I can across an interesting website today. It made me think about statistics and how they can be very misleading. Censusmapper.ca produces lots of maps of Canadian statistics based on the census reports. The one that I thought was particularly interesting being a personal tax advisor reported income tax paid by individual taxpayers, average income, percentage of tax paid to income and number of tax returns filed.
Canada as a whole....
Canadian taxpayers as a whole averaged $6,667/taxpayer income tax paid by those over age 15 in 2011. The total average income was $40,650/taxpayer which gives an average tax rate of 16.4%. There were 25.9 million tax returns filed. Something to keep in mind is that these are average and not median figures. Averages can be skewed by a few extreme outliers so the median point (i.e. the same number of people above and below) would be a bit lower still.
I only work part time throughout the year (especially back then when my kids were ages 2 and 4) and in 2011 I paid tax of $5,554 on about $45,000 of income after corporate expenses to earn the income and child care deductions on my personal income tax return. This works out to 12.3% tax paid. So on the face of things it looks like my earnings were slightly above average but I paid slightly less tax than average. Being a personal tax accountant helps considerably with that as I know what the rules are and I take advantage of them where possible. I can do the same for you if you get in touch with me. Without breaking any rules of course!
What is interesting about these statistics is that the tax I paid was entirely corporate and as such would not be included in the census personal income tax figures. My taxes paid according to the census would have been $0 on $34,135 income reported on my personal tax return. My practice is incorporated and I pay myself a mixture of salary and dividends. I pay myself just enough salary to use up the employment tax credit and any child care expenses that I have - which in 2011 was the maximum allowed. I pay myself just enough dividends on top of that to use up all my personal and dividend tax credits such that I pay no personal income taxes for the year. In case you are curious why I had $45,000 in income for the year but only reported $34,000 on my personal tax return, $5,500 was the corporate taxes paid on the income earned before I could pay anything out to myself and the other $5,500 went into my corporate brokerage account for retirement savings.
There are ways to plan compensation when a company is involved that lower overall taxes especially if your personal cash needs are relatively low compared to the total amount you earn in the company. If you are in this situation and would like some tax planning advice to help get your tax percentage down please contact me! I can have a look at how you are doing things and see if there is a better way to pay yourself than what you are currently doing. This also needs to be looked at every few years as the relative corporate and personal tax rates are always in flux and what was the best way to do it several years ago when someone last did the calculations may be different from this year.
While you can go look at the website yourself here, I thought this was interesting as well. Alberta, where we were living for the first half of the year, had the highest average income tax paid at $9,020/taxpayer on an income of $50,956 for an average tax rate of 17.7% and a taxpayer base of 2.75 million. This is 35% more tax on only 25% more income! As you can see - the amount of tax you pay varies considerably based on how much personal income you have to draw which is why I don't take any more out than I can report with no personal taxes. It is better to save it for later as one of the few ways to do income smoothing allowed under the income tax act. Another good one to take advantage of if you don't have a corporation is RRSP's
Interestingly, the Northwest Territories had the second highest taxes paid at $8,970/taxpayer on an income of $54,717 for an average tax rate of 16.39% and a taxpayer base of only 30,265. Ontario, which I would have thought would be first or second, was a distant third at $7,020/taxpayer in taxes paid on an income of $42,264 for an average tax rate of 16.6% and a taxpayer base of 9.9 million. British Columbia, where we live now, pays an average of $5,676/taxpayer on income of $39,415 for an average tax rate of 14.4% and a taxpayer base of 3.5 million.
By Districts within Provinces...
By the time you drop the area to the next largest areas after whole provinces, you get wider variations. The most tax paid in the country was in the northeast corner of Alberta (district 18) which includes Fort McMurray. They paid an average of $20,475/taxpayer on income of $87,874 for an average tax rate of 23.3%. The total tax base is only 51,515 people however as this region is fairly sparsely populated compared to most of the other districts. Keep in mind this is per taxpayer although there would be a lot of single oilfield workers there and I am not sure how many families there would be.
The next highest tax paid was in the district of Halton, just southwest of Toronto. Taxpayers there paid an average of $11,699/taxpayer on income of $56,518 for an average rate of 20.7%. There were 378,000 returns filed. Quite the drop in income tax paid from the Ft McMurray area! Calgary, where we were in 2011, was 4th in the country with taxes of $10,714/taxpayer paid on income of $56,388 for an average rate of 19 and a taxpayer base of 1 million. The largest district - Toronto - paid an average of $8,236/taxpayer in taxes on income of $44,517 for an average rate of 18.5% with a taxpayer base of 2.05 million. Taxpayers in the Central Okanagan, where I live now, paid an average of $5,284/taxpayer on income of $38,851 for an average rate of 13.3%. There were 145,000 tax returns reporting income filed.
Have fun exploring censusmapper.ca to see what averages were in 2011 around where you lived!
Photo by Nan Lalande
Laurie Yoon, C.P.A., C.A.
My practice has evolved over the years to be almost entirely personal tax, and I specialize in people with cross border personal tax issues.