Ontario Canada single under 65: Income $49,850 ... Income tax $00

joyfulguyApril 12, 2007

Recently a friend, an accountant that I met about 7 years ago at an investment group that we both attend, spoke of some Canadians being able to earn, due to a recent change in calculation, over $40,000. annual income, tax free. Later he said that he thought that it is closer to $50,000.

A few years ago it was about $23,000. and by 2005 about $27,000., I think. That was up until 2005, but they changed the method of calculation, last year.

I've been thinking lately that I should calculate it out, and last evening, after doing some prelimiary calculation of my income tax, I did.

It comes out to $49,850.00, for a single taxpayer under 65, with one condition ... s/he won't be entirely tax free, for s/he'll need to pay the recently revived Ontario Health Tax of $600. (at that level of net income). With a few more dollars of income ... the Ontario Tax Reductioon will cease to apply, and that will make him/her liable for about $400.00 of Ontario tax (but there'd still be a substantial extra credit available in the Federal levy, should s/he be fortunate enough to live in a more lightly taxed province).

Impossible, you say?

It does sound quite strange, I agree.

There are, of course, some major provisos - no way are our governments going to allow a large number of Canadians to avoid tax like that!

Three conditions must be met:

1. The "taxpayer" must be reasonably wealthy, and

2. The "taxpayer" must have only one source of income, plus

3. The "taxpayer" can't work.

Well, if the "taxpayer" feels that s/he should work to justify his/her position in society, to pay his/her way in terms of paying for the space that s/he occupies on the planet, and it's reources that s/he uses, fine ...

... but don't take pay for that work.

Should s/he choose to take pay for their work, or should a senior like me choose to accept our pension(s) ...

... the benefits/credits will still apply ...

... we just won't be able to escape paying tax entirely.

If the "taxpayer" has a spouse with low income, or has (fairly high) medical bills, or makes charitable contributions (or political ones - and with a benefit like this shouldn't s/he?) the level of income that's tax free goes even higher.

When the "taxpayer" attains his/her 65th birthday, with certain residence requirements, everyone becomes eligible to receive the Old Age Security ...

... which will add somedthing over $5,000.00 to one's income, and interfere with the tax-free status, though if one's income is over $53,000. or so (and the type of income that I'm referring to carries a substantial artificaial escalator) that income begins to be clawed back, and when one reaches income in the mid to high $80,000.s, it is totally clawed back.

There is an extra benefit, though - at age 65, we become eligible for an extra tax credit relative to age, which decreases as our income increases (and this, too, is affected by the artificial escalator).

The person who has no income but dividends on stocks in Canadian companies qualify for the scenario that I've described.

Since not many quality stocks pay over 3% or so, that would take over $1.5 million invested to produce that level of income.

And since many stocks, especially those in growing companies, pay much less, and some quality stocks pay none at all ...

... one is quite likely looking at invested assets of somewhere in the neighbourhood of $4,000,000. - $5,000,000.

The governments do take care of their wealthy friends!

Have a happy week, everyone.

As I've often said, around here ...

... learning how money works - an interesting hobby ...

... that pays well!!

ole joyful

P.S. I know - I put a thread on here a while ago on this issue, but this figure is much higher than the one that I gave ...

... and I went through several pages looking for it, today, but the system is so darned slow, that it would have taken (allmost) forever to have located it!!

o j

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jrdwyer

So it seems that the Tax Code in Canada is nuts like in the USA. Lawmakers love to give their friends a new line on the tax code in exchange for support.

I recently finished doing taxes and I really hate it. Not so much paying the taxes, but all the record keeping and undue complexity. I really wouldn't consider doing it myself without the accounting and tax software to keep track of things.

I own my own small consulting business, and so I have all the forms to fill out. We have multiple parallel tax codes for most citizens.

For example, do you want a per mile deduction for your business auto or do you want to add up all individual expenses for the year? Do both and pick the best one. Do you want a standard deduction or itemized deductions? Add up both and take the best one. After finishing the regular forms, did you pay the right amount of tax? Fill out the Alternate Minimum Tax forms and you will find out. CRAZY!

I would support a simplified tax system.

    Bookmark   April 20, 2007 at 1:20PM
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stripedone

Interesting...but wouldn't income of 49,850 suggest you can work?

    Bookmark   June 5, 2007 at 9:46AM
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bud_wi

Stripedone, go back and read the post.

    Bookmark   June 6, 2007 at 8:20AM
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joyfulguy

Striped one,

Sure - you can work ... as I said.

Just ... don't take pay for it, if you want to avoid paying tax entirely.

As a senior, I'm eligible to receive pensions ... and I haven't refused them, believe me!

I'm sure that you won't be interested in working for no pay, either.

We would have to be willing to do that, were we to desire to escape paying income tax entirely.

I was able to reduce my tax load to slightly over 8.5% in 2005, but it was higher in 2006, as I was forcibly sold out of a couple of my stock holdings: one company bought by a privately owned foreign company, and the other transformed radically, so it was like a disposition of the stock and issuance of a different company's stock. Which meant that it was deemed that I'd sold the first one, so had to report the capital gain.

A question, striped one, if I may ... you wouldn't be, I suppose, a skunk ... not even bothering with a disguise, would you?

Jes' wonderin'.

ole joyful

    Bookmark   June 6, 2007 at 3:27PM
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joyfulguy

One of the workers at a local Member of Parliament's office (i.e. Federal), who's something of a tax s;pecialist, told me that my calculation was incorrect ... that the amount of income that I quoted would require that I pay just over $1,400. of income tax (in addition to the $600.00 recently reinstituted Ontario Health Levy).

My favourite money management magazine which arrived recently tells me that the correct top income rate for a single to be tax-free (I asssume lacking some of the other possible credits to boost it even higher) is $46,345.00.

They're using as source "The Little Tax Fact Book", by Ed Arbuckle, at http://www.canadianmoneysaver.ca/tt_moneys.aspx.

I hope that you're all ready to enjoy a fine summer weekend.

ole joyful

    Bookmark   July 20, 2007 at 8:06PM
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honest_me

How it is possible ..if they channge the method of calculation they should inform ech and every customer of their office...so that customers should not shocked after see this like u :)

    Bookmark   August 1, 2007 at 3:33PM
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joyfulguy

Recently a number of (mainly seniors) have been using a certain type of investment (unit trusts) that paid quite a high rate of return, some of it tax advantaged in the recipient's hands, plus some of it return of part of one's originally invested money. Such companies that structured themselves to pay out most of their earnings to shareholders were allowed to escape paying corporate tax.

Some people who owned a somewhat different type of investment, stocks of Canadian companies, paying a much lower rate of return felt that they were being unfairly treated, and quite a few were leaving the type of investment that they'd been using to buy the other type.

So the government changed the rules of calculating tax on the second type of income relative to 2006, with a view to encouraging a number of taxpayers to stay put.

Until 2005, a single "taxpayer" who'd earned somewhere around $27,000 - 30,000. of solely that kind of income had a couple of types of credits work to allow them to have their tax liability reduced to zero.

The differing method of calculation in 2006 allowed the level of the single "taxpayer's" income from solely that type of income to increase to $46,345. before becoming liable to pay one cent of income tax ... except the $600. Ontario Health Levy in this province.

Would that my Member of Parliament's office were to notify every constituent annually of all the changes to the tax code, especially ways that some fortunate people could avoid paying tax at all up to over $45,000. ...

... but I'm not holding my breath, waiting for such a day!

The person who told me of it was a C.A. who'd been an accountant (I think controller) of a substantial local company, prior to his retirement (with no pension) a couple of years ago.

We've attended a monthly study group learning about investments for over 7 years (sometimes travel together to the meeting) ... I've learned a lot in that group.

The government recently changed the tax rules relative to the first type of investment ... not allowing the corporations to avoid income tax, even if they agree to pay out most of their income. The value of that market lost billions overnight ... I can send any of you interested some delicious cartoons related to that! Recovered a substantial portion of it, later.

In the light of that ... they may change the rules again next year relative to the second type of income, to increase the rate of income tax on it to more or less previous levels.

Good wishes for learning more about the effective use of your income and assets.

ole joyful

    Bookmark   August 9, 2007 at 4:44AM
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