Using Marginal Tax Rate in Measuring Tax-Efficiency
aliko-aapayrollservices.com - Small businessess from 1 to 80 employees outsource your payroll management to us and let us worry about your payroll processing.
RSS Follow Become a Fan

Delivered by FeedBurner


Recent Posts

Tax changes to expect when you’re expecting
2016 Tax Tips for 2015 Filing Year
From Proprietorship to Corporation - When is the Best Time to Incorporate?
Tax Specialists Brief your Clients About CRA Fraud And E-Mail Scams
Bank of Canada cuts rates again

Most Popular Posts

Help your teenager build credit responsibly
Being an Executor of an Estate
Anti-Aging
Student Line of Credit
Principal Residence Exemption

Categories

aliko nutrition store- isotonix
aliko payroll services
canada revenue news and videos
canadian news
CPP ,OAS RRIF ANNUITY
Cross border Tax
Disability awareness and Benefits for disabled
estate planning
FINANCIAL LITERACY
HEALTH & NUTRITION
Home Car Insurance
Income Splitting Strategies in Retirement
INVESTING
kids and money -set your children up for financial success
life insurance
on line safety tips
online safety tips
PAYROLL
Real Estate - Investments / Retirement
RETIRE HAPPY BLOG
Retirement planning
SAVE YOUR MONEY
Save your money
SERVICE CANADA NEWS
small business planning
Tax Information for Students
tax news
tax planning
tax tips.ca
Tech news
TFSA

Archives

January 2016
July 2015
May 2015
April 2015
February 2015
December 2014
November 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013

powered by

MY BLOG

Using Marginal Tax Rate in Measuring Tax-Efficiency

Using Marginal Tax Rate in Measuring Tax-Efficiency
 
Using Marginal Tax Rate in Measuring Tax-Efficiency
 
 
Your marginal tax rate is linked to your tax bracket and analyzes how much you’ll pay on the next dollar you earn from various income sources. This is an important concept too—not all income sources are taxed alike.
 
 
A taxpayer’s MTR (Marginal Tax Rate) is a useful tool in measuring tax-efficiency of both actively and passively earned income sources. It will tell you how much tax you’ll pay on the next dollar you plan to earn, while measuring the effect of that income on your eligibility for tax credits and social benefits delivered through the tax system.
This is different from the effective tax rate, which reflects the actual tax rate applied to your income after “progressivity” is taken into account. In Canada we have a progressive tax system, which means, the more you earn the more you pay and the less you receive from income-tested social benefits.
To compute your marginal tax rate, you need to understand that your income sources will be classified into several broad categories for tax purposes. For example:
Ordinary income is fully taxable and includes income from employment, pensions and interest. It may also include alimony and certain social benefits like Employment Insurance, and net rental income—what’s left after allowable deductions.
Income from self-employment is reported on a net basis—what’s left after revenues are reduced by allowable deductions.
Capital gains are reported upon the disposition (sale or transfer) of an asset. Only half those gains, net of losses, are reported on the return. Sometimes, gains can be avoided when certain properties are donated to charity. Other gains may qualify for specific exemptions from tax (the Capital Gains Deduction, for example). Capital gains that are not exempt have a marginal tax rate that is one-half the rate applicable to ordinary income or net self-employment income.
Dividends are the after-tax distribution of profits from private or public corporations to shareholders. Reporting them involves an integration of the corporate and personal tax systems, the end result of which is a preferential tax rate for the dividend recipient. As a general rule, dividend income is taxed at a lower marginal rate than ordinary income. The marginal tax rate on eligible dividends is lower than on small business dividends but the rates of taxation on dividends varies widely by province.
When you know your marginal tax rate on the next dollars you earn, you can make better choices about your income sources and tax-preferred investments to get the after tax results you want on both income and capital. These results will vary by province
 

1 Comment to Using Marginal Tax Rate in Measuring Tax-Efficiency :

Comments RSS
Indian Stock Market Tips on June-20-15 12:25 AM
Your marginal tax rate is linked to your tax bracket and analyzes how much you’ll pay on the next dollar you earn from various income sources.Firstly thanks a lot for such a wonderful post. I would like to know more about such topics and hope to get some more helpful information from your blog.
Reply to comment

Add a Comment

Your Name:
Email Address: (Required)
Website:
Comment:
Make your text bigger, bold, italic and more with HTML tags. We'll show you how.
Post Comment