Most likely you have heard the term tax brackets and know that they have something to do with the amount of taxes that you have to pay each year. You may have heard some people say that they don’t want to end up in a higher tax bracket so they might not participate in any financial dealings that could cause this.
To start with there are two levels of government taxes that you need to be really concerned with and this is the Federal tax and the Provincial tax. The Federal tax brackets will be the same across Canada however the tax brackets will vary for each province. The Federal tax is always the higher of the two.
The tax brackets are suppose to implement a formula for fair taxation so the amounts of taxable money made are subject to different tax brackets. This is known as marginal tax as opposed to a flat tax system where everyone would be paying the same percentage of tax no matter how much taxable income they had.
Tax brackets can become complex especially when you have 5 different brackets like the Canadian system has. These can change each year as well.
This type of tax system comes with mixed feelings. There are some that feel it is a fair system because you are only paying more tax if you are making more money. Then there are others who feel that why should they be enthusiastic about making money if a portion of it has to go to the tax department. These people feel as though they are being punished for being creative in money making. Whereas the lower income group feel that they may not have the same opportunities to make more money so why should they pay the same tax rate as those that do. It really is a catch 22. However, it could be said that some extra money is better than none. Perhaps the real key to success would be to utilize some smart tax planning in regards to that extra money that could push you into a higher tax bracket. This is where using the expertise of professionals like tax accountants can really help. If you know the tax laws then you know what you can and cannot do legally of course. There are many different ways that you can become a smarter tax payer.
