Pay Less Tax
The tax you pay can be one of your greatest single expenses over your lifetime. In Canada we are taxed on:
- Corporate and personal income.
- The things we buy.
- Investment management fees.
- The dividend and interest earnings from our investments.
- The sale of an investment, property or business.
- Property that we own.
For many people, this can easily exceed many hundreds of thousands of dollars over his or her lifetime.
Consider the table below. This table shows the average tax paid for different levels of income. If we then multiply this value over 30 years, you can begin to see that the taxes paid on income alone can be very significant over time. This does not include the taxes you would potentially pay on your everyday purchases or investments.
| Estimated Taxes Paid For Different Levels of Average Income | ||||
|---|---|---|---|---|
| Single Person Income | $60,000.00 | $80,0000.00 | $100,000.00 | $175,000.00 |
| Average Tax Rate (Manitoba, 2014) | 28% | 31% | 33% | 38% |
| Estimated Income Taxes Paid | $16,800.00 | $24,400.00 | $32,700.00 | $66,500.00 |
| Total Estimated Tax Paid Over 30 Years: | $504,000.00 | $732,000.00 | $981,000.00 | $1,995,000.00 |
What if you could reduce your taxes by 10% or more each year? What would you do with this extra money?
You could use this money to:
- increase your savings and potentially retire sooner.
- increase your mortgage payment and pay off your mortgage sooner.
- have more income in retirement and potentially enhance your lifestyle.
- Give more to charity.
- Assist your children and grandchildren.
To achieve your financial goals it is important to pay attention to the details of all forms of taxation. If you were able to reduce your taxes by just 10% each year, you open the door to potentially retain more income and build more wealth.
To pay less tax, consider these 5 steps:
- Focus on after-tax income needs and wants. It does not matter what you have for income or wealth, it only matters what you keep, after-tax. Begin with the end in mind and work backwards from there.
- Draw only the income you need when you need it. This will help both income and wealth grow more efficiently over time.
- Layer your income tax-efficiently. Different types of income attract different levels of tax.
- Split income equally between spouses and family members (where possible). Two smaller incomes will pay less tax than one larger income.
- Follow the rules of the “tax-efficient order of investing”. The degree to which you follow these simple rules over time, will determine the degree of your overall financial success.
These are the types of things we consider when we provide financial advice and solutions to our clients.