The gap between Canada’s haves and have-nots has never been bigger.
Statistics Canada reported last month that the income gap reached a record high this year. During the first quarter of 2025, the top 40 per cent of Canadian households captured 66.2 per cent of all after-tax income in Canada. The bottom 40 per cent shared just 17.2 per cent of income.
It was a record gap, up 11.9 per cent from four years ago.
Statistics Canada reported the income gap widened because the top 20 per cent of Canadians by income — or “quintile” in statistician talk — benefited from rising investment income while the bottom 20 per cent saw wages stagnate.
Experts say growing inequality is the result of decades of government policy choices and dramatic increases in executive pay. And the biggest factor has been gains for the highest-earning one per cent of Canadians.
Research shows income inequality drives a host of economic and social ills, including weak gross domestic product growth, poor health outcomes, low trust and increases in crime and violence.
But fixing the problem is a big task — and isn’t always popular. Researchers say raising income taxes, taxing wealth and building public understanding of income inequality may all be part of the solution.
Inequality by several measures
Economist Marc Lee said breaking Canadians into quintiles based on income isn’t a “particularly useful” way to measure inequality.
“It assumes that the top 20 per cent are all in the same boat,” Lee said. “But I’m in the top 20 per cent and so is Jim Pattison, and we are very different people. It captures a lot of professionals, including teachers, engineers and other folks who are not that wealthy.”
The average household employment income in the top quintile was $208,313.
Lee, a senior economist with the Canadian Centre for Policy Alternatives, or CCPA, said increases in income inequality are being driven by Canadians in the top one per cent.
The top one per cent’s income has risen much faster than other Canadians, Statistics Canada tax data shows.
Since 1982, the average income of the top one per cent has risen 396 per cent — almost 1.6 times more than increases in the average income of the bottom 50 per cent. The top one per cent captured about 10 per cent of all Canadian income in 2022, data shows. That’s up from about seven per cent in 1982.
“Higher-income people are getting richer much faster,” said Silas Xuereb, a policy analyst with the non-profit Canadians for Tax Fairness. “The richest, and the top one per cent in particular, have captured a significantly outsized proportion of economic growth.”
Income inequality is driven by several factors, including declining unionization rates and the monopolization of many Canadian industries, he said. Both give companies more power to determine workers’ wages.
But in a press release about the income gap, Statistics Canada highlights two main factors driving inequality.
First, high-income households saw huge gains from property income — money made from investments in real estate, stocks and other assets.
And second, the compensation for Canada’s highest earners is rising much faster than the salaries and wages of other Canadians.
The income gap may have serious consequences. The International Monetary Fund says income inequality may erode social cohesion, lead to political polarization and slow economic growth. A review in the American Journal of Public Health links income inequality to negative health outcomes.
Slow middle-class wage growth
The CCPA’s Lee said that while most Canadians rely on salaries, the top one per cent often hold executive positions with lucrative compensation packages based on stock options and bonuses.
A CCPA report found that Canada’s 100 highest-paid CEOs were paid an average $13.2 million in 2023.
The lion’s share of that compensation came from bonuses, with the average variable compensation — on top of salary — $10.7 million.
And the report found the CEO-to-worker pay ratio has increased. In 1998, the top 100 CEOs made about 104 times the average worker’s compensation. By 2023, they earned 210 times the average worker’s pay.
“We never used to tolerate such high levels of compensation and inequality,” Lee said. “Now we do. We’ve just been beaten over the head with it for a number of years.”
It’s not just the top 100 CEOs making magnitudes more than the average worker, Lee added. To stay competitive and attract high-performing executives, he said, companies have had to continue increasing how much they pay their top teams.
Meanwhile, Lee said people at the bottom of the income distribution often include workers on minimum wage, gig workers and other precariously employed people.
University of Victoria income inequality researcher Peter Dietsch said the uptick in executive pay is partially due to a societal shift in how we view the value CEOs bring to companies.
“People like Henry Ford would recognize they might be at the helm of this company, but the wealth is created together,” he said.
“Today, we’ve moved towards a more individualistic picture — take Elon Musk as an illustration — and we over-attribute achievement to the individual.”
That’s a mistake, Dietsch said.
“These people high up in the earning structure, they didn’t do it by themselves,” he said. “The creation of wealth is the result of a huge corporation.”
Skyrocketing property income
Income inequality is also largely driven by property income, which Statistics Canada defines as money received from investments, rents from real estate properties and incomes from other financial assets.
The lowest-income 40 per cent of Canadian households don’t own much property or other investments, he said.
Last year, two-thirds of all property income was earned by the top 20 per cent of Canadian households. That’s up from about 56 per cent of all property income in 1999.
Meanwhile, Canadian households in the bottom 40 per cent received about eight per cent.
The result is that investment income is rising a lot faster for high-income Canadians than for everyone else.
The Tyee requested information on the property income of the top one per cent of Canadians. But Statistics Canada spokesperson Maryse Carrière said in an email that wasn’t available.
The difference in property income really exploded during the COVID-19 pandemic, said Xuereb of Canadians for Tax Fairness. Corporations raised prices and posted record profits.
Those profits increased the income of corporate executives and people with large investment holdings, Xuereb said.
“Ownership of these assets is very unequally distributed, so the income from those assets is very unequally distributed as well,” he said. “If we’re dividing the economic pie in Canada, more of that is going to the people that own corporations who are usually already the richest among us.”
Low taxes on the rich
These trends have taken hold in part because of Canada’s tax system, Xuereb said.
A report from Canadians for Tax Fairness shows that in 1949 there were more than 17 tax brackets. The top marginal income tax rate was 84 per cent for people living in Ontario earning more than $5.3 million per year in today’s dollars.
“The proportion of people who actually ever paid tax at that level was minuscule,” Xuereb said. “More than just being a tax revenue mechanism, it deterred people from having $5 million in income.”
A major tax reform in 1972 reduced the top marginal tax rate to 61 per cent. That rate dropped in 1982 and again in 1987 to 51 per cent.
Xuereb added that Canada has relatively low taxes on investment income.
According to the Canadian Tax Foundation, Canada instated a tax on capital gains — profit that comes from selling properties or investments — in 1972.
It imposed a 50 per cent inclusion rate — meaning only half of a person’s capital gains would be taxable. The federal government raised the inclusion rate to 66.7 per cent in 1988 and 75 per cent in 1990, before dropping back down to 50 per cent in 2000.
Canada also doesn’t tax capital gains on principal residences.
‘The first thing is to call it out’
Xuereb said the income gap represents an opportunity to raise government revenue.
Increasing taxes on the ultra-wealthy by introducing higher income tax brackets, upping capital gains taxes or introducing a wealth tax could raise billions to fund public services, he said.
While the federal Liberals proposed addressing income inequality by raising the inclusion rate back to 66.7 per cent for gains over $250,000, Prime Minister Mark Carney announced in March he would cancel the rate hike.
Xuereb said that while income inequality is rising, government does not “see this as a priority that needs to be actually tackled.”
The University of Victoria’s Dietsch said there’s little political will to tackle the issue because Canadian economic policy is still influenced by trickle-down economics — the theory that middle-class and working Canadians will eventually benefit from the gains being reaped by the rich.
But the data shows that isn’t working, he said.
“The first thing is to call it out,” Dietsch said. “We need politicians who actually say that the economic policy that we’ve used for the last four to five decades hasn’t worked the way that it was promised to work and it just benefits a select few.”
But raising taxes isn’t popular. Dietsch said there needs to be a broader understanding of the connection between Canada’s economic policies and income inequality.
“Once that actually catches on, then we might be closer to solving that or to addressing that problem,” he said.
