Print

Year End Tax Planning

12-29-2015

Tax planning can be defined as pursuing one's financial objective at the least possible tax cost. This definition allows that where two alternatives exist for achieving a financial objective and thay are identical in all other aspects, an individual will choose the alternative with the lower tax cost.

Strategies for savings tax can be divided into two broad areas:

·         absoulte tax savings, and

·         tax deferral

The principal methods for achieving tax savings are:

·         exploiting the progressive tax brackets

·         choosing investments that generate income that is preferentially taxed

·         utilizing all available deductions and credits

As many of the provinces struggle with persistent funding deficits, they have increased the “top” marginal tax rates applicable to their residents. In addition, the new Liberal federal government has announced a 33% federal tax rate on taxable income in excess of $200,000.

Table below summarizes the top marginal rates for ordinary income (includes such items as salary, interest, business income, and income from other sources, but excludes Canadian dividends and capital gains) by province and territory for 2014, 2015 and 2016. The rates include surtaxes where applicable, as well as all announcements to 30 November and the new federal rate of 33% for 2016.

British Columbia – Assumes temporary personal income tax rate of 16.8% for individuals with incomes over $150,000 ($151,051 for 2015) expires on 31 December 2015.

Choosing investments that generate income that is preferentially taxed

Different tax rates apply to diffrent types of income. Only one-half of a capital gain is included in taxable income, which effectively halves the tax rate that applies to capital gains vis-a-vis regular income (such as interest). Taxable Canadian dividends received by individuals are taxed according to a gross-up and tax credit mechanism that results in a preferential tax rate. the top marginal tax rates in 2015 are as follows:

interest                                     -           49.53%

Dividend (non-eligible)                        -           40.13%

Dividends (eligible)                 -           33.82%

Capital gains                            -           24.76%

Canadian Tax Brackets 2015 | Income Tax Brackets

Canadian Tax Brackets 2015 – Canada Federal Personal Income Tax Brackets Below (Provincial Income Tax Rates are not included):

• 15% on the first $44,701 of taxable income
• 22% on the next $44,702 of taxable income (on the portion of taxable income between $44,702 and $89,401)
• 26%on the next $89,402 of taxable income (on the portion of taxable income between $89,402 and $138,586)
• 29% of taxable income over $138,586

British Columbia Personal Income Tax Brackets and Rates - 2015 Tax Year

Tax rates are applied on a cumulative basis. For example, if your taxable income is more than $37,869, the first $37,869 of taxable income is taxed at 5.06%, the next $37,871 of taxable income is taxed at 7.70%, the next $11,218 is taxed at 10.5%, the next $18,634 of taxable income is taxed at 12.29%, the next $45,458 of taxable income is taxed at 14.70% and any taxable income over $151,050 is taxed at 16.80%.

Footnotes: Footnotes: This column is presented as a general source of information only and is not intended as a solicitation for business. It is always recommended that you consult a qualified tax professional beforeembarking on any of the suggestions outlined above. Mohammed Yasin, CGA, is the principal of M. Yasin & Co. Inc., Certified General Accountants and has offices in Vancouver & Surrey,B.C. For more information on this topic or any other taxation matters, please contact taxes@alameen.ca.

Article Source: ALAMEENPOST.COM