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With the holidays behind us, it is already time to think about the “tax season”.
If the mere sight of the word “tax” creates a migraine, this handy little guide can help you get through this period with peace of mind.
How does it work?
The tax rate determines the amount of money that must be paid to the government.
The effective rate is the percentage of income that is taxable. This percentage is established according to multiple slices of annual income. Here are some of the effective rates for 2018 (these rates include those of the provincial and federal combined):
– 26 000$ : 13,17%
– 30 000$ : 15,09%
– 45 000$ : 19,45%
– 63 000$ : 24,38%
– 80 000$ : 27,09%
The marginal rate represents the percentage payable on each dollar of additional income, and increases according to the income brackets.
For example : between 43 055$ 46 604$, you will be taxed at a marginal rate of 32,53%. Your 46 605e dollar will be taxed at 37,12% since you have changed bearing.
Credits to save you money
The tax credits can be a useful tool to reduce the amount of money to remit to the government.
There are two types of credits: refundable and non-refundable. The refundable credits are paid even if you don’t pay taxes, while non-refundable are used to reduce, or even eliminate the income taxes that you are forced to pay in some cases.
Here is a list of credits interesting for different social statuses. To note that all of these credits are applicable under several conditions. Therefore, it is recommended to visit the website of Revenu Québec and the Canada revenue Agency for more details.
New owners : you might benefit from non-refundable credits maximum of$ 750 of the provincial, and$ 750 from the federal government for the purchase of your first domain. To be eligible, your home must be your principal place of residence or as a residence for someone in a situation of disability to which you are bound.
Young professionals: you are working in a remote area of Quebec? You may be dependent on a credit non-refundable if you fulfill one of these two conditions : you have worked in an eligible job 24 months after your graduation or you have already benefited from the credit the year before and have lived in a remote area until December 31, 2018.
Students: tuition fees or exams for the last year may generate a credit. To do this, you will need to submit the appropriate request to your income tax return.
RRSP vs TFSA : which to prioritize?
The contribution to an RRSP (registered retirement savings plan) or TFSA (tax free savings) also presents tax benefits. However, they do not have the same tax treatment.
As explained by Christiane VanBolhuis, financial planner partner Sun Life Financial, the contribution to the RRSP is beneficial in two respects: the tax deduction and the tax deferral. “Every dollar invested in an RRSP is 100% tax deductible.
For example, someone with a salary of$ 50,000 per year who pays$ 5,000 in an RRSP will be taxed on$ 45,000 in”. “Also, the growth of your money will only be imposed at the time of the withdrawal from your RRSP. So the money can grow for years without being impacted by the tax.” The maximum amount of RRSP contribution in 2018 was 26 230$ or 18% of earned income from the previous year.
The TFSA does not offer a tax deduction. In contrast, the growth of the money invested is tax-free in the account and at the time of withdrawal. The TFSA allows its holder greater flexibility, since it can withdraw when it wants to without being penalized. In 2019, the annual contribution limit to the TFSA is$6,000.
The choice of the type of savings should be made in function of its objectives and its financial position according to Christiane. “For a person with goals that are more short term, the TFSA is to consider.
However, for an individual with goals long-term and an annual salary of$ 100,000, the RRSP can be interesting because of its tax advantages”.
A strategy that may be clever is to put a certain portion of his savings in an RRSP and a TFSA according to the planner.
“It allows you to marry the flexibility of the TFSA and the tax benefits of the RRSP. You could even take the money not used from your TFSA by the end of the year and transfer it to your RRSP to increase your tax deduction!”
According to the financial planner, it is necessary to begin to advance to repatriate the necessary documents for the deadline if we don’t want to worry unnecessarily. “It will allow you to take the actions that are most beneficial for your tax situation!”
If you still have questions about the fabulous world of taxation, you can consult the internet site of Revenu Québec and the Canada revenue Agency.
You want to invest ? Talking first to a counselor !