Tax Refund Calculator 2024
Tax Refund Calculator 2024 hey guys it's Adrian here the Canadianin a Tshirt and today I'll be breaking down exactly how taxes work in CanadaI'll go over the basics of tax brackets and I'll compare taxes for personalincome business income and investment income I'll, also go over some ways toreduce your taxes legally such as deductions credits and registeredaccounts like the TFSA, and RRSP let's start with the basics in Canada you have topay two forms of income. Taxes federal and provincial taxes federal tax iscommon for all Canadians but provincial tax differs depending on which provinceyou live in if you make $50,000 a, year in Ontario you'll pay the exact samefederal tax as someone who makes $50,000 a year in Alberta but your, provincialtax, rates will differ and so your total income tax will differ for both federaland provincial taxes we have a progressive tax system that means thatas your income grows the tax rate that you pay on this new, income grows higheras well this is done using tax brackets you can think of tax brackets as bucketsof, income if your income falls into. A particular bucket you will pay the sametax rate or percentage as any income in that tax bracket let's, look at thesecond lowest federal tax bracket for income between $47,000 and$95,000 If your taxable income falls in this range you're inthis bucket and so you'll pay the same 20.5% of federal taxes for each additional dollar of income if, you make$50,000 or $90,000 you're still in the same bucket and, so everyextra dollar you earn will be taxed at 20.5%. This 20.5% is your marginal tax rate marginal tax rate and this is the mostimportant. Number that we care about, if our income gets bumped up to $100,000we don't fit in this bucket any more and so we jump up to ahigher tax bracket now we're in the tax bracket, of incomes between $95,000and $147,000 and our marginal tax rate hasincreased to 26% this is a very important point, we don't pay 26% of ourtotal income in taxes we just pay 26% on the amount in this bucket inthis case that's only $5000 the amount above the $95,000limit, for the previous tax bracket you are always better offearning a higher income even if you get bumped up. To a higher, tax bracket sureyou'll be paying more money in taxes on this new income but yourtotal net income will still increase and that means more money in your walletthis. Is a big source of confusion so let's highlight this with an examplewe're only going to look at the federal. Tax brackets but the provincial taxbrackets work the exact same way, just with different numbers these are thefederal tax brackets for 2019 so you'll be using these numbers when you fileyour taxes in April of 2020 let's say your income is $90,000 a year so westart by completely filling, up the first tax bracket of $47,630 the tax, rate for this bracket is 15% sowe'll be paying $7,145 in taxeson our first $47,000 of income the remainder of ourincome goes into the second tax bracket but we don't quite fill. It up since ourincome is less than the $95,000 limit we have $90,000minus $47,630 giving us $42,370 the tax. Rate for the second bracket is 20.5% so we'll be, paying $8,686 on our remaining $42,000 this gives us a totalfederal tax amount of $15,831 anda, net income of $74,169 this is what wekeep if we divide our tax paid by our income of $90,000 we get. Anaverage tax rate of 17.6% the average tax rate isn'treally an important number it just gives you a sense of how much of your totalincome was lost in, taxes the really important number is your marginal taxrate which is the tax rate of your current tax bracket in this case ourmarginal tax rate is 20.5%. Meaning that for every extradollar we earn we lose 20.5 cents in taxes, to the Canadiangovernment until we max out this tax bracket and then our marginal tax ratewill jump up let's say. We earn an extra $10,000 and so our incomeis now a $100,000 as before we start by completely filling upthe first tax. Bracket so we pay the same $7,145 in taxes for our first $47,000 ofincome but now we completely fill up the secondtax bracket as.
Well this tax, bracket is filled with $47,629 which is taxed at 20.5% sowe'll be paying $9,764 in thisbracket but we still have more income left over we've handled our first twotax brackets that's $95,259, but we still have $4,741 remainingso this money goes into the third tax bracket which will be, taxed at a rate of26% so we will pay $1,233 in this tax. Bracket this gives us a total federal tax amount of$18,142 and a net income of $81,858 and an average tax rate of18.1% so even though we were bumped into, a higher tax bracketour total net income still increased however we did. Lose a larger percentageof our income in taxes our salary increased by $10,000 butour net income only increased by $7,700 you cansee that with just a 10k increase in salary, our marginal tax rate has jumpedup to 26%, this means that for every additional dollar I earn Iwill lose 26 cents to the federal government, and that's justfederal taxes if you add in provincial taxes your marginal tax rate will bebetween 36% and 45% 45% depending on your provincethe tax brackets for each. Province don't line.