On today’s date in 1917, Canada’s federal government introduced both a personal and corporate income tax in response to the burgeoning economic demands of the First World War.
What was originally billed as a temporary measure has since become the government’s largest source of income, marking a “significant shift in federal taxation philosophy,” according to a 2017 article published by the Fraser Forum, the Fraser Institute’s blog. Before introducing income tax, Canada’s federal coffers relied on various tariffs and customs.
“In the first years of Confederation, it was felt that taxing incomes would detract from Canada’s competitive position as one of the lowest taxed countries in the world,” reads the blog post, adding Canada’s federal personal income tax followed a similar income tax the United States introduced in 1913.
In 1978, William Wardlaw Duncan donated a complete set of his income tax forms (1919 form shown) to Library and Archives Canada. Photo via Library and Archives Canada, MG 30 A 100.
In Canada, the first wartime taxes – luxury taxes – focused on tobacco and alcohol. Soon after, in 1915, a dominion tax was placed on transport tickets, telegrams, money orders, cheques and patent medicines. After taxing various goods and services, the feds began taxing businesses’ incomes, and by 1916, all Canadian corporations with at least $50,000 in capital were required to file a yearly tax return.
The federal personal income tax began a year later, on Sept. 20, 1917, with a four per cent tax on all income of single people (unmarried persons and widows or widowers without dependent children) exceeding $2,000. Like the earlier wartime taxes, the Income War Tax Act was unveiled as a temporary measure.
“For everyone else, the personal exemption was $3,000. In today’s dollars, the exemptions would be worth approximately $33,000 and $50,000, respectively,” reads the Fraser Forum article. “To be clear, in today’s dollars, the first federal personal income tax exempted the first $33,000 of income for single people and the first $50,000 for everyone else. For reference, the basic personal exemption for 2016 is $11,474.”
The First World War resulted in “an unprecedented drain” on the relatively young dominion’s finances, according to a 2017 article published on the Library & Archives Canada website.
“To better utilize Canada’s finite resources, every aspect of supply was regulated by the Dominion Government. Rationing was introduced for everyday items from building materials to gasoline, to food. The government, limited in the ways that new revenue could be gained, also issued wartime savings bonds, raised import tariffs and levied new wartime taxes.”
The federal personal income tax program later expanded “dramatically” during the Second World War, the article adds.
1917 $1 BANKNOTE
Canada’s 1917 $1 note (back shown) depicts Parliament’s Centre Block. Photo by Heritage Auctions.
Canada’s 1917 $1 banknote, the only dominion note designed during the First World War, features several patriotic symbols.
Princess Patricia, the namesake of Princess Patricia’s Canadian Light Infantry, graces the centre of the note’s face. Below, her portrait is flanked by flags and maple leaves.
Like all $1 dominion notes issued since 1897, the back depicts the Parliament Buildings’ Centre Block, which burnt to the ground a year earlier.
One example, certified as About Uncirculated-55 by PCGS Banknote, realized $1,020 US in an August 2019 auction in Texas.
To learn more about wartime currency, read the Bank of Canada Museum’s 2018 article, “Money of the First World War,” by then-chief curator Paul Berry.