Tax Brackets in Canada
by Adam Goodwin | 2015 | Last Updated: May 8, 2015
Tax Brackets in Canada
If you see a mistake/error, please let me know ASAP! This is meant to be an example, and is not tax advice, or legal advice. Please contact a certified accountant or a professional lawyer for legal and accurate advice.
Recently Justin Trudeau, leader of the Liberal Party of Canada, suggested that he will raise taxes for Canada’s largest earners (National Post coverage). It reminded me of the mis-understandings around tax brackets.
To best illustrate this, I will use an example. I ignore tax credits, etc.
For simplicity, let’s say, tax brackets are the following:
Income between $0-9999 = 0%
Income between $10000-19999 = 5%
Income between $20000-29999 = 10%
income between $30000-39999 = 15%
The common perception amongst many I speak to is that if I make $30500 per year, then I would have to pay 15% taxes on this total amount. This is equivalent to $4575 per year in taxes (15% of $30,500) so would take home $25925.
Now, let’s continue to use the common perception and calculate the taxes for someone making $29500 per year. At 10% tax rate, they would pay $2950 in taxes and thus would take home $26550.
How is this so? You take more home making $29500/year than $30500/year?
This is why many suggest that a raise can actually end up costing you more, and thus you would take home less (again, this calculation ignores tax credits, etc).
This perception, for the most part, is wrong. Yes, wrong!
In the $30500/year example, you would only pay the 15% on any amount over $29999.99.
So, what happens with the individual making $30500/year? This is how the taxes would calculated (using the rates from above).
- < $10000 = 0% = $0 of taxes
- $10000 = 5% = $500 of taxes
- $10000 = 10% = $1000 of taxes
- $500 = 15% = $75 of taxes
So the individual making $30500 per year would actually only pay $1575 in taxes – a huge difference from the $4575 that was calculated in the common mis-conception section of this blog post. This individual would bring home $28925.
Here is the calculation for the individual making $29500/year.
- < $10000 = 0% tax rate = $0 of taxes owing
- $10000 = 5% = $500
- $9500 = 10% = 950
So this individual making $29500/year would actually owe $1450 so would bring home $28050.
What about that raise?
In many cases, take the raise! The person making $30500/year brought home $28925 after taxes while the person with a salary of $29500 would bring home only $28050. This is a much different result from the calculation under the misconception section of this blog post!
Before you make any major financial decisions, I strongly recommend, and urge you, to speak with a financial advisor and/or lawyer for professional, certified, and sound advice. This blog post is purely to raise a challenge to the mis-conception about how tax brackets in many countries actually operate.
Your Call to Action
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Based on your reading of this blog post, you may also be interested in: Fortius (Stronger).
These are one person’s thoughts and opinions. We welcome your feedback and own thoughts. Feel free to comment below or connect with us via social media.
Adam Goodwin is a Canadian who has lived and worked in Africa, Europe, the Middle East, and North America, who is currently attending one of the world’s best sport management programs at the University of Windsor. He is a proud introvert and silent leader. He has traveled to 50 major global cities around the world, and has worked with universities, non-profits, consulting firms, and sport organizations. He has family and friends around the world. Follow his travels, work, projects, and thoughts on Twitter (@adam13goodwin) and on this blog (click on the bottom right-hand corner to sign up for weekly email notifications).