Money Club for Young Adults
Income Tax - the Basics
What is the biggest expense for working Canadians each year? ​
No, it's not their rent/mortgage! It is the amount they pay in taxes (to federal, provincial and municipal governments).
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Income - Expenses = Savings
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Reducing your expenses (like the amount of tax you pay) is one way to increase your savings. Higher savings will allow you to invest more and create more and larger income streams. ​And this will allow you to reach your financial goals more quickly. It is like a virtuous circle.
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It is helpful to have a basic understanding of how taxes work. And what options are available to you to reduce your tax bill each year. This will allow you to make more informed financial decisions.
Marginal versus Average Tax Rates
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Canada has a progressive tax system. This means that as your income grows you pay more in taxes.
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The top marginal tax rate is the amount you will pay if you earn one more dollar of employment income.
​​​The average tax rate is calculated by dividing total income tax paid by total employment income earned (for a given year).
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Can you do anything to lower the amount of tax you pay?​​​
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Yes, there are strategies you can employ to lower your tax bill.
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Tax deductions - lowers your taxable income
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FHSA contribution
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RRSP contribution
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Tax credits - lowers your tax liability directly
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Employment Income and Marginal Tax Rates​
Note: Our example above is a rough estimate only. There are more tax brackets - we have included enough to show you how marginal tax rates increase as your income grows.
Canada Revenue Agency - My Account
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A secure portal that lets you view your personal income tax and benefit information and manage your tax affairs online.
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Track your income tax refund,
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View or change your income tax return
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Check your benefit and credit payments
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View your RRSP limit
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View your TFSA contribution room
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Set up direct deposit, receive email notifications, and so much more.
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To learn more and to set up click here
Income Tax Calculator
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You can get a quick and rough estimate of how much tax you will have to pay each year by using a tax calculator.
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To use Turbotax's calculator click here
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This can also tell you approximately what your tax rebate will be if you make a contribution to your FHSA or RRSP.
More Complete Tax Summary
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The tax system is pretty complex. There are many different sources of income and each are taxed differently:
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employment income
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capital gains
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dividends
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TaxTips.ca does a good job of summarizing many important pieces.
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For more click here​​