Canadian taxes (or why we suffer from so-called "brain drain")

[Michael]

That tax strategy looks a little suspicious.

You basically pay off your mortgage and then reborrow the money but use the money to invest.

You can then deduct the loan interest as it is for "investing" purposes.

I haven't looked at Canadian taxes for too long (I've been in the USA for over a decade), so I'm not sure if interest deductability is capped at the income you make.

I'd love to see what the Tax COurt cases say about doing that before I would recommend it to anyone. Of course, I wouldn't make a tax recommendation for Canada anymore because my knowledge is too rusty. I used to be decent at it, being a CA and everything.

Michael

 

[Tetsuo]

Yep, one of the things that sucks alot

 

[Ultima]

Originally posted by: Aquaman

Originally posted by: Ultima

Originally posted by: Roger
Two words............


Free Healthcare

Healthcare isn't free.
I still have to pay for prescriptions when I go to the pharmacy.
I still have to pay for contact lenses, glasses, etc..
Dental care isn't covered
etc...

Cheers,
Aquaman

We all love to

don't we?

 

[Ultima]

Originally posted by: Kntx

Originally posted by: Ultima
Believe it or not, taxes here in Canada are very high. It can be very discouraging when you see what your "reward" is after years of hard work in school.. if you even get a decent paying job in the first place:

Here are the correct values ($15000 being full time minimum wage)

Gross salary: $15000 Tax bill: $ 1500 Net Salary: $13500 Tax rate: Around 10%
Gross salary: $30000 Tax bill: $15765 Net Salary: $14235 Tax rate: 52.5%
Gross salary: $45000 Tax bill: $24626 Net Salary: $20374 Tax rate: 54.7%
Gross salary: $60000 Tax bill: $33620 Net Salary: $26380 Tax rate: 56.0%

In US dollars...

$15000 ~= $11250
$30000 ~= $23000
$45000 ~= $34000
$60000 ~= $45000

Note: Taxes are the result of federal, provincial and municipal taxes added together.

Those number's ain't right.

At my crappy job I get $480 a week, which is $24960 a year.

After the fed, prov, ei and cpp is done with I get $360, which comes to $18720.

And last year I got bout $1200 refunded, so $19920.

I dunno. Taxation at $24 could be a lot less than at $30. Maybe there's been some changes recently that invalidate the numbers.. I got them from the fraser institute.

 

[Ultima]

Originally posted by: dighn
yeah the taxes are insane. but we have free health care and my tuition is a lot lower than in the states.

tuition is a good point. Efforts should be made to help students pay tuition because it's an investment in the future.. it's something that will multiply itself many times back into the economy (as opposed to say, welfare checks for those who don't like to work)

 

[Ultima]

Originally posted by: TwinkleToes77
I dont think those numbers are accurate. My husband makes $48k which nets $35150 after taxes. Which would mean only about 27% is in taxes. Plus we get a tax refund when we file taxes. Not much.. but we do get about $300 in refund.

The numbers are from Quebec. Meh.

 

[silverpig]

Ultima: The tax rate is graduated. If you make $60K you don't have to pay 56% of the 60K. You pay nothing on the first ~7K, then a certain amount on the next few thousand, then an increasing amount after that. Aquaman's post outlines it nicely.

Of course the Fraser institute can skew statistics too. You could say that 90% of your money goes to the government if you factor in income tax, sales tax on purchases, liquor tax, gas tax etc etc etc.

 

[Ultima]

Originally posted by: Rudee

Originally posted by: Skoorb

Originally posted by: TwinkleToes77
I dont think those numbers are accurate. My husband makes $48k which nets $35150 after taxes. Which would mean only about 27% is in taxes. Plus we get a tax refund when we file taxes. Not much.. but we do get about $300 in refund.

I was wrong, with my numbers, not to state that I was in Nova scotia, where the government is significantly worse than a province like Ontario. Taxes are notably higher in NS, so I suppose Ontario (and perhaps Alberta - the only two provinces I'd choose to live in probably) would be much lower than eastern canada.

I've never had to had a critical test yet, so i can't say. But i've been to the ER often enough, and it's enough more than 10 mins or so, even for something as mild as a headache on a Friday night (which i went to a couple of weeks ago). I've also had various x-rays done (one for stomach a couple of years back), and i don't remember ever waiting longer than a day... but then i doubt that was critical. I'm not sure what these critical tests that are taking so long in Canada are... maybe you can enlighten me.

I've never had to have them, so I have no idea what they're called. But, two people I know were getting tested for Marfans syndrome (heart defect) and one of the tests that they needed was getting put off by several months due to a wait list for it. I don't know if their area of the country affected it, and untreated it's a potentially fatal defect, so if it's suspected that you have it it's not a bad idea to get the testing done asap.

I think TwinkleToes77 was referring to Ultima's figures - which are so innacurate it's not even funny.

If you have a problem with the figures go complain to the Fraser Institute about it. The figures belong to them, not me.

 

[Ultima]

Originally posted by: RaynorWolfcastle
About the insane waiting times, they're really not as bad as people make them out to be in most places (akthough the worst ones are in dense urban areas, ones that get attention).

Last year I was playing baseball and got plunked pretty good right on the elbow so my coach suggested I get it X-Rayed to make sure it wasn't fractured. I am Quebec resident and we were in Whitby, Ontario. We got to the hospital, 30 minutes later I was in the X-Ray room. 90 minutes after I walked in, I walked out with all the inter-provincial healthcare papers filled out.

That's pretty good.. all my experiences with the hospitals here, I've had to wait 5-6 hours each time.

 

[Ultima]

Originally posted by: silverpig
Ultima: The tax rate is graduated. If you make $60K you don't have to pay 56% of the 60K. You pay nothing on the first ~7K, then a certain amount on the next few thousand, then an increasing amount after that. Aquaman's post outlines it nicely.

Of course the Fraser institute can skew statistics too. You could say that 90% of your money goes to the government if you factor in income tax, sales tax on purchases, liquor tax, gas tax etc etc etc.

Yes it includes all the taxes, but that's the point isn't it? It's not like the federal and provincial taxes are the only ones we pay! A 15.5% sales tax makes an impact, a what, 45% gas tax or somewhere around there? Municipal taxes, etc etc... If you're talking ONLY provincial and federal income tax.. it's lower, yes. Unfortunately, that's not the only tax the government throws at us.

 

[Atlantean]

Originally posted by: Rudee
Ultima

The information you've posted is innacurate and misleading. Tax rates in Canada only apply to taxable income within that particular bracket or margin, not total income. (marginal tax rate)

I don't think that that is just income taxes... also gst, pst, property tax etc. But even so they still seem grossly inaccurate

 

[Rudee]

Originally posted by: Ultima

Originally posted by: silverpig
Ultima: The tax rate is graduated. If you make $60K you don't have to pay 56% of the 60K. You pay nothing on the first ~7K, then a certain amount on the next few thousand, then an increasing amount after that. Aquaman's post outlines it nicely.

Of course the Fraser institute can skew statistics too. You could say that 90% of your money goes to the government if you factor in income tax, sales tax on purchases, liquor tax, gas tax etc etc etc.

Yes it includes all the taxes, but that's the point isn't it? It's not like the federal and provincial taxes are the only ones we pay! A 15.5% sales tax makes an impact, a what, 45% gas tax or somewhere around there? Municipal taxes, etc etc... If you're talking ONLY provincial and federal income tax.. it's lower, yes. Unfortunately, that's not the only tax the government throws at us.

If what you are saying is true - which I doubt. The stats you posted would still be meaningless because everyone pays the same amount of fuel tax, GST, etc, based on their Provincial residence, regardless of their income. So you can't say a person making a certain total income will pay a specifit amount. I simpy doesn't work that way.

 

[Rudee]

Originally posted by: Ultima

Originally posted by: TwinkleToes77
I dont think those numbers are accurate. My husband makes $48k which nets $35150 after taxes. Which would mean only about 27% is in taxes. Plus we get a tax refund when we file taxes. Not much.. but we do get about $300 in refund.

The numbers are from Quebec. Meh.

Doesn't matter if it's from Quebec or not. I assure you a person earning $60,000 in Quebec will not be paying 56% tax on 100% of his income, which your first post indicates.

 

[Rudee]

Originally posted by: Atlantean

Originally posted by: Rudee
Ultima

The information you've posted is innacurate and misleading. Tax rates in Canada only apply to taxable income within that particular bracket or margin, not total income. (marginal tax rate)

I don't think that that is just income taxes... also gst, pst, property tax etc. But even so they still seem grossly inaccurate

Ultima broke down the rates in his first post based on income, thus if gst, pst, property tax etc was factored into this, it would be a even more meaningless stastistic because of 2 reasons:

1. Everyone pays the same rate of gst, pst based on their Province of residence, whether you made 1k or 100k
2. What a person pays for gst, pst, property tax etc, in relation to their income, varries from individual to individual

 

[Aquaman]

Originally posted by: Michael
That tax strategy looks a little suspicious.

You basically pay off your mortgage and then reborrow the money but use the money to invest.

You can then deduct the loan interest as it is for "investing" purposes.

I haven't looked at Canadian taxes for too long (I've been in the USA for over a decade), so I'm not sure if interest deductability is capped at the income you make.

I'd love to see what the Tax COurt cases say about doing that before I would recommend it to anyone. Of course, I wouldn't make a tax recommendation for Canada anymore because my knowledge is too rusty. I used to be decent at it, being a CA and everything.

Michael

The Vancity Credit Union has done a lot of these "Smith Manuevers" (I know someone in Vancity). It's not for the average investor (because there is some risk involved). Even before you allowed to do it you have to go through some interviews with Vancity employees who know about the system. They set you up with a financial adviser who knows about this system. The risky part is that if your investments tank..... you are screwed.

The interest from the investment loan is deducted from your gross income lowering your tax bracket. So you can not generate a lose once you have hit zero income that is that. I'll have to look it up but you may be able to care forward you interest deduction to the next year if you have more interest deductions then income in one year.

The author has talked to Revenue Canada and everything is above board. Nothing illegal or "tax evading" about it. I've seen it done a couple other ways. So unless they change they rules.......... it can be done.

An interesting note........ a couple months back.......... Ontario was thinking of making a proposal to get the mortgage payments tax deductable. I've not heard much about it since.

Cheers,
Aquaman

 

[Aquaman]

Originally posted by: Rudee

Originally posted by: Atlantean

Originally posted by: Rudee
Ultima

The information you've posted is innacurate and misleading. Tax rates in Canada only apply to taxable income within that particular bracket or margin, not total income. (marginal tax rate)

I don't think that that is just income taxes... also gst, pst, property tax etc. But even so they still seem grossly inaccurate

Ultima broke down the rates in his first post based on income, thus if gst, pst, property tax etc was factored into this, it would be a even more meaningless stastistic because of 2 reasons:

1. Everyone pays the same rate of gst, pst based on their Province of residence, whether you made 1k or 100k
2. What a person pays for gst, pst, property tax etc, in relation to their income, varries from individual to individual

Right on.

Cheers,
Aquaman

 

[desy]

Reality check.

"In very rough figures, the federal finance department calculates that Canadians pay an average 35 per cent of their income in taxes and Americans pay 30 per cent - 5 per cent less.

But before you rush off to the States, consider some of the lesser-known facts behind the broad 5-per-cent generalization.

Statistics Canada took a look at what Canadians and Americans have left in their pockets in a 1998 study by Michael Wolfson and Brian Murphy. The researchers compared the disposable income of Canadian and American families - what's theirs to spend after taxes and deductions.

"Families . . . living in the United States are not necessarily better off in terms of disposable income, than their Canadian counterparts,'' they concluded. "Indeed, roughly half of Canadian families had disposable incomes in 1995 that gave them higher purchasing power than otherwise comparable U.S. families.''

This was true even though the U.S. economy is better off in terms of output per capita, and even though the average American income is about $5,000 (U.S.) more a year than the average Canadian. "The reason is that the very rich in the United States pull up the income average much more than in Canada, while those at the bottom of the U.S. income spectrum have less purchasing power than those in Canada.''

Wolfson and Murphy found the first 35 per cent of Canadians are "absolutely better off'' than their American counterparts, largely because of more generous government benefits to low-income Canadians. And beyond that, up to the halfway mark of the population, differences in their disposable incomes were negligible. In a yet-unpublished update of these findings, the two StatsCan researchers confirmed the general trend through 1997.

Their study is a reminder that our tax and transfer system redistributes wealth in Canada - softening the extremes between the very rich and the very poor. It's the flip-side of the picture: the Canadian advantage of a more egalitarian society that is often forgotten in the current debate over tax cuts.

"The grass is not greener on the other side,'' says Muriel Hurst, a registered nurse from Toronto who is paid about $27,500 (U.S.) at the hospital in Bob Dole's hometown of Russell, Kansas. She's making less than she did in Toronto, and while taxes and rents are lower in her rural community, she finds herself having to pay half of her medical insurance plan costs, and must pay malpractice insurance. "



Brain drain is a myth for most professions other than that of medical but even at that 2/3 return to Canada. Still a net outmigration but not nearly as bad as people make out. The huge amount of retirees is what is really putting pressure on the system.

As far as regular taxes go the province taxes at twice the rate the Fed does so for all those that complain about how much the Fed taxes , look to what your province can do not what the Fed govt can do in terms of tax reduction.

Health care is not breaking this country if we were so spend the same per capitac or even as much interms of %GDP as the states we would have to spend another 50 Billion a year. Out system as is according to the WHO already ranks ahead of the US.

 

[Ultima]

Originally posted by: desy
Reality check.

"In very rough figures, the federal finance department calculates that Canadians pay an average 35 per cent of their income in taxes and Americans pay 30 per cent - 5 per cent less.

But before you rush off to the States, consider some of the lesser-known facts behind the broad 5-per-cent generalization.

Statistics Canada took a look at what Canadians and Americans have left in their pockets in a 1998 study by Michael Wolfson and Brian Murphy. The researchers compared the disposable income of Canadian and American families - what's theirs to spend after taxes and deductions.

"Families . . . living in the United States are not necessarily better off in terms of disposable income, than their Canadian counterparts,'' they concluded. "Indeed, roughly half of Canadian families had disposable incomes in 1995 that gave them higher purchasing power than otherwise comparable U.S. families.''

This was true even though the U.S. economy is better off in terms of output per capita, and even though the average American income is about $5,000 (U.S.) more a year than the average Canadian. "The reason is that the very rich in the United States pull up the income average much more than in Canada, while those at the bottom of the U.S. income spectrum have less purchasing power than those in Canada.''

Wolfson and Murphy found the first 35 per cent of Canadians are "absolutely better off'' than their American counterparts, largely because of more generous government benefits to low-income Canadians. And beyond that, up to the halfway mark of the population, differences in their disposable incomes were negligible. In a yet-unpublished update of these findings, the two StatsCan researchers confirmed the general trend through 1997.

Their study is a reminder that our tax and transfer system redistributes wealth in Canada - softening the extremes between the very rich and the very poor. It's the flip-side of the picture: the Canadian advantage of a more egalitarian society that is often forgotten in the current debate over tax cuts.

"The grass is not greener on the other side,'' says Muriel Hurst, a registered nurse from Toronto who is paid about $27,500 (U.S.) at the hospital in Bob Dole's hometown of Russell, Kansas. She's making less than she did in Toronto, and while taxes and rents are lower in her rural community, she finds herself having to pay half of her medical insurance plan costs, and must pay malpractice insurance. "

Yeah, those are some good points. I probably wouldn't leave Canada, or if I did it wouldn't be for good. I do like living here overall 🙂

 

[Vic]

Originally posted by: Rudee
When you factor in monthly health care costs in the US when compared to Canada, it's pretty much even between the two countries in terms of after tax dollars.

I'm Canadian, and my company covers my health care 100%. I don't pay a penny except for dispensing fees for prescriptions, which is normally about 3 bucks. I'm far better off in Canada than in the US.

Uhh... no. I'm American, my health coverage is similar to yours (except my copay is $10 -- who cares), my employer pays for it, and I don't have to pay your taxes. I also have vision and dental coverage, and my health coverage includes ambulance rides.
Oh... and if I need some important medical attention, like say surgery, I can get it done next week instead of next year (and by next year, I mean 2005).
So my health coverage is better and my take-home pay (relative to gross) is higher. Hmm....

 

[StageLeft]

"Indeed, roughly half of Canadian families had disposable incomes in 1995 that gave them higher purchasing power than otherwise comparable U.S. families.''

This was true even though the U.S. economy is better off in terms of output per capita, and even though the average American income is about $5,000 (U.S.) more a year than the average Canadian. "The reason is that the very rich in the United States pull up the income average much more than in Canada, while those at the bottom of the U.S. income spectrum have less purchasing power than those in Canada.''

The first paragraph "roughly half" is looking at median, whereas the second is looking at averages, but the notable point in there to me is the higher income per person in the US.

Naturally with a system like canada's the diff between rich and poor will be softened - as mentioned here. This is great for the poor, and bad for the rich. Since I don't plan to be in the lower half I clearly have a better standard of living (from a money point of view) in the US, because those in the US are not quite as comfortable with taking care of the lower half of the population.

The experiences of that nurse are interesting because they conflict substantially with my own. I can't say how our lifestyle would be in toronto, but I can say with certainty that in nova scotia we wouldn't have anything close to what we have now. We have a nice house, worth far more than the average canadian house, two cars (albeit one is pretty frigging old), things to go in the house, no credit card debt, savings and 401k that are growing fast. I won't post our income here, but it's reasonable for mrsskoorb and I considering our professions in Birmingham, and if we were to have stayed in Canada there is a good chance we'd be into our 40's before making what we do now. I see what my friends who I went to school with are doing now and honestly I'm so far ahead of them that it's unreal, and I attribute much of that to my being in the US instead of in the stifled unemployment-is-fun economic hell of eastern canada.

I wonder how I would have done in ontario/alberta...*dreams...*.

 

[desy]

Thats right you can't compare anecdotal evidence, which is what most try to do.
Its why studies are done and conclusions drawn.
I recently saw a program comparing buisiness productivety 1/3 of a buisinesses overhead in the States got to . . .
Tadah !! employee health benfits, so those that say I don't pay for it yes you do by lowering your companies overall productivey and bottom line
So when Enron goes under and you have no pension that is a very real cost and a lot like gambling that your company can stay profitable and pay your pension benfits.
The Study I saw done compared Canadian cities to American ones in terms of corporate profitabily. Done by an American BTW
ALL Canadian cities were cheaper than the cheapest American one Sioux Falls SD, including Canadas' most expensive Vancouver.
Health care was the main issue it lowers the bottom line 33% now that its ofset by the increase in taxes but it looked at all issues IE energy costs , taxes capital costs, rent everything.
Everyone's situation is different even in the States from State to State.

Suffice it to say in Canada if you makes < 60,000 you are better here, if you make more than that you are better off in the States.

 

[Michael]

My reply is that the system in Canada seemed designed to keep everyone at the happy median.

Since my personal income and ambition is far above that, I'm much better off in the USA.

Michael