Personal Finance

Owing Taxes

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  • Feb 22nd, 2013 9:01 am
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Deal Guru
Dec 11, 2008
13067 posts
3756 upvotes

Owing Taxes

Just wanted to get some experience or general info on how many people OWE taxes when it comes to filing time.

Last year I owed about $250 due to some dividend income, capital gains and interest income even though I did contribute to RRSP (I got the refund during the year).

This year I entered my stuff into Turbo Tax (same software as last year) and it says I owe about $800; which is a bit shocking. The changes are: $5k increase in employment income, $800 increase in dividend income, decrease of $300 capital gains and an increase of $1200 interest income.

Does this make sense?
4 replies
Jr. Member
Feb 18, 2013
170 posts
210 upvotes
Ottawa
Yes, this makes sense:

1) Ignore the increase in employment income since taxes are probably withheld at source adequately.
2) Dividend income is taxed at a fairly low rate, so I'll estimate only 20% tax rate on that, but could be lower, depends entirely on your tax bracket.
3) If I assume your capital gains are TAXABLE capital gains (vs gross), they, along with the higher interest income, net to an increase of $900 of taxable income.

So, if your tax bill at end of year increased by $550...and of that $550, $800 x 20% = $160 is attributable to the dividend income, we're left to explain the remaining $550 - $620 = $390 increase.

$390/$900=43% marginal tax rate on the incremental investment income you've identified. These are rough numbers but from the above, it's entirely possible and makes sense.
Deal Guru
Dec 11, 2008
13067 posts
3756 upvotes
Hm thanks, yeah I'm somewhat of a higher bracket income earner. So thinking long term, as I continue to try to increase my dividend income and my interest income may increase as well, I should expect to pay higher and higher taxes at the end of the year just based on the additional income alone. Which is why I should stuff most of my money into TFSA (invest in there) before non-registered account.

But it's hard because some investments are better in non-registered and some are better in TFSA.
Newbie
Dec 20, 2007
20 posts
2 upvotes
speedyforme wrote: Hm thanks, yeah I'm somewhat of a higher bracket income earner. So thinking long term, as I continue to try to increase my dividend income and my interest income may increase as well, I should expect to pay higher and higher taxes at the end of the year just based on the additional income alone. Which is why I should stuff most of my money into TFSA (invest in there) before non-registered account.

But it's hard because some investments are better in non-registered and some are better in TFSA.
Bingo. All things being equal, as you make more investment income during the year, the greater the tax bill at the end (since no taxes are witheld) It actually gets worse if your employment income increases and you end up in a new marginal bracket.

On the other hand, you get to keep the tax money and get the returns on it, until you mail the CRA a postdated cheque for April 30.

Better than my current scenario of a large refund since I changed jobs midway through the year, causing me to effectively double pay CPP & EI this year. (Note I've looked and there is no fix to this one). I've taken the steps to get a waiver for my Donations and other credits that are recurring.

One small note on the TFSA, it's not the ideal place for US securities as there is no way to recover the 15% tax withheld on income.
Deal Guru
Dec 11, 2008
13067 posts
3756 upvotes
Redflag Uno wrote: Bingo. All things being equal, as you make more investment income during the year, the greater the tax bill at the end (since no taxes are witheld) It actually gets worse if your employment income increases and you end up in a new marginal bracket.

On the other hand, you get to keep the tax money and get the returns on it, until you mail the CRA a postdated cheque for April 30.

Better than my current scenario of a large refund since I changed jobs midway through the year, causing me to effectively double pay CPP & EI this year. (Note I've looked and there is no fix to this one). I've taken the steps to get a waiver for my Donations and other credits that are recurring.

One small note on the TFSA, it's not the ideal place for US securities as there is no way to recover the 15% tax withheld on income.
Oh never knew when you switch jobs they don't know how much you already paid in CPP and EI. At least you'll get the money back. But yes it's always to pay money than receive money. Still have to wrap my head around this fact. And also the fact that I get my RRSP contribution refud throughout the year instead of at the end of filing tax season.

Thanks!

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