Low income before tax cut-offs (LICO-BT)
Part A - Plain language definition
Income levels at which families or persons not in economic families spend 20% more than average of their before tax income on food, shelter and clothing.
Part B - Detailed definition
Measures of low income known as low income (before tax) cut-offs (LICO-BT) were first introduced in Canada in 1968 based on 1961 Census income data and 1959 family expenditure patterns. At that time, expenditure patterns indicated that Canadian families spent about 50% of their total income on food, shelter and clothing. It was arbitrarily estimated that families spending 70% or more of their income (20 percentage points more than the average) on these basic necessities would be in 'straitened' circumstances. With this assumption, low income cut-off points were set for five different sizes of families.
Subsequent to these initial cut-offs, revised low income before tax cut-offs were established based on national family expenditure data from 1969, 1978, 1986 and 1992. The initial LICOs were based upon the total income, before tax, of families and persons 15 years and over not in economic families.
After a comprehensive review of low income cut-offs completed in 1991, low income cut offs based upon after-tax income were published for the first time in Income After Tax, Distributions by Size in Canada, 1990 (Catalogue no. 13-210).
In a similar fashion to the derivation of low income cut-offs based upon total income, cut-offs are estimated independently for economic families and persons not in economic families based upon family expenditure and income after tax. Consequently, the low income after-tax cut-offs are set at after-tax income levels, differentiated by size of family and area of residence, where families spend 20 percentage points more of their after-tax income than the average family on food, shelter and clothing.