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The Money Club for Young Adults
Taxes: the Basics
What is the biggest expense for working Canadians each year?
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No, it's not your cell bill. Or car loan. Or even rent!
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Answer: taxes
Learn about taxes. So you can minimize this expense. More after tax money = more savings = more investments = more income... this process creates a powerful virtuous circle.
What to do?
Young Canadians have the ability to invest their savings in tax-free accounts today:
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Tax Free Savings Account - $6,500/year
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First Home Savings Account - $8,000/year
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Registered Retirement Savings Account
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Registered Education Savings Plan (if you have kids)
Tax-free compounding is a big deal: over time, small sums become very large sums.
Real estate is another interesting option. Gains on a primary residence are tax-free. However, real estate also involves leverage - which makes it much more risky.
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the avg Canadian family will earn $117,000 in 2019
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they will pay $52,675 in taxes = 44.7%
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'tax freedom day' is June 14, 2019 - see video to right
Canadians pay taxes in three general ways:
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property tax: on value of property - funds municipality
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sales tax: on purchases on goods and services
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income tax: usually subtracted directly from paycheques
Sales Tax on Goods and Services
Everyone in Canada pays sales tax on purchases of goods and services. In BC sales tax includes:
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federal tax (GST) = 5%
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provincial tax (PST) = 7%.
12% is added to the listed prices of most consumer goods. There are some exceptions. GST is not charged on basic
groceries and PST is not charged on restaurant meals.
Income Tax
Workers in Canada pay income tax to the Canadian Revenue Agency (CRA)—the tax is usually subtracted directly from paycheques and remitted to the government by employers. Each year, Canadians file a tax return form to report on their incomes and taxes paid. Some people receive refunds and others must pay an additional amount.
Your take-home pay will be less money than you expect. Just because you're making $10 an hour doesn't mean you'll take home $400 at the end of a 40-hour workweek. Taxes and other deductions will take a chunk out of the amount you are actually paid.
Where Does Tax Money Go?
Taxes pay for health care, education, child and family services, support for
seniors, police (RCMP), military,
transportation (roads). Taxes also fund
organizations such as Environment
Canada, the Department of Justice, Transport Canada and Veterans Affairs.
Key Points Made by Susan in Video
Canada has a progressive income tax system
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multiple tax brackets; as you move up the brackets you pay higher taxes on the additional income
Income tax is normally automatically deducted from your pay cheque by your employer.
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for students no tax is normally deducted
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when you complete your tax return in April you are simply calculating whether or not enough tax was already paid. If not, you will owe the government that amount. If you paid too much tax during the year you will get a tax refund.
There are ways you can reduce your taxes while working.
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deductions: reduce taxable income; therefore, the value depends on your tax rate; the higher your tax bracket the more value you receive.
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examples: RRSPs, moving expenses
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credits: reduce taxes directly.
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refundable: always worth what they say they are
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examples: GST/HST; working income
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non-refundable: disappear if you do not owe taxes
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examples: tuition, interest on student loans
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eligibility of some credits will depend on eligibility of the tax payer.
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