What lifestyle do you strive for? Maybe it’s a modest income that covers your living costs and the odd vacation. Or, perhaps you want a high salary that affords you a lavish lifestyle, as well as an investment portfolio that produces passive income. If you lean toward the latter, you’re aiming for an upper-class lifestyle in Canada, aka rich. But exactly what is considered rich in Canada? It’s a loaded question because rich means different things in Thunder Bay versus Toronto, for example. One important aspect of wealth management is awareness. We’ll help you assess where you’re at by exploring what income level is considered wealthy, high-net-worth individuals, Canadian living costs, and median household income. Continue reading to learn more!
Table of contents
- Understanding Wealth in Canada
- Defining Rich in Canada
- Factors That Determine Wealth in Canada
- Understanding the Wealth Gap in Canada
- Final Thoughts on Canada’s Wealth
Understanding Wealth in Canada
What is considered rich in Canada is relative. One million in the bank might be considered wealthy if most of a city’s citizens only have a fraction of that to their name. But if $1,000,000 is the norm, wealth might look like an even higher number. The same goes for living costs. That $1,000,000 might take you far with property in a small town like Nelson, BC — but it barely scratches the surface in Vancouver.
See the dilemma? So our first order of business to figure out what rich looks like in Canada is to assess average household income, living costs, and taxes in Canada. Let’s explore below.
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Median Household Income
The stats are a little behind, so we can only look at average incomes from 2020. Stats Canada released these 2020 median household income figures last year.
The median after-tax income for Canadian households in 2020 was $66,800. This median was 7.1% higher than in 2019. This was due to COVID-19 benefits increasing incomes from otherwise low-income households. Furthermore, it’s important to consider that household income could include individual incomes and dual incomes for couples and families. In other words, this means that after-tax $66,800 is closer to $33,400 per person.
But what about the averages? Median is a more realistic qualifier than average. It shows us a figure for which 50% of people have higher incomes and 50% have lower. So, roughly 50% of Canadians make more then $33,400 and 50% of Canadians make less.
Next on the list? Living costs. Let’s see how effectively standard household incomes cover the cost of living in Canada.
Cost of Living in Canada
Living costs in Canada vary depending on the province and municipality. But on average, the cost of living for a family of four is roughly $4,500. As for an individual, the average cost of living is around $1,300. These figures exclude rent and only capture other costs of living.
These amounts could be a lot higher if you live in a metropolitan area like Toronto, Vancouver or Montreal. On the other hand, if you live in a small town, the cost of living will probably be a lot lower. Finally, the cost of living can fluctuate a lot depending on your lifestyle. For instance, if you have children, you will pay more in living costs than someone without children.
Impact of Taxes on Wealth
The Canadian tax rate you pay depends on your income bracket. But ultimately, the more money you make, the more tax you pay. Wealthy individuals often pay the highest tax rate which is usually around 50% when you factor in provincial and federal tax rates. In addition, the wealthy are required to pay additional taxes, such as luxury tax. So, wealth should always be considered after tax due to the large obligation in Canada.
For your ease of reference, here’s a quick look at federal income tax rates for 2022 across different brackets:
- Under $50,197 → 15%
- $50,197 to $100,392 → 20.5%
- $100,392 to $155,625 → 26%
- $155,625 to $221,708 → 29%
- Over $221,708 → 33%
You also have to think about provincial or territorial income tax and can use your combined tax rate to estimate your tax liability. Below are the tax rates for the highest income tax bracket in each province and territory in Canada.
|Province/Territory||Highest Income Bracket Noted||Corresponding Tax Rate|
|Newfoundland and Labrador||$1,000,000+||21.8%|
|Prince Edward Island (PEI)||$63,969+||16.7%|
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Defining Rich in Canada
Let’s look at the top 1% of Canadians. The Canadian government assesses this qualifier by looking at the top 1% of income according to tax filings. For 2020, the top 1% of “rich” Canadians made an annual income of $512,000 — not too shabby! It’s reasonable to assume that this income is also coupled with investment holdings, like real estate, for many high-net-worth individuals. In addition, rich Canadians may have business interests and other resources at their disposal.
Most tend to think of being rich as purely monetary. However, there’s so much more to wealth than money! Richness can also be measured according to qualitative factors like lifestyle, comfort levels, and the ability to do what you want, when you want. If you aren’t one of the Canadians earning $512,000 a year, you likely have other things to be grateful for that aren’t quantitative.
With that said, there is nothing wrong with the pursuit of wealth and aiming for higher annual income. So, how do you get to such a high-income bracket? We’ll cover that shortly.
What income level is considered rich?
An annual income of around $500,000 would be considered a rich income level. This is based off of the top 1% of income according to tax filings in Canada.
What is considered high net worth in Canada?
Individuals with a net worth of $1 million or higher is considered high in Canada. Net worth is calculated as total assets less liabilities, like mortgages and other debt.
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Factors That Determine Wealth in Canada
What is considered rich in Canada isn’t only dictated by your career, though that’s definitely a key factor. Let’s look at other items influencing wealth in Canada:
- Education: While it’s true that most rich Canadians graduate from college or university, Forbes shares a long list of billionaires without a formal university education background. Still, it’s reasonable to assume that a means for education opens doors to high-income careers in medicine and business, for example. In addition, by attending post-secondary education, you are able to socialize and network with like minded individuals.
- Career choice: Annual income is a great determiner of wealth in Canada. The difference between an average retail salary ($32,125) and an engineer ($76,781) is significant. You’ll see higher salaries for careers in tech, programming, engineering, medicine, and finance. If you choose to work in another sector, there’s still opportunity to earn lots of money, but you may face the limitations of the market.
- Financial literacy: One study showed a positive correlation between financial literacy and wealth. For many Canadians, this starts at home in their upbringing. Canadians who grew up with open dialogue around money were more likely to be financially literate.
- Debt: Debt, like student loans and credit card debt, can set you back financially. Wealthy Canadians tend to have “good” or secured debt backed by an asset. Furthermore, the assets carrying debt tend to be producing income that outweighs the cost of the debt.
- Inheritance: MoneySense tells us 44% of Canadians expect to receive an inheritance. On top of that, the average inheritance amount in Canada is a whopping $100,000 — with an emphasis on the word average. Although, dealing with sudden wealth from an inheritance can be challenging to deal with emotionally.
Understanding the Wealth Gap in Canada
Wealth is definitely unequally distributed across Canada. One study reports that the richest 87 Canadian families hold just as much wealth as a shocking 12 million Canadians. In other words, a third of the country carries the same wealth as the richest families. This is known as the wealth gap. Income equality progressed in the 80s and 90s, but a Bank of Canada study notes it’s remained relatively stable over the last 25 years.
Still, the wealth gap hurts lower-income Canadians the most. Plus, rising costs of living and inflation make it increasingly difficult to come close to what is considered rich in Canada. But that doesn’t mean wealth is unattainable. It’s never too late to set up a strategy to improve your wealth.
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Final Thoughts on Canada’s Wealth
Back to our initial question, what is considered rich in Canada? Based on federal income tax filings, we’ll say around $500,000 in annual income paired with stable investments, a fulsome retirement plan, and lower debt-to-income ratios specifically for unsecured debts. Furthermore, individuals with a net worth of $1 million or more would be considered wealthy.
While $500,000 in income and $1 million in net worth may feel unattainable, that doesn’t mean you’ll never experience a wealthy lifestyle or can’t improve your financial situation. Indeed, our wealth managers sit down with Canadians from varying economic backgrounds to plan for their futures and reach their financial goals.
The best route to wealth includes a diversified portfolio, financial plan, and consistent debt repayment. Need help with the planning? Talk to a wealth manager today!
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