Government policy of reducing transfer payments drastically is based on arguments of strong preference for leisure by the beneficiaries. Since this has direct bearing on working poverty, empirical evidence on the relationship between the incidence of working poverty and transfer payments in Canada is presented in the paper. Different categories of working poor are considered separately and determinants identified. Impact of unemployment benefits and other transfer payments on working poverty is examined holding other factors constant. Our findings suggest that cuts in transfer payments are likely to impose considerable social costs in terms of raising the incidence of working poverty in Canada.