Marginal tax rate is the percentage of tax you will pay on the last dollar of your income. Income tax increases in stages which are also called tax brackets. According to Canada revenue agency the 2018 Canadian tax brackets of the Federal government are:
- 15% on income below $46,605
- 20.5% on income between 46,605 and $93,208
- 26% on income between $93,208 and $144,489
- 29% on income between $144,489 and 205,842
- 33% on income over $205,842
This means that if your income is $46,605, your marginal tax rate is 15% but if your income is $50,000 then your marginal tax rate is 20.5%. What does this mean in terms of the taxes you have to pay. You will pay 15% on the first $46,604 and 22% on the remaining amount.
The best way to reduce taxes for most tax payers is to reduce your marginal tax rate. There are several ways to reduce marginal tax rate such as splitting income, claiming tax credits or investing in registered savings plans.
In addition to the federal government, provinces and territories also have their income taxes that you would be required to pay.
Marginal tax rate depends on:
– tax payer’s level of income
– type of income
– province of residence
When trying to save taxes, start by looking at ways to reduce you marginal tax rate.
