I often hear people talking about taxes and in many ways they just don't know what is what. I'm no expert on all the intricacies of our taxation laws etc. but I do have a grasp on some of the fundamentals.
Things I hear....
"I don't want to work too much OT or I'll end up in a higher tax bracket."
At one time(long ago) this statement was true. However our taxation laws changed many years ago and it is much more fair to low wage earners IMO. There are tax thresholds and if you make it past certain thresholds you do pay higher tax rates but only on the overage. For example....
If you made 45k in a year the first 35,859 would be taxed at a rate of 20.06%. From 35,859 to 40970 would be taxed at 22.7%(only what you made over 35859) and from 40970 to 45000 would be taxed at 29.7%. So if you were fortunate enough to get more work yes you would be taxed at a higher rate but only on that overage.
Making more money is always going to end up with more money in your pocket. Now there is a fine line in there where HST rebate cheques stop coming so you must be careful but you can utilize RRSPs to drop your taxable income back below these thresholds if you are right in the cut line. Most people are either gonna be discernably above or below those thresholds. This year I am using only part of my RRSPs and deferring most until next year but you must purchase your RRSPs before March 1st to have that option at your disposal.
Next question... "My company has an RRSP plan but I'm not sure if it is a good idea or not."
If there is a matching component to your company plan(there almost always is) then it is an absolutely great idea. Your company is paying you extra money. What doesn't sound alright about that? The other thing about it that is good is it saves money for you. If your cheque is 30 bucks smaller you will survive right? People tend to not be particularily good savers on their own so why not have your company do it for you. It is an absolutely great idea so do it.
Next question... "I don't do RRSPs but I have a tax free savings account so isn't that pretty much the same?"
No, it is not. You just don't pay tax on the interest accrued. The interest is usually pretty low(2 or maybe 3 percent normally). RRSPs are a tax shelter where the entire amount including any interest is pretax. On to the next question.
Next question... "Why should I do RRSPs and when should I start?"
They are a tax shelter. Any eligible amount put into one drops your income level for the year which is a minimum 20.06% tax savings. At some later time(hopefully after retirement) when you withdraw the money you will then have to pay tax on it however in the interim you have been able to make money off the governments portion and if you are creative you may be able to reduce the amount of tax you pay at that time.
Some wise man once said to me regarding RRSPs "the thing is once you give taxation the money it is gone forever". Once it is gone you'll never get it back no matter what.
Regarding when to start, the time is now. The younger you are the more your money can grow. Even if you think well I'm older now you can still start. Today is the day, whether you are 20 or 50!!!
Next question... "I give to charity but isn't getting a receipt kind of tacky and self righteous?"
Flatly I will say it is foolish. The Gov't gives you about 43% return on all donations over 200 dollars per year. Even the first 200 they give you about 29% back. If the gov't is willing to fork over that amount why wouldn't you take it. You could give more to charity if it makes you feel better about it.
If the charity isn't able to give donation receipts because they aren't recognized by the gov't then I'd question the legitimacy of said charity. I don't mean you can't give 10 bucks to the youth soccer team planning a trip or give a few bucks to a Sally ann kettle without getting a receipt but anything significant might as well be claimed.
Last question... "I took my t4s to a tax preparing place(you can guess the name) and had them do it for me. It only cost me x amount of my return. Cool eh?"
Tax prep places are there to take your cash. Truth is most peoples returns are not very difficult to prepare(even for you). These places take an exorbitant fee and often miss simple things that you should get credit for. Your taxes may take a couple of hours to prepare and about 6 weeks for processing. Then you will get your whole return and in the mean time you can figure oiut what to spend it on. Please don't take it to those places. They are a rip off.
Happy tax season everybody :)
I'll leave you with the great quote about taxes...