This reduces your overall tax rate - assuming you’re going to be holding investments one way or the other. If you hold ETFs like iShares S&P/TSX Capped Composite Index Fund (TSX:XIC), you can shelter all the dividends and capital gains from taxation. Instead, what you want to do is reduce your overall taxes by holding your investments in a TFSA. You can lower your tax bill by claiming more tax breaks, but you don’t want to trigger a Canada Revenue Agency audit by claiming spurious deductions. Most of the taxes mentioned in this article can’t be countered. Story continues The one tax you can counter That will result in higher CPP premiums for many Canadians. Each year, there’s a cap on the percentage of your earnings CPP premiums are assessed on. If you earn over $58,700, this will increase your CPP premiums too. Then there’s the increase in CPP pensionable earnings. Each annual increase is small, but it adds up to a 16.7% hike over the five years of enhancement. To help Canadians in the future, the Canada Revenue Agency is taking out increasing CPP premiums from 2019 to 2023. One reason they will increase is because of CPP enhancement. CPP premiums are a part of your tax bill that will increase every single year until 2023 at least. Two different CPP premium hikesĪnother factor related to bracket creep is CPP premiums. If you’re one of them, then bracket creep may hit you when you file in 2021. In 2020, many Canadians’ income increased because of pandemic pay and other benefits. In that situation, your purchasing power declines because of your increased marginal tax rate. It’s a different story if your salary hike pushes you into a higher tax bracket. Most of the time, the effect of a salary bump commensurate with inflation is no real change in purchasing power. But that doesn’t mean your purchasing power increases. If your employer specifically indexes your salary to inflation, then you’ll get a little bump every year. In Canada, the thresholds are supposed to adjust for inflation, but your own budget may not match the basket of CPI goods. This can happen when tax bracket thresholds don’t adjust for inflation. Bracket creepīracket creep is where inflation pushes you into a higher tax bracket, but your purchasing power doesn’t actually increase.
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In this article, I’ll explore this subtle “tax hike” and how you can offset it. And it’s set to come in effect in a big way in 2021. There’s another, subtler way that your tax bill can rise over time. A tax hike is just one of many ways your taxes can increase. But if you think that means the Canada Revenue Agency won’t take more of your money, you’re mistaken. So far, the federal government has announced no new taxes for 2020.