. TAX INFORMATION                                           


Learn about the impact of your marginal tax rate. Learn about government programs to reduce your tax liabilities such as tax-deferred programs, income splitting and charitable donations. Then talk to your advisor to take maximum advantage of these opportunities. 


  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 2014, earned taxable income of $70,000 and received a salary increase of $10,000, the government would take $3,100 and leave you $6,900 of your increase.  

Approximate Combined Federal/Provincial Marginal Tax Rates as of 2014 (rounded %'s)

Starting Taxable Income Brackets

BC

%

Alta

%

Sask

%

Man

%

Ont

%

QC

%

NB

%

NS

%

PEI

%

NF/Lab

%

 $30,000

20

25

26

26

20

 29

28

30

25

  23

  40,000

23

25

26

28

24

  29 

 30 

30

29

  28

  50,000

30

32

35

35

31

 38

37

37

36

  35

  60,000

30

32

35

35

31

 38

37

39

36

  35

  70,000

30

32

35

39

31

 38

37

39

39

  35

  80,000

33

32

35

39

38

 38

37

39

39

  35

 100,000

38

36

39

43

43

 46

43

44

44

  39

 150,000

44

39

44

46

48

 50

47

50

47

   42

 200,000 46 39 44 46 48 50 47 50 47   42
 
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 $3,000 at a marginal rate of 30%.

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 spouseís 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 (RESPís) are another practical income splitting tool. Earnings from subscriber contributions grow on a tax-deferred basis and are taxable in the childís 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.
                         
           

  SPLITTING NO SPLITTING
Gross Income $60,000 $60,000
Less Child Salary Deduction Assumption     $5,000*          n/a  
Taxable Income After Deductions $55,000 $60,000
Average Tax Rate (Federal & Provincial)           21%**          22%**
Income Tax $11,550 $13,200
Savings   $1,650      -------  

                   *  If an individualís 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:


Total charitable donations over $200 receive a 29% tax credit versus only 17% under $200. Therefore, it's wise to combine both spousal donations on one tax return. 


Medical expenses can only be claimed to the extent that they exceed 3% of an individualís net income. Consequently, the spouse with the lower taxable net income should claim all family medical expenses.


Tuition fees and monthly education credits up to $5,000 per student can be transferred back to a parent to the extent that the student does not use them to eliminate his/her income tax.



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