Otherwise real tax relief will remain a mirage. As a result of changes to Canada s tax laws in 1985, the income tax system is not fully protected from the effects of inflation. The result has been a steady increase in the amount of income tax that Canadian pay as a percentage of their income each year. Simply put, prices and salaries have risen, but the tax brackets and credits have not. When the tax brackets are fixed, and incomes grow due to inflation, the tax brackets turn into tax traps.
Bracket creep is particularly harsh for low and middle-income earners.
More than 1 million low-income Canadians have been pushed onto the tax rolls, almost 2 million taxpayers have been pushed from the bottom to the middle tax bracket, and more than million people from the middle to the top tax bracket. Bracket Creep has also eroded the value of the GST tax credit and federal child tax benefit for low-income families. Provincial governments have also shared in the windfall in revenue from bracket creep because all provinces except Quebec calculate provincial income tax as a percentage of the basic federal rate.