Report on Federal Tax Expenditures - Concepts, Estimates and Evaluations 2026: part 8

GBA Plus: Analysis of the Federal Tax System and Income Distribution Across Diverse Population Groups in Canada^{Footnote 1} 

1. Introduction

Since 2018, the Department of Finance Canada has undertaken extensive planning and research work to meet one of the requirements of the Canadian Gender Budgeting Act, which reads as follows:

This work has involved consultations with academics, the consideration of new methodologies, and collaboration with Statistics Canada on data development projects. Published in 2019, the first Gender-based Analysis Plus (GBA Plus) study represents the most comprehensive study conducted so far. It provides a strong analytical foundation that enhances knowledge, stimulates reflection, and informs discussions on the impacts of existing tax expenditures by sex and diversity. Since then, six additional GBA Plus studies have been published, each adding a new perspective on the impacts of various components of the federal Personal Income Tax (PIT) system.

In addition to sex, several diversity factors have been considered in these studies, including age group, income group, disability status, gender identity, and immigrant status. For instance, by leveraging a new dataset—linking data from the 2021 Census of Population to T1 tax return data—the 2025 study examined the impacts of the federal PIT system based on identity characteristics that had not been considered before, including racialized population status.^{Footnote 2} This analysis sheds some light on how the overall federal PIT system, as well as certain of its main components, impacts the distribution of income between the overall racialized and non-racialized populations. While the federal tax system contains no provisions specifically targeting individuals based on racialized population status, the racialized population may be globally advantaged or disadvantaged by some elements of the system due to a distinctive profile in terms of labour force status, pre-tax income, wealth, or other demographic characteristics. For instance, analyses based on 2021 Census data^{Footnote 3} on the labour force status and employment income of various visible minority groups indicate that belonging to a visible minority is associated with reduced likelihood of finding employment and of receiving fair compensation when employed, relative to other working-age individuals.^{Footnote 4}

Recognizing that the racialized population is composed of various visible minority groups with distinct experiences and realities, the 2025 study limited its scope to an aggregate analysis, due to confidentiality and conciseness considerations. In the current study, approaches to overcoming these limitations were explored to allow a more detailed examination of the income-redistributive effects of the tax system across diverse groups composing the racialized population—those identified in census products. For the first time, this study seeks to assess the income-redistributive impacts of the overall federal PIT system and a selected set of tax expenditures towards each of the racialized groups listed in the 2021 Census questionnaire, to which respondents could self-identify—namely, South Asian (e.g., Indian, Pakistani, Sri Lankan), Chinese, Black, Filipino, Arab, Latin American, Southeast Asian (e.g., Vietnamese, Cambodian, Laotian, Thai), West Asian (e.g., Iranian, Afghan), Korean, Japanese, as well as an "Other groups" group—comprising individuals who self-identified belonging to visible minorities not included elsewhere or to multiple visible minority groups.^{Footnote 5} Results of this research reflect trends observed across Canada at a given point in time and should not be interpreted as permanent characteristics of any particular group of tax filers.

Section 2 provides an overview of the study's technical aspects, describing the data used, the identity characteristics and intersecting factors retained, as well as the methodological approaches applied. Section 3 presents an analysis of the empirical results. It begins by highlighting the demographic and socioeconomic profiles of the various groups under study. It continues with an examination of the overall impacts of the federal PIT system on the distribution of income between these groups, followed by an assessment of the redistributive impacts of several specific tax expenditures. This section concludes by testing the robustness of the empirical results, taking into account a range of other intersecting identity factors. Finally, Section 4 sets out the study's conclusions, while the annexes provide supplementary details.

2. Technical Aspects

Like for the 2025 study, the current analysis is based on a new dataset created by Statistics Canada at the request of the Department of Finance Canada. This dataset covers the entire census population living in private households (i.e., the census target population, excluding individuals living outside Canada and those residing in collective dwellings) that could be matched to a Statistics Canada's T1 Family File record.^{Footnote 6} It includes about forty variables drawn from the 2021 Census of Population (those enabling the identification of the identity groups of interest) and about one hundred variables taken from T1 returns data (those enabling the examination of the income-redistributive effects of the federal PIT system^{Footnote 7}).^{Footnote 8}

This time, the impacts of a single identity characteristic are examined, namely belonging to the racialized population—defined in the Employment Equity Act as members of visible minorities, but in greater detail than in the previous edition. The population of interest for the analysis includes all 2021 Census respondents who were aged 18 years or more December 31, 2020, and who are tax filers (i.e., who could be identified as having filed an income tax return for the 2020 tax year)^{Footnote 9}.

The empirical analysis concerning the various subgroups of the racialized population (also referred to as racialized groups) is divided into three parts. The first examines their demographic and socioeconomic profiles and compares them with those of the overall racialized and non-racialized populations, or more specifically, the "White population" group—defined in this study as persons, other than people of Indigenous identity, who identified as belonging to the white population group in the 2021 Census. This section highlights characteristics—independent of the tax system—that may influence the claims made by these groups for certain tax measures, as well as the extent to which they benefit from them.

The second part begins by examining the overall income-redistributive impact of the federal PIT system towards each group. This impact is assessed by comparing the shares of different income concepts held by each group, in particular by comparing their respective share of total after-tax income—that is, after the application of the federal PIT system—with their share of total pre-tax income. It then focuses on the redistributive impacts of several specific tax expenditures. The indicator used to assess these impacts is the same as in previous GBA Plus studies. It is the ratio of the share of total benefits received by each group relative to its share of total pre-tax income. This indicator has the advantage of distinguishing, to some extent, the redistributive impact attributable to measures of the federal PIT system from that resulting from factors independent of the tax system, such as differences in terms of market income, wealth, or family situation.

The list of federal PIT expenditures examined in Section 3 is almost identical to that of the previous study. Only the "non-taxation of personal property of status Indians and Indian bands situated on reserve" was excluded, as it targets a group that is not part of the identity groups of interest for the current study.^{Footnote 10}

Given that demographic and socioeconomic profiles reveal significant disparities among the various racialized groups, the third part assesses the robustness of the empirical results obtained, by accounting for other identity factors that are likely to influence how the federal tax system redistributes income between groups. In addition to age, the identity factors considered include gender, income, and immigration history.

3. Empirical Analysis^{Footnote 11}

Table 1 provides an overview of the distribution of the 2021 Census adult population who filed a T1 return across the different population groups considered. It shows that 24.6% of this population identified as belonging to one or more racialized groups. These groups are classified under the "Racialized population" category. The remaining persons aged 18 and over identified either as being part of the "White population" group (71.6%) or as a member of the "Indigenous population" (3.8%). These last two groups form the "Non-racialized population" category.

Table 1 then shows the distribution of total pre-tax income among these different groups. It notably indicates that, in contrast to the white population, the share of total pre-tax income held by the racialized population is, overall and for most racialized groups, lower than the share of tax filers they represent. Only the Japanese group deviates from this trend. The share of pre-tax income held by most other racialized groups represents between 73% and 79% of their weight within the tax filer population.

3.1 Demographic and socioeconomic profiles of the various population groups

The specific characteristics of a population group, as well as unobservable characteristics beyond the scope of the current study, may influence the amounts claimed under certain tax measures and the benefits derived from them. Although largely independent from the federal tax system, these specificities may influence the observed income-redistributive impact of the tax system and lead certain of its components to advantage or disadvantage some groups more than others. This section thus presents an overview of the distinct profiles of the various diversity groups examined.

As noted in the 2025 study and shown again in Table 2 and Charts 1 and 2, the racialized population is characterized by its urban concentration, its younger age and more educated profile, as well as by lower personal and family incomes and a smaller proportion of homeowners in comparison to the white population.

Although these characteristics apply to almost all racialized groups, the profiles of these racialized groups are not homogeneous. In particular, the table and charts below suggest that the Japanese group stands out from other racialized groups in several respects. On average, it comprises more females and it is older, wealthier, and less urban than the other racialized groups. It also includes the largest proportion of non-immigrants. The Chinese group also differs from the other racialized groups, with a higher average age and income profile, as well as a particularly low proportion of renters.

By contrast, the Arab group is, on average, the youngest, the least well-off in terms of pre-tax income, and one of those with the highest share of renters. The Black group has the largest proportion of renters overall. The Black group also ranks close to the Arab group in terms of its younger age and lower income profile. However, important differences are observed between these two groups with respect to education, immigration history, and family situation. Individuals in the Arab group are more likely than those in the Black group to hold a university degree, to be recent immigrants, and to live in a couple with children. In comparison, living alone or lone parenthood are more likely family situations for the Black group than the Arab group.

3.2 Impacts of the federal PIT system on the distribution of income across groups

a) Overall income-redistributive impact of the tax system

Among adult tax filers, the 2025 study observed a certain positive redistributive impact of the federal PIT system towards the racialized population as a whole. As shown again in Chart 5, the share of total after-tax income held by tax filers belonging to the racialized population in 2020 was, overall, 1.03 times greater than the share of income they reported before the application of the tax system.

The same chart shows that the magnitude of redistributive impacts varies depending on the racialized groups they belong to. The most pronounced impacts are observed towards the Black and Arab groups, with magnitudes comparable to those previously observed for the Indigenous population.^{Footnote 12} Smaller impacts—though still slightly above average—are also recorded for the Filipino, Latin American, Southeast Asian and West Asian groups. Only the Japanese group did not see its share of income increase following the application of the federal PIT system.

Once again, our GBA Plus analysis shows that the federal tax system contributes to reducing pre-tax income disparities between identity groups. Chart 6 illustrates that, for each racialized group, the federal PIT system narrows the gap between their average income and that of the white population. Because our progressive system places a greater tax burden on higher-income populations—namely, the white population as shown in Table 1—and a lighter burden on lower-income populations, it reduces, to varying degrees, the gap between the average personal income of each racialized group and the white population, with reductions ranging on average from $300 to $4,800 in 2020. Smaller differences in net after-tax income than in pre-tax income between the various racialized groups and the non-racialized population is a sign that the federal tax system is fulfilling its redistributive role by partially offsetting market-related income inequalities.

By comparing the shares held by each group of different income concepts, Table 3 shows that, among the main components of the federal PIT system, refundable credits generate the most significant redistributive impacts towards the Black, Arab, and West Asian groups. In contrast, for the Filipino group, the redistributive impact seems to be mainly driven by the system's progressive tax rate schedule. Non-refundable credits do not appear to play a significant income redistribution role for any of the racialized groups.

b) Specific impacts of various tax expenditures

A ratio of the share of benefits received by a group relative to its share of pre-tax personal income provides a good indication of the redistributive impact of a specific tax expenditure towards that group. As highlighted in previous GBA Plus studies, this ratio is particularly revealing because it takes into account earned income inequalities between the various identity groups under examination—which are independent of the tax system. Based on the confidence thresholds established earlier, a ratio above 1.05 suggests that the tax expenditure is relatively advantageous for a group, while a ratio below 0.95 suggests that it is relatively disadvantageous for the group. A ratio between 0.95 and 1.05 inclusive suggests that it does not result in any significant advantage or disadvantage for the group.

Based on this ratio, the 2025 study identified the federal PIT tax expenditures that, in 2020, had a positive, negative or neutral (i.e., proportional) redistributive impact towards the overall racialized population. Table 4 displays these ratios in column 2, while highlighting, in column 3, the racialized groups for which the redistributive impact towards them runs counter to that observed for the racialized population as a whole. Beyond group classification, various intersecting identity factors—such as gender, age, family composition, and education—may influence the extent to which individual tax filers within a given group benefit from a specific tax expenditure relative to all tax filers. While these factors are considered in aggregate in Table 4, some will be partially controlled for in the next section of the analysis.

In general, Table 4 shows that almost all racialized groups benefited proportionally more from the six federal tax expenditures identified as the most beneficial to the entire racialized population in 2020 (those appearing in the first 6 rows). The Japanese and Chinese groups constitute the only exceptions. Respectively, these groups did not benefit relatively more from the First-Time Home Buyers' Tax Credit and the Canada Child Benefit, likely in part because they are, on average, older than the other racialized groups.

Table 4 also offers more perspectives regarding the redistributive impacts observed towards the racialized population as a whole. For example, although the racialized population was found to be generally advantaged by the Foreign Tax Credit (which provides a credit for foreign income or profit taxes paid on income earned outside Canada), several racialized groups benefit relatively little from this measure. In 2020, the Chinese and Korean groups benefited the most from this credit. The particularly significant benefits they derived from it likely drove the overall positive redistributive impact observed towards the racialized population. Conversely, the overall positive redistributive impact of the non-taxation of social assistance benefits towards the racialized population seems to stem mainly from the substantial benefits it provides to the Black, Arab, Latin American, and West Asian groups, since most of the other racialized groups do not benefit proportionally more from this measure.

Among the list of tax expenditures that benefit the various racialized groups the most (Table 5) are those related to post-secondary education, dependent care, and family income support. Measures encouraging first-time home purchases and employment are also included. Since a larger proportion of the Arab and Black groups live in families with children, these two groups are, among all racialized groups, the ones that benefit the most from the Canada Child Benefit. The Arab group, where the prevalence of couples is higher, particularly benefits from the Spouse or Common-Law Partner Credit, whereas the Black group, where the prevalence of single parenthood is higher, benefits relatively more from the Eligible Dependent Credit.

Once again, the Japanese group stands out from the other racialized groups in several respects. Many of the impacts of federal tax expenditures run counter to those observed for the racialized population as a whole and, as shown in Table 5, the top three federal tax expenditures for this group differ significantly from those that most advantaged other racialized groups. For the Japanese group, the Canadian Digital News Subscription Tax Credit ranks first, followed by measures related to wealth accumulation (i.e., the Lifetime Capital Gains Exemption and partial inclusion of capital gains, as well as the deduction of interest and carrying charges incurred to earn investment income). It is worth noting that a measure of this type also ranks first among the tax expenditures providing the greatest benefit to the Chinese group, while the Korean group stands out for the relatively high share of benefits it gets from the Clergy Residence Deduction.

According to Table 4, a small number of the tax expenditures examined have a negative redistributive impact towards each of the racialized groups under study, thereby contributing to increased income inequalities between the racialized groups and the non-racialized population in Canada. These include measures related to health, advanced age, and political activities.

3.3 Robustness analyses accounting for other identity factors

a) Overall income-redistributive impact of the tax system

The racialized groups examined in this study have demographic and socioeconomic profiles that sometimes differ considerably from one another and from the white population, particularly in terms of age structure, income, and the representation of women and immigrants. To determine whether the conclusions drawn previously remain valid once these other identity factors are taken into account, this section examines the overall income-redistributive impacts of the tax system towards the different racialized groups within various subpopulations of tax filers. The subpopulations considered are as follows: tax filers under 40 years of age and those 40 years or older; men+ and women+ tax filers; tax filers in the two lowest and two highest family income quartiles; and tax filers with and without a history of immigration.^Footnote13

The observed variations in our overall redistribution indicator, when calculated within these different subpopulations of tax filers (Table 6), suggest that the specific profiles of the various racialized groups do indeed influence how the federal PIT system redistributes income towards them. However, the results in Table 6 confirm the robustness of the vast majority of the findings discussed in Section 3.2(a). They indicate, among other things, that regardless of age group, gender, income category, or immigration status, no redistributive impact of the federal PIT system towards the Japanese group is observed. A few other racialized groups also do not appear to benefit from positive redistributive impact within the population without a history of immigration (i.e., the population of tax filers born in Canada and second-generation immigrants), namely the South Asian, Chinese and Korean groups. With a few exceptions—particularly among the higher-income population—the results also show that redistributive impacts are generally stronger for the Black and Arab groups. Among higher-income tax filers, the redistributive impact towards the Arab group is reversed, meaning that it becomes slightly negative.