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People walks past the Toronto Stock Exchange building in July, 2013. (Gloria Nieto/The Globe and Mail)
People walks past the Toronto Stock Exchange building in July, 2013. (Gloria Nieto/The Globe and Mail)

Top CEOs earn big salaries, but pay huge tax bills, study shows Add to ...

They may take home huge paycheques, but Canada’s top CEOs are also writing big cheques to cover their income tax bills.

The chief executive officers of Canada’s 60 largest companies paid about $2.5-million each in income tax in 2010 on average total compensation of $6.2-million, according to a new study by compensation consulting firm McDowall Associates.

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The 60 CEOs together paid an estimated combined total of $150-million in income tax – an amount equal to taxes paid by 19,000 Canadians earning the average industrial wage of $46,600 in 2010. They paid an average of $7,993 each in income tax.

The study concludes a typical CEO in the S&P/TSX 60 index earned 133 times the average industrial wage in 2010, but paid 316 times the income tax of an average tax payer due to higher rates at higher income brackets.

McDowall senior consultant Robert Levasseur says there is a public perception that wealthy people use schemes or offshore havens to avoid paying tax, but the reality is most have few options to significantly minimize income taxes owed on employment income. Even CEOs earning millions have tax deducted from their pay cheques and are issued T-4 forms each year, he said.

“People assume executives can find a way to reduce their tax, but based on their employment income, we haven’t seen it – or not enough to be significant,” Mr. Levasseur said.

The report notes few people will feel sorry for executives paying high tax rates when they earn so much money, but says the large amount of tax they pay “demonstrates the relative significance of their contribution to our economy, both as individual taxpayers and collectively.”

Ray Murrill, a senior consultant at McDowall, said when he first started advising companies on executive pay in the 1970s, there were pay strategies designed to be more tax effective for executives. But so many loopholes were closed over the subsequent decade that there is little companies can now do through the structure of pay programs to help senior executives avoid taxes.

“I can’t recall the last time I’ve done that exercise, because there’s so little left you can do,” he said.

The report uses the 2010 Ontario provincial income tax rate for all CEOs to estimate their tax payments, although some live in other provinces with different tax rates. It also assumes the equity compensation granted to CEOs in 2010 was actually paid out at the time of granting (rather than waiting down the road until they all vest and taxes are then payable), and assumes the executives are not married to simplify the tax calculations.

The report also looks more broadly at taxes paid by Canada’s highest tier of tax payers – the 2,550 people who comprised the top 0.01 per cent of all taxpayers – whose average income was $6.1-million in 2010, according to Statistics Canada. Tax filer data shows they paid average taxes of $1.8-million each in 2010 or a total of $4.5-billion in tax for all 2,550 combined. The tax rate for the top 0.01 per cent is lower than the rate estimated for the 60 top CEOs in part because only 55 per cent of income earned by the top 2,550 earners came from wages or salaries and the rest came from other sources such as capital gains on investments. But both the CEOs and the 0.01-per-cent group still pay almost twice as much tax per dollar of income as average taxpayers because of their higher tax bracket, the report says. The significant tax revenue from a small group of individuals reinforces “the importance of attracting, retaining and motivating high income individuals in Canada.”

Follow on Twitter: @JMcFarlandGlobe

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