Income Tax and VAT in Canada - some advice please
#1
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Income Tax and VAT in Canada - some advice please
I'm not all that clued up on tax so some advice would be great.
I want to compare Canadian income tax and VAT compared to Britain.
I found this website and typed in a random income wage. But I do not quite understand the difference between 'average tax rate' and 'marginal tax rate'. I also do not know what RRSP contribution is or what it means.
here is the website: http://lsminsurance.ca/calculators/canada/income-tax
Could someone advice me on the tax difference between the UK and Canada? I would also like to know what the VAT difference is.
Thank you
I want to compare Canadian income tax and VAT compared to Britain.
I found this website and typed in a random income wage. But I do not quite understand the difference between 'average tax rate' and 'marginal tax rate'. I also do not know what RRSP contribution is or what it means.
here is the website: http://lsminsurance.ca/calculators/canada/income-tax
Could someone advice me on the tax difference between the UK and Canada? I would also like to know what the VAT difference is.
Thank you
#2
Joined: Aug 2005
Posts: 14,227
Re: Income Tax and VAT in Canada - some advice please
I'm not all that clued up on tax so some advice would be great.
I want to compare Canadian income tax and VAT compared to Britain.
I found this website and typed in a random income wage. But I do not quite understand the difference between 'average tax rate' and 'marginal tax rate'. I also do not know what RRSP contribution is or what it means.
here is the website: http://lsminsurance.ca/calculators/canada/income-tax
Could someone advice me on the tax difference between the UK and Canada? I would also like to know what the VAT difference is.
Thank you
I want to compare Canadian income tax and VAT compared to Britain.
I found this website and typed in a random income wage. But I do not quite understand the difference between 'average tax rate' and 'marginal tax rate'. I also do not know what RRSP contribution is or what it means.
here is the website: http://lsminsurance.ca/calculators/canada/income-tax
Could someone advice me on the tax difference between the UK and Canada? I would also like to know what the VAT difference is.
Thank you
The marginal tax rate is the tax rate on anything new you might earn.
Tax rates are provincial, but vat here in BC is lower than in the UK (12% as opposed to 20%) - but the overall tax burden is pretty similar.
#3
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Re: Income Tax and VAT in Canada - some advice please
The average tax rate is what it says - it's the amount you pay in tax / the amount you earn.
The marginal tax rate is the tax rate on anything new you might earn.
Tax rates are provincial, but vat here in BC is lower than in the UK (12% as opposed to 20%) - but the overall tax burden is pretty similar.
The marginal tax rate is the tax rate on anything new you might earn.
Tax rates are provincial, but vat here in BC is lower than in the UK (12% as opposed to 20%) - but the overall tax burden is pretty similar.
Do you pay the standard 15% federal tax (for upto $40k) plus the provincial tax?
#4
Re: Income Tax and VAT in Canada - some advice please
It's the rate on the last dollar you earn, and the next unless that one takes you into a higher bracket.
#5
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Re: Income Tax and VAT in Canada - some advice please
total tax paid / total income x 100
Marginal tax rate is the amount of tax you paid on the last dollar you earned.
As a very simplified example, say you earn $50,000. This is taxed at:
10,000 @ 0% = 0
20,000 @ 20% = 4,000
20,000 @ 30% = 6,000
Total tax is $10,000
Average tax rate 10,000/50,000 x 100 = 20%
Marginal tax rate is 30% because you paid 30 cents in tax on the last dollar you earned.
I would also like to know what the VAT difference is.
Quebec has its own tax but the combined effect of federal and provincial taxes is around 13% I think.
Other provinces have both a federal sales tax of 5% and a provincial retail sales tax of (I think) 10%. The RST operates very differently to the GST/HST or VAT in the UK. It is more like the sales taxes in the US.
#6
Re: Income Tax and VAT in Canada - some advice please
You can elect to put a certain percentage (18%?, Jon?) of your income up to a maximum of $28k this year I think, into such a plan and the contribution is tax free until you withdraw it, in principle after retirement.
You have something similar in the UK but I'm not sure what it's called.
#7
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Re: Income Tax and VAT in Canada - some advice please
And, since Jonboy missed this, RRSP (=Registered Retirement Savings Plan).
You can elect to put a certain percentage (18%?, Jon?) of your income up to a maximum of $28k this year I think, into such a plan and the contribution is tax free until you withdraw it, in principle after retirement.
You have something similar in the UK but I'm not sure what it's called.
You can elect to put a certain percentage (18%?, Jon?) of your income up to a maximum of $28k this year I think, into such a plan and the contribution is tax free until you withdraw it, in principle after retirement.
You have something similar in the UK but I'm not sure what it's called.
You deduct the contribution from your taxable income in the year you make the contribution and this reduces the amount of tax you owe, or generates a refund. The funds inside an RRSP grow tax free. You can withdraw funds at any time* but they are taxed at your marginal rate in the year of withdrawal. As Novo says it is intended to be a retirement plan so you withdraw funds when your earnings, and therefore marginal tax rate, are lower than when you contribute. Effectively the RRSP defers, then reduces, the tax you would otherwise pay.
*After age 71 the RRSP morphs into a RIFF and this has to be withdrawn is specified amounts over 15 years.
#8
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Re: Income Tax and VAT in Canada - some advice please
Average tax rate is:
As a very simplified example, say you earn $50,000. This is taxed at:
10,000 @ 0% = 0
20,000 @ 20% = 4,000
20,000 @ 30% = 6,000
Total tax is $10,000
Average tax rate 10,000/50,000 x 100 = 20%
Marginal tax rate is 30% because you paid 30 cents in tax on the last dollar you earned.
As a very simplified example, say you earn $50,000. This is taxed at:
10,000 @ 0% = 0
20,000 @ 20% = 4,000
20,000 @ 30% = 6,000
Total tax is $10,000
Average tax rate 10,000/50,000 x 100 = 20%
Marginal tax rate is 30% because you paid 30 cents in tax on the last dollar you earned.
In the UK its simple. You pay NI and Income tax and that's it. Simple and straight forward.
#9
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Re: Income Tax and VAT in Canada - some advice please
The example I used approximate income tax rate bands for BC. 20.06% is the lowest tax rate. The marginal rate for people earning between $41k and $71k is 29.70%.
Last edited by JonboyE; Nov 12th 2010 at 10:13 pm.
#10
Re: Income Tax and VAT in Canada - some advice please
It is equally as simple here. You pay tax, the amount of which depends upon how much you earn. (Just like the UK). That tax has both a federal and provincial component. Or to put it another way, you pay the federal bit whereever you live and the provincial bit varies depending where you live. Instead of NI you will pay EI and CPP. Plus your RRSP or (if you are lucky) pension contribution.
#11
Re: Income Tax and VAT in Canada - some advice please
And, since Jonboy missed this, RRSP (=Registered Retirement Savings Plan).
You can elect to put a certain percentage (18%?, Jon?) of your income up to a maximum of $28k this year I think, into such a plan and the contribution is tax free until you withdraw it, in principle after retirement.
You have something similar in the UK but I'm not sure what it's called.
You can elect to put a certain percentage (18%?, Jon?) of your income up to a maximum of $28k this year I think, into such a plan and the contribution is tax free until you withdraw it, in principle after retirement.
You have something similar in the UK but I'm not sure what it's called.
#13
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Re: Income Tax and VAT in Canada - some advice please
Thanks for everyone's help. Its not quite the same if you have 4 different tax and NI rates. In the UK there is just one tax rate (changes obviously depending on income) for the whole of the UK you do not pay a territorial tax on top of that. We have a NI contribution not two separate ones like CPP and IE.
So instead of adding two simple equations you have to do it with 4 which various depending on which providence you live in. This is what makes it a little more complex to get your head around. Its easy if you know and know the rates, its not if you don't.
If I am correct:
CPP (Canadian Pension Plan) is at: 4.95%
EI (Employment Insurance) is at: 1.73% (employer makes a contribution of 2.422%)
Federal Tax rate is at: 15% (up to $40k or round abouts that)
Monitoba (lets take this one as its the most expensive) is at: 10.8% (on the first $31k income earned)
In total the maximum you would get taxed (providing you earn 31k or less) is 32.48%??? seems like a hell of a lot of tax.
Do you need to make that 4.95% towards a Canadian pension Plan? i.e. is it compulsory. Same question with EI? Isn't the employer in Canada legally liable to give you sickness pay? In the UK I get sickness benefit and do not pay any extra to receive this. Bit of a farce that in Canada you seem to have to pay for this out of your wages. I can understand if this is medical insurance to pay for hospital bills.
What I don't quite understand is that if you need to make contributions towards this EI what happens if you move company does the employers contribution get moved in a pot so that you don't lose that 2.4% contribution?
So instead of adding two simple equations you have to do it with 4 which various depending on which providence you live in. This is what makes it a little more complex to get your head around. Its easy if you know and know the rates, its not if you don't.
If I am correct:
CPP (Canadian Pension Plan) is at: 4.95%
EI (Employment Insurance) is at: 1.73% (employer makes a contribution of 2.422%)
Federal Tax rate is at: 15% (up to $40k or round abouts that)
Monitoba (lets take this one as its the most expensive) is at: 10.8% (on the first $31k income earned)
In total the maximum you would get taxed (providing you earn 31k or less) is 32.48%??? seems like a hell of a lot of tax.
Do you need to make that 4.95% towards a Canadian pension Plan? i.e. is it compulsory. Same question with EI? Isn't the employer in Canada legally liable to give you sickness pay? In the UK I get sickness benefit and do not pay any extra to receive this. Bit of a farce that in Canada you seem to have to pay for this out of your wages. I can understand if this is medical insurance to pay for hospital bills.
What I don't quite understand is that if you need to make contributions towards this EI what happens if you move company does the employers contribution get moved in a pot so that you don't lose that 2.4% contribution?
#14
Re: Income Tax and VAT in Canada - some advice please
Thanks for everyone's help. Its not quite the same if you have 4 different tax and NI rates. In the UK there is just one tax rate (changes obviously depending on income) for the whole of the UK you do not pay a territorial tax on top of that. We have a NI contribution not two separate ones like CPP and IE.
So instead of adding two simple equations you have to do it with 4 which various depending on which providence you live in. This is what makes it a little more complex to get your head around. Its easy if you know and know the rates, its not if you don't.
If I am correct:
CPP (Canadian Pension Plan) is at: 4.95%
EI (Employment Insurance) is at: 1.73% (employer makes a contribution of 2.422%)
EI (Employment Insurance) is at: 1.73% (employer makes a contribution of 2.422%)
Federal Tax rate is at: 15% (up to $40k or round abouts that)
Monitoba (lets take this one as its the most expensive) is at: 10.8% (on the first $31k income earned)
In total the maximum you would get taxed (providing you earn 31k or less) is 32.48%??? seems like a hell of a lot of tax.
Monitoba (lets take this one as its the most expensive) is at: 10.8% (on the first $31k income earned)
In total the maximum you would get taxed (providing you earn 31k or less) is 32.48%??? seems like a hell of a lot of tax.
Do you need to make that 4.95% towards a Canadian pension Plan? i.e. is it compulsory. Same question with EI? Isn't the employer in Canada legally liable to give you sickness pay? In the UK I get sickness benefit and do not pay any extra to receive this. Bit of a farce that in Canada you seem to have to pay for this out of your wages. I can understand if this is medical insurance to pay for hospital bills.
What I don't quite understand is that if you need to make contributions towards this EI what happens if you move company does the employers contribution get moved in a pot so that you don't lose that 2.4% contribution?
What I don't quite understand is that if you need to make contributions towards this EI what happens if you move company does the employers contribution get moved in a pot so that you don't lose that 2.4% contribution?
The Canada Revenue Agency has a basic introduction to taxation course online: http://www.cra-arc.gc.ca/tx/ndvdls/d.../menu-eng.html . I believe it would profit you to spend some time studying this.
#15
Re: Income Tax and VAT in Canada - some advice please
CPP and EI are capped, so you pay the 4.95% and 1.73% up to a predefined monetary limit which for 2010 is $2163.15 and $747.36 respectively. So the more you earn, the sooner you hit the cap and stop paying for that year.. Then you start again in January. So just when you get used to the extra money, they take it away again just after Christmas! Nice...