Definition of Low Income in Canada

Three distinct measurements define low income in Canada. Statistics Canada uses the "Low Income Cutoff," based on the ability to purchase necessities, and the "Low Income Measure," based on inequality, to measure income levels. Human Resources and Skills Development Canada (HRSDC) uses the "Market Basket Measure," based on a household's ability to afford necessities. No official definition of "low income" exists; however, the Low Income Cutoff is the most common measurement, according to the Canadian Council on Social Development.

The Low Income Cutoff (LICO) is the income level below which a family spends 20 percent more of its income on necessities (food, shelter and clothing) than the average family does. For example, if an average household uses 30 percent of its income to buy necessities, then a household which spends 50 percent on the same is considered low-income. Statistics Canada calculates the LICO once before a family pays income tax (LICO-BT) and once after (LICO-AT).

In 1991, Statistics Canada developed the Low Income Measure (LIM). Households that make an income less than half of the average are low-income according to this measurement. The LIM measures income inequality rather than purchasing power, which makes it useful when comparing Canadian low-income levels to other countries' levels.

Introduced by the HRDSC in 2003, the Market Basket Measure (MBM) estimates the cost of a "basket" of goods and services, including food, housing, clothing and transportation. In 2006, this selection cost $31,399 for a family of four living in Toronto; a household making less than this would be considered low-income. The MBM reflects changes in the costs of living as well as the level of income, and is adjusted for different regions.

Provinces use these measurements, usually the LICO, to determine a taxpayer's eligibility for a tax reduction. In provinces with directly-funded health care systems, such as British Columbia, the government reduces health care fees depending on how close a resident is to the low-income cutoff. Immigrants to Canada who want to sponsor family members must have an annual income above the LICO, according to Citizenship and Immigration Canada.

The low-income cutoff for a single person in a large city in 2005 was $20,778, according to Statistics Canada, while the cutoff for a family of four in the same setting was $38,610. Citizenship and Immigration Canada set the low-income cutoff for immigration higher in 2009: a single person had to make $22,171 to sponsor relatives, and a family of four had to earn $41,198.

According to HRSDC, 9.2 percent of Canadians earned an income less than the low-income cutoff in 2007, based on the LICO measurement. Using the Market Basket Measure, the level was slightly higher, at 10.1 percent. Comparing Canada to other industrialized countries using the LIM, the Organization for Economic Co-Operation and Development found that 12 percent of Canadians lived under low-income conditions in 2005.