# I got a raise (tax implications)



## Money4life (May 17, 2012)

Howdy,

Recently got a promotion at work. Was making $51,891 a year...now it's up to an even $55,000. I have yet to file my taxes for 2012 (was going to do it this weekend). I've been crunching some numbers trying to determine if it makes sense to claim my entire RRSP deduction limit for 2012 or to save some of it for tax year 2013. I contributed $1,800 to my personal RRSP in 2012 and another $7,468 in 2013. I also contributed $2,546 into my pension plan during 2012. My total income in 2012 is around $55,150. The lowest I can get my taxable income down is at around $42,500. If I make the full RRSP deduction for tax year 2012, my RRSP deduction limit for 2013 is only going to be $4,610 (I put quite a bit into my pension last year).

What makes the most sense here? The tax brackets are confusing to me (because income taxes deal with both Federal and Provincial taxes) so I never know how much I should be deducting. Any help would be greatly appreciated.

thanks,

Money4Life


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## none (Jan 15, 2013)

Check out this table:

http://taxtips.ca/marginaltaxrates.htm


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## My Own Advisor (Sep 24, 2012)

If income is rising, no harm in carrying forward RRSP contributions to the next tax year.


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## MoneyGal (Apr 24, 2009)

No harm, but probably no benefit, either: unless the "new" income (from the raise) is subject to a higher marginal rate of taxation, it doesn't make sense to delay claiming the contribution.


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## none (Jan 15, 2013)

My Own Advisor said:


> If income is rising, no harm in carrying forward RRSP contributions to the next tax year.


There is if you're not moving a bracket. If you would get the same refund the next year anyway you might as well take the RRSP 'refund' this year as you can get that refund money working for you right away.


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## MoneyGal (Apr 24, 2009)

You know, you are right; I was being "cute" with language, and it was dumb. The economic value of a dollar received today and a dollar received in the future is different: the dollar received today is worth more.


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## Mall Guy (Sep 14, 2011)

Don't know your age or if you are a "shooting star" ... in 20/20 hind sight, I wish I saved a whole bunch of RRSP room, 'cause now I have nowhere to bury my recent high tax bracket bonus . . . also took the deduction while still married . . . wish I had it now. So what are your prospect "young man" ?


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## Money4life (May 17, 2012)

none said:


> Check out this table:
> 
> http://taxtips.ca/marginaltaxrates.htm


Thanks. So my $42,500 taxable income from 2012 has a personal income tax rate of 9.15% but then has a marginal tax rate of 24.15%? This is what I don't understand. My taxable income has a combination of both employment income and "other income". Does the marginal tax rate only apply to "other income" or capital gains and not employment income? This doesn't sound right to me. 

Sorry, I haven't been able to grasp this yet.


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## Money4life (May 17, 2012)

Mall Guy said:


> Don't know your age or if you are a "shooting star" ... in 20/20 hind sight, I wish I saved a whole bunch of RRSP room, 'cause now I have nowhere to bury my recent high tax bracket bonus . . . also took the deduction while still married . . . wish I had it now. So what are your prospect "young man" ?


26 years old, engaged.


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## cldellow (Feb 16, 2012)

Only way to know for sure is to run the numbers both ways. Depending on your province, you might also avoid or reduce your health insurance premiums.


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## none (Jan 15, 2013)

At that salary I would only claim as much to bring you to the top of the second (taxable income of ~43K for example if you live in BC).

You can still sock it away in your RRSP if you want but I wouldn't claim it. That 7% spread is worth the wait.

You could instead stash the money in a TFSA instead. Might as well if you're not going to claim it.


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## Money4life (May 17, 2012)

none said:


> At that salary I would only claim as much to bring you to the top of the second (taxable income of ~43K for example if you live in BC).
> 
> You can still sock it away in your RRSP if you want but I wouldn't claim it. That 7% spread is worth the wait.
> 
> You could instead stash the money in a TFSA instead. Might as well if you're not going to claim it.


OK, so I live in tax-ridden Ontario and my marginal tax rate is at 24.15% for my taxable income of $42,500. Should I only be looking at this when claiming income taxes or should I also be looking at the personal tax income rates where I would only be taxed at 9.15% ($39,020 to $78,043)?


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## none (Jan 15, 2013)

Tax ridden Ontario? What are you talking about? Ontario has much better tax rates than anything East of it. You actually have it pretty good.


personally I don't think I would claim and RRSP deduction below taxable income of 43,561. Heck, I'm not sure I'd claim any at all (unless you have some company matching stuff - i can't remember). If you don't I would just fill up my TFSA and save those RRSP deductions for later.


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## MoneyGal (Apr 24, 2009)

This is a mega-confusing thread. OP says he's making $55K in the first post, but now it's down to $42500 of "taxable income." Do you mean "after-tax income"?


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## Money4life (May 17, 2012)

none said:


> Tax ridden Ontario? What are you talking about? Ontario has much better tax rates than anything East of it. You actually have it pretty good.
> 
> 
> personally I don't think I would claim and RRSP deduction below taxable income of 43,561. Heck, I'm not sure I'd claim any at all (unless you have some company matching stuff - i can't remember). If you don't I would just fill up my TFSA and save those RRSP deductions for later.


So marginal tax rate is all that matters here and not 'personal income tax brackets and rates before surtax'?

I've actually never checked out the tax rates in the East Coast before. I just know that the West Coast has always had it better than Ontario.

I do have a company pension plan that has to get deducted. I've already maxed out my TFSAs.


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## Money4life (May 17, 2012)

MoneyGal said:


> This is a mega-confusing thread. OP says he's making $55K in the first post, but now it's down to $42500 of "taxable income." Do you mean "after-tax income"?


Sorry, my lunch is coming to an end at work and so I won't have time to explain this properly until later. What I will say though is my "taxable income" is my gross salary plus "other income" minus a deduction of RRSP contributions and union dues. I'll explain how I came up with that later.


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## Charlie (May 20, 2011)

I think none's advice is sound. Claim to the second tier. 

For the numbers you've noted (and none's checking of the rates and tiers), it seems that's just about all of it. If you claim it all to bring your taxable income to $42500 and the target tier was $43,561 you're really only leaving 7% of $1000 or about $70 (deferred a year) on the table. If it was me, I'd just claim the whole thing and be done with it. But you may want to be a bit more precise.

MG -- his taxable $42500 is after the max RRSP deduction based on his contributions.


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## none (Jan 15, 2013)

Money4life said:


> I've actually never checked out the tax rates in the East Coast before. I just know that the West Coast has always had it better than Ontario.


You do know this? No you don't because you are wrong. Ontario has some of the best income tax rates in the country (depending on tier). 
http://taxtips.ca/taxrates/taxcomparison/taxcomparison2012.htm


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## Money4life (May 17, 2012)

Charlie said:


> I think none's advice is sound. Claim to the second tier.
> 
> For the numbers you've noted (and none's checking of the rates and tiers), it seems that's just about all of it. If you claim it all to bring your taxable income to $42500 and the target tier was $43,561 you're really only leaving 7% of $1000 or about $70 (deferred a year) on the table. If it was me, I'd just claim the whole thing and be done with it. But you may want to be a bit more precise.
> 
> MG -- his taxable $42500 is after the max RRSP deduction based on his contributions.


Yeah. That's what I meant by taxable income. I got this terminology in last year's 'Tax Return Summary' from H&R Block. I know that the last time I referenced a term from an H&R Block summary, it led to pages and pages of confusion. I'm hoping that I'm going to have a better understanding of income taxes when I file them tomorrow. Thanks Charlie for the feedback.


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## Money4life (May 17, 2012)

none said:


> You do know this? No you don't because you are wrong. Ontario has some of the best income tax rates in the country (depending on tier).
> http://taxtips.ca/taxrates/taxcomparison/taxcomparison2012.htm


I appreciate your help none but I am not trying to start a fight with you. No need to be getting defensive. Thanks for the links, though.


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## Money4life (May 17, 2012)

So I'm going to ask this question for the fifth time. This question must be getting ignored because I am not asking it properly. On the taxtips website (http://taxtips.ca/taxrates/on.htm), there is a heading for 'Personal Income Tax Brackets and Rates Before Surtax' with data below and then underneath that, there is another heading for 'Combined Federal & Provincial Tax Rates Including Surtaxes', which includes Marginal Tax Rates and other data. Judging by all of the answers in this thread, the only numbers that I should be focusing on for income taxes are the percentages in the second heading (which is why users are telling me to aim for the second tier). 

The Personal Income Tax Brackets and Rates Before Surtax...does this simply mean how much I get taxed on my gross pay from work during the year? I think what's confusing me here is the "before surtax" vs. "including surtaxes". Sorry if this is still confusing. Thanks for the help.


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