Do Taxes in Canada KEEP YOU POOR?
If you're an immigrant to Canada or born here, let me share some important insights about our tax system.
Canada has a progressive income tax, which means that the more you earn, the higher your tax rate.
Many people mistakenly believe that the posted tax rate applies to all their income.
That's not true! Canada uses a marginal tax rate system.
Think of it like pouring water into buckets—only the income that overflows into a higher bucket gets taxed at a higher rate. So, if your highest marginal tax rate is 41%, your actual tax rate might be closer to 31%.
There are straightforward ways to reduce your taxes.
One of the easiest methods is using a Registered Retirement Savings Plan (RRSP).
Contributions to this account can lower your taxable income based on your marginal tax rate.
If your marginal tax rate is 46%, contributing $1,000 to your RRSP could reduce your taxes by $460.
Couples can benefit from a Spousal RRSP, which allows the higher-earning spouse to make contributions that can also lower the overall tax burden EVEN FURTHER.
If you're a business owner, incorporating your business can help defer income taxes.
Alternatively, the cash damming strategy lets you use a line of credit for business expenses while deducting the interest from your taxable income. This can also help you manage personal debt more effectively.
I encourage you to explore these strategies and consult with a knowledgeable advisor to find the best approach for your situation. I'm Carlo, and I'm here to help you navigate your financial decisions.
