Income Averaging Benefits From Income Growth: the Gradual Elimination of an Inequity

Abstract

Previous research of the income averaging provision has suggested that individ-uals outside the targeted population are eligible for averaging and that the provision has introduced new sources of inequity. This study investigates the tax savings to the unintended population over the last several years and finds that the inequity has effectively been eliminated. The results demonstrate that recent changes to the tax rate structure have reduced the tax savings to those eligible to income average. In addition, income averaging eligibility through income growth is much more difficult to achieve under a recent change in the averaging provisions.