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Home » Taxation
The Basics: What You Need to Know About How Income is Taxed
Category :- Taxation

Author :- Evelyn Jacks 
* Please rate and share the article if you find it interesting *

Posted on August 14, 2014, 11:27 pm
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Aside from understanding that Canadian residents are taxed on world income in Canadian funds, there are only a few basics you need to know about the marginal tax rate system in Canada.

That’s important because these points will help you understand how the next dollars you earn will be taxed. Under our “progressive system of taxation,” you’ll pay more the more you earn, but you may also receive less in tax credits—which are a form of income redistribution.

First know that there are two levels of personal income tax:  one to the Federal and one to Provincial Governments.

Next, every individual has a Tax Free Zone: the Basic Personal Amount, which on the federal return is indexed annually with inflation. The BPA is different for each province, and may differ from the federal amount. Depending on the province, it may or may not be indexed. Other tax deductions and credits available to the individual may increase the Tax Free Zone.

Thirdly, understand what tax bracket your taxable income falls into. It can help you make decision like how much money you’ll take out of your RRSP or RRIF this year, or whether to plan to plan a capital disposition this year.

Following are the brackets and rates for both 2012, the tax year for which you are filing a tax return now, and for 2013, the tax year for which you will plan to diversify income, split income with family members, defer and time income sources to get the best tax results!

2013 Brackets

2013 Rates

2012 Brackets

2012 Rates

Up to $11,038

0

Up to $10,822

0

$11,039 to $43,561

15%

$10,823 to $42,707

15%

$43,562 to $87,123

22%

$42,708 to $85,414

22%

$87,124 to $135,054

26%

$85,415 to $132,406

26%

Over $135,034

29%

Over $132,406

29%

 

It’s Your Money, Your Life. Every dollar saved by claiming all the tax credits and deductions you are entitled to is another dollar that is freed to be invested to create wealth. When you plan in advance to pay the least possible tax rates on income and capital by taking advantage of your tax filing opportunities, you’ll quite likely end up wealthier. Tax knowledge, in short, can increase economic clout. You may wish to learn more about tax planning this tax season, or, ask your tax advisor to explain at what marginal tax rates your next dollars of income will be taxed. Next time: a look at marginal tax rates on various income sources.

Source: http://www.evelynjacks.com/?p=804


Comments : Evelyn Jacks is a president of Knowledge Bureau, a national educational publisher - http://www.knowledgebureau.com
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