Canada’s tax deadline has arrived and if you haven’t filed and mailed any outstanding monies you owe the government, it’s time to pay up!
If you have a balance owing for 2015, the last day on which to pay is April 30, 2016; however, due to April 30th falling on a Saturday this year it was extended to Monday, May 2nd – today.
Canada Tax Filing deadlines:
- April 30 (for personal income)
- June 15 (for the self-employed filers and their spouses or common-law partners)
Check out the filing due dates for the 2015 tax return here for more clarification on due dates or any exceptions.
Canada’s Tax Rates: Do you live in a Canadian tax haven?
When I say tax haven, I’m talking about provinces within Canada, not the $40 billion Canadian corporations invested last year in the top 10 tax haven destinations for Canadian capital — taking investment totals since 1990 to $270.2 billion, according to Canadians for Tax Fairness.
source: http://www.huffingtonpost.ca/2016/04/26/corporate-canada-investments-in-…
Before looking at Canada’s Tax Rates on a Province by Province basis, I wanted to look at what is happening in the United States.
As income taxes creep higher and higher in the land of the free, more and more residents are voting with their feet and simply relocating to more tax friendly or, in some cases, income tax free zones, such as Florida (which has 0% income tax) or Puerto Rico (no income tax on profits).
The New York Times recently published an article titled One Top Taxpayer Moved, and New Jersey Shuddered.
The alarm bells began ringing when Frank W. Haines III, New Jersey’s legislative budget and finance officer, told a State Senate committee that its wealthiest resident had reportedly “shifted his personal and business domicile to another state.”
source: http://www.nytimes.com/2016/05/01/business/one-top-taxpayer-moved-and-ne…
To be clear, this is a perfectly legal approach to paying less in taxes and a reason states such as Florida maintain a low income tax rate.
When it comes to money management, you want to watch the rich very closely. You want to think like them and when it comes to your money, act like them.
“New Jersey won’t say exactly how much Mr. Tepper paid in taxes. But according to Institutional Investor’s Alpha, he earned more than $6 billion from 2012 to 2015. Tax experts say his move to Florida could cost New Jersey — which has a top tax rate of 8.97 percent — hundreds of millions of dollars in lost payments.”
source: http://www.nytimes.com/2016/05/01/business/one-top-taxpayer-moved-and-ne…
New Jersey, like many other states, should have seen this coming. Just as dozens of millionaires and billionaires leave California or Connecticut (two of the highest taxed states in the Union) for greener less taxed pastures, it has provided fresh fuel for some Republicans.
In response to Tepper’s move, Jon Bramnick, the Republican leader in the New Jersey Assembly stated,“You can save millions a year by moving to Florida. How can you blame him?”
source: http://www.nytimes.com/2016/05/01/business/one-top-taxpayer-moved-and-ne…
The answer is simply: you can’t.
Peter Schiff, a guest we’ve had on our Pinnacle Digest Podcast, has long discussed the benefits of Puerto Rico, with its no double tax taxation, no income tax on profits and only a top 4% withholding on distributions to owners.
According to a 2013 Bloomberg article, titled Paulson Said to Explore Puerto Rico as Home With Low Tax, “The marginal tax rate for affluent New Yorkers can exceed 50 percent on ordinary income.”
This variance is simply too large, especially if a warmer climate, such as Florida or Puerto Rico appeal to you.
Canada: the lowest and highest income taxed provinces
While Canada doesn’t have income free tax zones like the United States, or such variance between provinces, there are regions of the country where you will pay considerably less tax. This makes a difference if you are a high earner or someone set to retire and hoping to make what little savings you have go the distance. First off, let’s take a look at the Federal tax rates for this year which are the same for all Canadians:
Albertans now pay 15% on any amount over $300,000, while in B.C. residents pay 14.7% on any amount over $106,543. With that said, Albertans save 0.7% between $106,543 and $300,000 vs. B.C. as they only pay 14% on income between $100,000 and $300,000.
Ontario actually has one of the lowest tax brackets in the country, beginning at just 5.05% on the first $41,536 of taxable income and topping out at 13.16% on amounts over $220,000.
Forget about Nova Scotia or New Brunswick if you are a high earner. In Nova Scotia residents pay 8.79% on the first $29,590 of taxable income, 14.95% on the next $29,590, and finally a whopping 21% (highest in the country) on the amount over $150,000.
In New Brunswick residents can look forward to paying a steep 9.68% on the first $40,492 of taxable income, and 20.3% on the amount over $150,000. Combined with the Federal tax, a low income earner in New Brunswick of just $25,000 would hypothetically have to pay nearly 25% income tax, when you include the 15% federal rate.
Note: In some cases there are deductions and special situations that allow this tax not to be paid by lower earners.
If you live in New Brunswick and make over $200,000 you will pay 33% in federal tax, like anywhere in the country, but pay an additional 17-18% assuming you make a little over $200,000 annually. This brings the total annual tax to roughly 50% for each potential taxpayer making over $200,000. The circumstances are slightly worse in Nova Scotia.
Moving to the Yukon or even B.C. could save you 5% annually on taxes
By moving to less taxed regions, a higher earner and, in many cases, even a low earner, could save between 4-6% annually on his or her taxes. While not a huge number, (unless you are earning millions per year) this small amount, if invested, can seriously add up over a lifetime of working. Imagine what 5% of your income could do in an average portfolio that generated even 5% annually compounded for the next 25 years. Starting with $2,500 and adding another $2,500 per year for 25 years would leave you with $133,749.52 compounded annually at 5%. Not a bad chunk of change for putting up with some cold weather in Nunavut where 11.5% is paid on any amount over $140,388.
While all provinces calculate taxable income different, the spectrum is wide, ranging from a low of 5.05% on the first $41,536 of taxable income in Ontario, to a high of 21% on the amount reported over $150,000 in Nova Scotia.
Enjoy contemplating how much hard earned cash you could have saved this year, by living in some of Canada’s less taxed provinces… at least be thankful you aren’t this guy.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
