Everyone always wants a raise, or do they? With the new Canadian government of a Liberal majority now in office, the tax situation has changed. Many feel for the better. Anyone making over $200,000 per year will be put in a new tax bracket of 33% which is four percent higher than the existing maximum rate.
For the majority of Canadian workers, this will not have much effect but for those earning close to or over $200,000 there could be a tax impact to consider. If a worker earns close to $200,000 and a raise would put them over that amount, should they take the raise?
One thing to consider is that only the amount of income over the $200,000 will be taxed in the new bracket. If someone gets a raise and now earns $205,000 per year, only the $5,000 over will be taxed at the new 33% rate. Someone who goes up to $250,000 or higher in yearly income will see a much bigger difference in taxes.
The new tax rate is on income only, not capital, so if one inherits money and that bumps their annual wealth up to $200,000 and above, it will not put them in the new tax bracket. Another consideration is that this new tax bracket and rate will not take effect until 2016. Taking that raise early will give one a year with the lower rate before the higher taxes apply.
For the 340,000 or so Canadians who earn $200,000 or more per year, the new tax rate will make a difference. The more money over $200,000 one makes, the more the tax increase will be. It will be up to each wage earner in this higher bracket to do the math and decide if they are better off at their current salary or with the raise and the higher taxes.
There is always the thought that even with a higher rate of taxation on the additional income, there is still more money being earned. Even at 33% of money over $200,000 that is earned, there is still 67% of the money to keep.
Workers being affected by the higher tax rates could make up the difference with wise financial strategies. Strategies such as retirement and investment programs that earn high yields could be a way to maximize the remaining income. Using the services of a money management expert could pay for itself at the higher income levels.
These financial experts can guide their clients into investment opportunities that are designed to make investment amounts increase over time.
Hiring a professional tax accountant can help many high-income earners. Everyone should be willing to pay their fair share in taxes, but there is nothing wrong with getting expert help in deciding what that fair share might be. A tax accountant may even be the person who will give advice on whether to take that raise or not.
It may be that a person can ask for an adjusted raise that works better for them tax-wise. Deciding whether to accept that raise or forgo it will always be a difficult decision, that requires running the numbers and comparing different options. For more advice and information please visit the website.