Everyone’s heard the old saying – the only sure things are death and taxes. Scientists have not made much progress on putting an end to that first sure thing, and governments appear to have no intention of putting a halt to the second. In fact, government appetite for tax revenue seems to only increase. In Canada as a whole, and for the most part in the provinces, as well, tax rates seem to go up fairly routinely, as they have for federal taxes in the third-highest tax bracket for 2021. The combined federal and provincial taxes for 2020 and 2021 now top out at more than 50% in the two highest tax brackets and very nearly 50% in the third highest. While the basic personal amount – the amount you can earn before having to pay any income taxes — will be increased over the next four years from about $12,000 to about $15,000, tax rates will not be going down.
High Tax Rates Make Tax Planning a Financial Necessity
Even if you are not in the income brackets that are paying near or more than 50% in income taxes, tax rates in Canada are very high – all Canadian provinces have higher income tax rates than 49 out of 50 states in the United States. That is not a badge of honor, and it makes tax planning the smart thing to do. Throw in federal taxes, and tax planning becomes almost a necessity, even for those in tax brackets that are not in the top three tiers. When combining federal and Ontario provincial income taxes, even the lowest tax bracket pays more than 20%, with the percentages quickly climbing as income goes up. Anyone making more than $100,000 in Ontario will pay well over 40% on the top end of their income.
It does not have to be that way. Fortunately, there are many viable strategies to minimize your income tax burden. These include income splitting, trusts, Registered Retirement Savings Plans, spousal loans if you have a low-income spouse, and other mechanisms. Tax-Free Savings Accounts, Registered Education Savings Plans, and tax-exempt life insurance also are options. You also can choose tax-minimizing or tax-efficient investments and take steps to maximize your tax credits and deductions.
These and other tax-minimizing steps are not just for the “wealthy.” If you make more than $150,000, your top tax rate is at least nearly 45%. In a province where a family home can easily cost at least $500,000 – and can just as easily cost far more – an income of $150,000 is not even close to “rich.” You are far more likely to be unable to afford the kind of home you would rather have, or even need. Tax planning can help with that situation and put more money in your pocket without changing jobs.
If You Would Like to Minimize Your Income Tax Exposure, Talk to Baganyi Professional Corporation
No one wants to pay more in income taxes than they have to. If you would like to engage in some tax-planning to help you improve your income tax situation, Beganyi Professional Corporation is ready and able to assist you. Beganyi PC can help with tax planning in the greater Toronto area, including Mississauga, Brampton, Oakville, Hamilton, and Milton.