Income gap hit record high in Q1: Statistics Canada

Canada’s income gap has reached a record high and the wealth gap widened in the first quarter of this year, according to data Statistics Canada released Wednesday.

The difference in the share of disposable income between households in the top 40% of the income distribution and the bottom 40% reached a record high of 49 percentage points in the first quarter of 2025. The income gap has increased each year since the onset of the Covid pandemic, when a low of 43.8 percentage points was recorded in the first quarter of 2021.

Households in the bottom 20% of the income distribution saw disposable income grow by 3.2% compared with the first quarter of 2024 — the weakest among all quintiles. It was the only group to see declining average wages (-0.7%), mainly due to reduced work hours. The lowest-income households also experienced the largest drop in net investment income, with investment earnings falling 35.3%, more than offsetting lower interest payments (-7.1%).

Lower-income families tend to be more vulnerable to job losses during economic uncertainty and have less diversified portfolios, focusing on interest-bearing investments, which have recently delivered lower returns due to a lower policy rate, Statistics Canada said.

By contrast, average disposable income for households in the top 20% increased at the fastest pace — up 7.7% compared with the same quarter last year — mainly due to gains in average wages (4.7%) and investment income (7.4%).

Mind the wealth gap

Most wealth in Canada is held by a relatively small number of households. The top quintile of the wealth distribution accounted for 64.7% of Canada’s net worth in the first quarter of this year, averaging $3.3 million per household. Meanwhile, the bottom 40% of the wealth distribution accounted for just 3.3%, averaging $85,700.

Overall household net worth increased 2.8% in the first quarter of 2025 compared with a year earlier, driven mainly by financial asset gains (6.7%), which more than offset a 1.4% decline in real estate values.

For the least wealthy, mortgage costs ($5,233) outweighed the increase in the average value of their real estate holdings ($3,894), as real property values dropped. In contrast, the wealthiest households avoided debt financing and posted the strongest growth in financial asset values (7.1%).

Debt service ratios easing

The interest-only debt service ratio (DSR) — the value of total interest payments as a share of disposable income — declined in the first quarter of 2025 for the first time since 2022 across all age groups, including younger households that tend to carry more debt.

For example, the interest-only DSR of households aged 35 to 44 fell from 12.6% a year earlier to 11.5% in the first quarter of 2025. Among households under 35, it declined from 11.5% to 11.3%. This was mainly due to wages and investment income outpacing debt increases.

Along with easing affordability pressures, the data suggest that middle-income and lower-wealth households are improving their ability to manage debt.

With files from The Canadian Press