Tax Brackets for Parents & Seniors Are Way Different Than You Think!

Tax brackets for parents and seniors are way different than you think. 

This might be a real eye opener for some people because I think a lot of people that do some basic tax planning are doing it all wrong.

In my latest video and podcast episode I’m going to give you a tax planning made easy using tax brackets. 

I’m going to show you how, some basics of tax brackets, and briefly how tax planning is done, so you can get the concept. 

Then we’re going to talk about why tax brackets for parents and seniors are way different than you think – and how this completely changes tax planning.

You’ll learn:

• Tax planning made easy using tax brackets. 
• Why are tax brackets for parents way different?
• Why is the CCB Clawback a game changer for your tax planning? 
• What are the actual effective tax brackets for parents? 
• Why do parents benefit more from RRSP contributions than single people? 
• Why are tax brackets for seniors way different? 
• What are the three main clawbacks on seniors? 
• What are the actual effective tax brackets for seniors?
• How can you plan for your retirement income to be taxed at only 20%? 
• When is a TFSA and RRSP better for you?
• How does a financial plan become the GPS for your life? 

Tax Planning Made Easy

• Much of tax planning is planning for specific tax brackets.
• Deductions (like RRSP contributions) – Deduct just enough to get to the bottom of your tax bracket.
• Income (such as dividends or salary from your corporation) – Pay yourself just enough to avoid a higher tax bracket.
• RRSP/FHSA vs. TFSA – Best choice for you depends on your marginal tax bracket when you contribute vs. when you withdraw after you retire.

Why are effective tax rates higher for parents?

• Parents can get a generous Canada Child Benefit (CCB) – But it is also a large tax increase for parents.
• The CCB is clawed back based on your income.
• Clawbacks are effectively higher tax. – Government takes your money based on your taxable income.

How does the Canada Child Benefit (CCB) work?

• Benefit of $7,437/year for each child under 6.
• Benefit of $6,275/year for each child age 6-17.
• Clawed back at 7-23% starting at family income of $34,863.
• Clawback starts at only $17,432 for a couple with equal incomes.
• Clawback applies if your family income is <$220,000-$290,000.

Why is the CCB Clawback a game-changer for your tax planning?

• It can put you in a high tax bracket with income of only $35,000.
• For a couple, your high tax bracket can start at only $17,000.
• Makes RRSP contributions worthwhile at much lower income.
• Gives you higher tax savings for tax deductions:
• RRSP contributions.
• Smith Manoeuvre interest deductions.
• Any other tax deduction.
• Makes staying home with the kids easier.

What tax rates apply for one parent?

What tax rates apply for two parents?

Why do parents benefit more from RRSP contributions?

• It’s hard for modest income parents to contribute to RRSP.
• But very worthwhile!
• Consider contributing while working but defer deduction to when you are collecting CCB.

Why are effective tax rates higher for seniors?

3 Main Clawbacks on Seniors

• 50% clawback on GIS for low-incomes (under $30,000).

• 15% clawback on Age Credit for middle incomes ($44,000-103,000).

• 15% clawback on OAS for higher incomes ($91,000-148,000).

Plan for Retirement Income Tax Only 20%

• Government pensions $25,000
• RRSP $30,000
• TFSA $5,000
• Desired retirement lifestyle $60,000

Plan for Retirement Income Tax Only 20%

• Government pensions $25,000
• RRSP $30,000
• TFSA (Large) $10,000
• Non-registered investments $35,000
• Desired retirement lifestyle $100,000

When is TFSA or RRSP better for you?

• Lower tax bracket after you retire: RRSPs are better.
• Same tax bracket: Not a big difference.
• The 2 other key factors may give you your answer.
• Higher tax bracket when you retire: TFSA is better.

Marginal tax brackets for parents & seniors are higher.

Your Financial Plan is the GPS for Your Life

• Financial Independence.
• Life feels different when you are financially independent.
• Make it your goal – Not what other people might want.
• Think long-term. Start early.
• “Interactive Financial Plan” – Look at many life options & see what you have to do to get there.
• Bad news – You need a lot more than you think.
• Good news – You can get there by investing a lot less than you think.
• Live life intentionally. Real freedom is financial freedom.

You will know your tax bracket now & after you retire.

Ed