Marginal Tax Rate Information
  Tax Deferral Programs
  Income Splitting 
  Charitable Donations
  Tax Credits

Marginal Tax Rate Information

The rate at which your next dollar of taxable income is taxed. It determines:

i).  the amount of tax you'll pay on any earnings increase from employment and non-registered investments;
ii). the amount of immediate tax reductions from RRSP contributions. 

Income Tax Example: If you lived in Ontario in 2020, earned taxable income of $70,000 and received a salary increase of $10,000, the government would take 30% ($3,000) and leave you $7,000 of your increase.  

Approximate Combined Federal/Provincial Marginal Tax Rates as of 2020 (rounded %'s)* 

RRSP Tax Reduction Example: If your earned $70,000 in B.C. and contributed $10,000 to a RRSP, taxable income would be reduced to $60,000 and your approximate reduction in income taxes would be $2,800 at a marginal rate of 28%.

Tax Deferral Programs 

Retirement savings plans (e.g. pension plans and RRSP's) defer part of your income and related income taxes until retirement when income and tax rates are typically lower.

Income Splitting

Individuals under 65 years of age are eligible for Registered Pension Plan (RPP) income splitting at any time. However, RRSP annuity payments, RRIF and deferred profit sharing payments are eligible only after an individual turns 65.

Canada Pension Plan (CPP) payments may also be split by assigning up to half to the lower income earning spouse if both individuals are at least 60 years old. If one spouse does this, a portion of the other spouse’s CPP is assigned automatically back to the first spouse. Thus, if one spouse has larger CPP benefits than the other, the assignment can lower the family tax bill.

Registered Education Savings Plans (RESP’s) are another practical income splitting tool. Earnings from subscriber contributions grow on a tax-deferred basis and are taxable in the child’s hands (usually at a much lower tax rate) when the money is withdrawn for post-secondary education.

Income splitting is also allowable if  you own a business. You may pay reasonable wages to your spouse and children for work they perform (filing/typing, etc.) to support your efforts as per the example below.
                                    

                   *  If an individual’s total income is under $9,600 in 2008 and $10,320 in 2009, there is no Federal tax.
                   ** Ontario tax rate example.

Spousal Loans enable the lower income spouse to borrow from the higher earner at a prescribed rate (4% range) to buy investments so that earnings are taxed at a lower rate. The loan interest is deducted from the former's income and added to the income of the higher earner. Documentation must be kept.

Charitable Donations

There is no capital gains tax on donation of eligible securities (publicly traded shares, bonds, mutual fund units, employee stock options) to registered charities and public or private foundations. For example, if you donate an asset worth $15,000 that was for purchased for $10,000, you pay no tax on the $5,000 gain and also receive a tax receipt for $15,000 to reduce your personal income tax.

Tax Credits

Whereas tax reductions (e.g. RRSP) generate savings at your marginal tax rate, credits reduce your tax liabilities dollar for dollar. In other words, a $200 tax credit will save you $200 in taxes. Examples: