask as citizens and as taxpayers is whether those original aims are still being delivered or whether they've simply become another way to take long after the reason for taking has faded away. The expansion. What we're paying for now. Canadians today

live under one of the most complex and layered tax systems in the world. Income tax, payroll deductions, GST and PST, property tax, corporate tax, carbon tax, environmental fees, each stacked quietly one on top of the other, each taking a little more before your paycheck ever lands in your account. According to the OECD's 2024 revenue statistics, Canada's total tax to GDP ratio now sits at around 34%, meaning the government's federal, provincial, and municipal, collectively collect about a third of all economic outputs in taxes. That puts us roughly in line with the OECD's average of 33.9%. But far above countries like United States at 27.7%, Australia at 29.4%, and South Korea at 28.1%.

We're below the high tax social democracies like France at 43.8%, Denmark at 42.2%. And Germany at 39.3%. But the difference is this. Those countries deliver world-class infrastructure, affordable childcare, and healthcare systems that actually work. In Canada, we have the tax rates of Scandinavian welfare state and the result of a country perpetually under construction. The Fraser Institute's 2024 Canadian Consumer Tax Index found that the average Canadian family now spends 46% of its income on taxes, more than on food, housing, and clothing. And yet, for all of that, Most Canadians don't feel like they're living in a high-functioning country. Our healthcare system, once a point of national pride, is now a story of endless wait times and closed ERs.

In 2023, the Fraser Institute found the average Canadian waited 27.7 weeks before seeing a family doctor and receiving treatment, the longest delay ever recorded. Our infrastructure is aging. The Parliamentary Budget Office reports that major federal projects are billions over. budget and years behind schedule and our housing market is collapsing under its own weight. The Canada Mortgage and Housing Corporation estimates we need 3.5 million new homes by 2030 just to restore affordability. Meanwhile, public trust is at an all-time low. Only 23% of Canadians say they trust government to do the right thing most of the time. According to the Edelman Trust Barometer, 2024, down from 53% a decade ago.

So the question becomes unavoidable. Are our taxes still funding public goods, or are they feeding a machine that's lost its purpose? The original promises were clear. Income tax would win the war. Sales tax would stabilize the economy. Property tax would build our communities. Capital gains would make the system fairer. Carbon tax would save the planet.

But today, it feels like the social contract is broken. governments take more than ever yet deliver less than ever we pay for efficiency and get bureaucracy we pay for health care and get waiting lists we pay for accountability and get slogans maybe taxes were never just about revenue maybe they were about trust the quiet understanding that if citizens give the state will serve and maybe what's breaking in canada isn't just our taxes system, but the faith that made it possible in the first place. The broken contract. When the promise failed. The social contract was supposed to be simple. Pay your taxes, and you'll get a functioning country. Good roads, reliable health care, safe streets, fair justice.

In return for giving up a portion of your income, government would give back stability. But Canadians don't see stability anymore. They see decline. We're told taxes are the price of civilization. But increasingly, they feel like the price of mismanagement. We're paying more than ever, yet getting less with every passing year. In British Columbia, the size of the provincial public sector has exploded. According to the Canadian Federation of Independent Business, since 2017, the number of people working in BC's public sector has grown by more than 200,000, a 50% increase.

while the total cost of that workforce has doubled from about $26 billion to over $53 billion. Nearly all the net job creation in the province between 2020 and 2023 came from the government sector, not the private sector. The Fraser Institute found that out of 111,000 new jobs created during that time, 104,000 were government funded. The private economy added just over 7,000, and yet services aren't improving in health care. The problem isn't just a shortage of doctors or nurses. It's bureaucracy. The Fraser Valley Current revealed that BC's health authority boards quietly gave themselves pay raises of more than 50%.

Some directors now make up to $2,000 per meeting, while the average rate across boards rose for about $900 to nearly $1,500 a day, although the total for those directors across all health authorities nearly doubled in a single year from roughly $1.3 million to $2 million. Meanwhile, the province faces the longest ER wait times and staffing shortages in its history. It's not just the health care system. The entire public apparatus keeps growing. Global News reported that the Core BC Public Service, the people working directly for ministries, has expanded from around 29,000 employees in 2017 to nearly 39,000 today. A 32% increase.

The provincial government has even ordered what it calls an expenditure management and efficiency review. A kind of internal audit where every ministry has to prove it's still worth what it costs. The fact we even have to have an efficiency review tells you everything about where we are today. Federally, the same pattern is there. The government of Canada is now employs more than 274,000 public servants, a 40% increase since 2015, according to the Fraser Institute. Over that same period, total compensation for federal employees rose nearly 37%. Even after adjusting for inflation, that's hundreds of thousands of new bureaucrats, billions in new salaries, and no measurable improvement in how fast Canadians get a passport, a tax refund, or an immigration application processed. This is what happens when taxation becomes self-referential.

When the system exists to sustain itself rather than serve the people who fund it, we've built a state that measures success. by the size of its payroll, not by the quality of its outcomes. And when governments can't raise taxes openly without backlash, they turn to the invisible one. Inflation. Inflation is the tax no one votes for. It devalues your money without asking your permission. Every time prices rise faster than wages, every time your savings buy less, government debts quietly shrink at your expense. As the economist Friedrich Hayek wrote in the road to serfdom, inflation is taxation without legislation. His contemporary Ludwig von Mises called it a policy of confiscation, because when money loses value, what's really being taxed isn't

your income. It's your time, your savings, and your trust. Since 2020, the Bank of Canada has increased the money supply by more than 20%, while Ottawa has run record deficits. Over $315 billion during the pandemic years alone, according to the Department of Finance. Those choices helped drive inflation to 8.1% in 2022. The highest level in 40 years. And that wasn't an accident. It was policy. Austrian economists like Hayek and Mises would say, this is what happens when governments

control both money and debt. When central banks create liquidity, governments spend it, and citizens pay for it later through higher prices and weaker purchasing power. And that brings us to the moral dimension of taxation, because taxation isn't just financial. It's moral. It's built on trust. The belief that when you contribute, the system will give something back. But when citizens lose that trust, the foundation begins to crumble.

We start to see taxes not as contributions, but as confiscation. We see governments not as a service, but as a cost. And once that shift happens, once people no longer believe the system is fair, the legitimacy of that system collapses from within. And that's where Canada is now. We're not just debating how much to tax or where to spend. We're debating whether the people running the system can still be trusted to keep their end of the deal.

The income tax began as a patriotic duty. Sales tax were born from crisis. Property taxes built our city. capital gains promised fairness carbon taxes promised sustainability inflation wasn't devoted on it was imposed the story of taxation in canada isn't just about numbers it's about the quiet erosion of trust the sense that governments keep finding new ways to take without remembering why people agreed to give it in the first place if civilization really is the price we pay for taxes then maybe it's time to ask whether the checks still clearing the politics competing visions of fairness and that brings

us to the politics because how a country taxes says everything about how it sees itself on the left people like mark carney and the federal liberals still defend taxation as a moral tool a way to build a fairer country and correct inequality they've proposed lowering the lowest personal income tax rate from 15 to 14% to give the middle class relief, while keeping higher rates for top earners. They promised to eliminate the GST on new homes under $1 million for first-time homebuyers, expand tax incentives for sectors like clean tech and AI, and keep pushing what they call fair share policies, higher taxes on the wealthy, and fewer loopholes for capital gains and stock options. For years, the same philosophy drove their approach to carbon pricing, what Mark Carney once called

a market-based solution to a moral problem. The idea was that if you price pollution, people will change their behavior. But now, even the liberals have started to backtrack. Facing public backlash, they recently scrapped the consumer carbon tax, as mentioned earlier, the so-called fuel charge and reframed their platform around affordability and middle-class relief. The NDP has taken a similar philosophy. They framed taxation as a tool for, justice, not just fairness. Their message is that if you have more, you should pay more because

government can redistribute it better than you can spend it. They've called for new wealth taxes on ultra-rich Canadians, higher corporate taxes on windfall profits, and stronger enforcement against offshore avoidance in their tax, in their view. Tax fairness means expanding the public system, more housing, more health care, more social programs, all funded by taxing those the top. On the right, Pierre Polyev and the conservatives see that as moral overreach. To them, taxes have become punishment for productivity, the quiet theft of time and work. Polyev's message is simple. Bring it home. Bring home your paycheck, bring home affordability, bring home control. His platform calls for cutting the lowest income tax bracket by 15%, eliminating

the carbon tax entirely and introducing what he calls Canada first reinvestment tax cut, letting people defer capital gains taxes if they reinvest their profits in Canadian businesses. He's promised to cap government spending, balance the budget, and shrink what he calls Ottawa's bloated bureaucracy. Critics point that Polyev's tax cuts would disproportionately benefit higher earners, but for many Canadians, that's beside the point. His argument isn't just economic, It's moral. It's about fairness as freedom, the belief that you keep, you should keep what you earn because you earned it.

And underneath all of this is a regional divide that's become almost philosophical. Alberta, no provincial sales tax, leaner public sector, lower regulation, believes in self-reliance and market freedom. British Columbia and Quebec, by contrast, lean into high tax, high service governance, collective solutions, social programs, and government as an equalizer. These aren't just policy differences. They're competing definitions of what Canada should be. But beneath left and right lies a more uncomfortable truth.

One that neither ideology seems willing to face. No tax system can function if the public stops believing the government deserves the money. Libertarians have been warning about this for a century. They argue that taxation isn't generosity, its coercion dressed up as a civic duty. The late economist Friedrich Hayek called it the road to serfdom, the slow surrender of freedom in exchange for safety. Ludwig von Mises said inflation itself was a policy of confiscation, and modern libertarians see both taxation and money printing as symptoms of the same disease, a state that keeps growing because it no longer knows how to do less. But even for those who don't share that view, the question

remains, because whether you're a liberal who believes in redistribution, a new Democrat who believes in justice, or a conservative who believes in self-reliance, none of it worked. without trust. That's the foundation that's eroding in Canada today. The left wants to expand government, the right wants to shrink it, but what Canadians want, what they deserve is a government that simply works, one that earns the right to be funded, instead of assuming it. If taxes are the price we pay for a civilization, then the least we can ask in that civilization is to deliver a receipt. Closing thought, the price of civilization. Today, Canadians pay some of the highest taxes in the developed world. About 34% of GDP. Yet, we wait 27 weeks for medical

treatment, face housing prices, 12 times the average income, and drive on roads that crumble faster than they're repaired. We're paying for the promise of a Scandinavian welfare state, but getting the delivery of a bureaucracy that barely functions. Politically, the divide is clear and growing. The Liberals still see taxes as a moral tool, redistribution, fairness, and climate responsibility. They've cut middle-class taxes slightly, but kept higher rates for top earners, eliminated the consumer carbon tax under public pressure, and framed the reset as investing in the future. The NDP doubles down on the philosophy, pushing for wealth taxes, windfall taxes, and higher rates on corporations.

To them, government is the vehicle of justice. The conservatives, led by Pierre Pauliev, take the opposite view. They promise to bring home your paycheck, cut taxes, acts the carbon tax, and reward productivity over dependency. To them, every dollar taken by government is one less dollar spent by the people who earned it. And yet, beneath all those differences, lies one uncomfortable truth. The real crisis isn't ideological. It's functional.

It's not about how much we pay. It's about whether anyone believes they're getting value in return. Trust is the real casualty here. And when citizens stop believing their taxes lead to tangible results, the legitimacy of the system itself begins to erode. Some provinces have tried to draw a line. Alberta, for example, passed the Taxpayer Protection Act, a law that requires any new sales tax to be approved by referendum.

No backroom deal, no quiet increase, a direct vote of the people. Maybe that's something we should talk about nationally. Because for all the talk about tax fairness and shared responsibility, very few Canadians actually get a say in how much government takes or what it does with it. There's no mechanism for accountability, no requirement for proof of value. Maybe it's time that changed. Maybe it's time for a comprehensive review of Canada's tax system, a modern-day Carter Commission that looks at every levy, every loophole, every site.

subsidy and asks one simple question, what is this actually doing for the people who pay for it? How do we hold governments accountable when taxes keep rising, but outcomes keep falling? How do we force politicians to justify every dollar they take the way the rest of us have to justify every dollar we earn? And what happens to a country when people stop believing that the system still serves them? Because at the end of the day, this isn't a debate. about left or right. It's about transparency. It's about efficiency. And it's about trust. Canada doesn't need higher taxes or lower taxes. It just needs a government worth paying for.