1. Free Money
As a consultant in the Financial Services world I find the same mistakes are repeated over and over by
people in all financial situations. For example, RRSP’s are not being used to their full potential and
neither are TFSA’s – mainly because of lack of understanding. This is free money people and I’m going
to take this opportunity to illustrate the benefits of RRSP and TFSA contribution.
Most of us lead ourselves to believe that the Canadian Tax system is so vastly complicated that the mere
mortal is left dumbfounded. However, this is not the case.
2016 Canadian Tax brackets (www.TaxTips.ca/taxrates/on.htm) go like this:
2016
Taxable
Income
2016 Marginal Tax Rates
2015
Taxable
Income
2015 Marginal Tax Rates
Other
Income
Capital
Gains
Canadian
Dividends
Other
Income
Capital
Gains
Canadian
Dividends
Eligible
Non-
Eligible
Eligible
Non-
Eligible
first
$41,536
20.05% 10.03% -6.86% 6.13%
first
$40,922
20.05% 10.03% -6.86% 5.35%
over
$41,536 up
to $45,282
24.15% 12.08% -1.20% 10.93%
over
$40,922 up
to $44,701
24.15% 12.08% -1.20% 10.19%
over
$45,282 up
to $73,145
29.65% 14.83% 6.39% 17.37%
over
$44,701 up
to $72,064
31.15% 15.58% 8.46% 18.45%
over
$73,145 up
to $83,075
31.48% 15.74% 8.92% 19.51%
over
$72,064 up
to $81,847
32.98% 16.49% 10.99% 20.61%
over
$83,075 up
to $86,176
33.89% 16.95% 12.24% 22.33%
over
$81,847 up
to $84,902
35.39% 17.70% 14.31% 23.45%
over
$86,176 up
to $90,563
37.91% 18.95% 17.79% 27.03%
over
$84,902 up
to $89,401
39.41% 19.70% 19.86% 28.19%
over
$90,563 up
to $140,388
43.41% 21.70% 25.38% 33.46%
over
$89,401 up
to $138,586
43.41% 21.70% 25.38% 32.91%

2. over
$140,388 up
to $150,000
46.41% 23.20% 29.52% 36.97%
over
$138,586 up
to $150,000
46.41% 23.20% 29.52% 36.45%
over
$150,000 up
to $200,000
47.97% 23.98% 31.67% 38.80%
over
$150,000 up
to $220,000
47.97% 23.98% 31.67% 38.29%
over
$200,000 up
to $220,000
51.97% 25.98% 37.19% 43.48%
over
$220,000
49.53% 24.76% 33.82% 40.13%
over
$220,000
53.53% 26.76% 39.34% 45.30%
Let’s pretend that “Bob” has made $55,000 in 2015 and would like to file his taxes.
Federal Ontario Total
Tax on $55,000 of
employment income
$8,971 $3,355 $12,326
Minus: non-refundable
tax credits
($2,383) ($670) ($3,053)
Tax $6,588 $2,685 $9,273
Plus: Ontario Health
Premium
$0 $600 $ 600
Total tax liability $6,588 $3,285 $9,873
Where a $9,900 RRSP deduction is claimed then the tax payable is calculated using net income of
$45,100, which is $55,000 minus $9,900. Then the non-refundable tax credits are applied. So,
what does this look like?
Here are the numbers where the $9,900 RRSP deduction is claimed.
Federal Ontario Total
Tax on $45,100 of
net income
$6,793 $2,449 $9,242

3. Minus: non-refundable
tax credits
($2,383) ($670) ($3,053)
Tax $4,410 $1,779 $6,189
Plus: Ontario Health
Premium
$0 $ 450 $ 450
Total tax liability $4,410 $2,229 $6,639
The $9,900 RRSP deduction results in a tax savings of $9,873 minus $6,639 =$3,234. “Bob has not only
saved money, he has contributed to his retirement as well!
See? It’s not too hard – it’s only taken me countless hours to grasp the concept…
Up next: “Unlocking the Magic ofTFSA’s”
An Original Article By: Alanna McKeogh – Consultant
alanna.mckeogh@investorsgroup.com
References:
Canadian Tax Table retrieved from: www.taxtips.ca (April 2016)