How To Plan For The Increase In Ontario Personal Taxes | Kerr Financial
Accounting & Tax
How to plan for the increase in ontario personal taxes
Category: Accounting & Tax

On July 24, 2014, the Ontario budget was passed. With this, Ontarians can expect to see changes to their personal income tax rates. These changes include different tax brackets, as well as increased rates on certain income types highlighted below.

What does the change in tax mean for your tax bill?
Anyone with taxable income greater than $150,000 will pay additional taxes up to a maximum of $10,268 in 2014. For example, if your taxable income is equal to:

o   $200,000, you will pay an additional $780 in tax

o   $350,000, you will pay an additional $5,148 in tax

o   $514,090 and above, you will pay an additional $10,268 in tax

What else should I know about the increase in tax?
In 2014, tax changes will be applied retroactively from January 1, 2014. Individuals who have had tax withheld from employment income at pre-budget rates can expect to see lower net pay once employers adjust their withholdings for the new rates. In the event you pay tax by instalments, you may want to prepare a tax estimate to ensure there are no surprises come tax time in April. Consult your tax advisor if you have specific questions on how the new rates will impact your tax situation in 2014.

Does this affect long term financial planning?
While increases in personal income tax rates have immediate cash flow implications, over time the additional taxes could also affect the achievement of your longer term financial planning goals. For example, if you are an individual in the top tax bracket in Ontario, the additional tax cost of $10,268 would result in a reduction of net assets of over $275,000 by the year 2034, had the money otherwise been invested each year for twenty years at an after tax rate of return of 3%[1].

Whether this is money that would be available for your retirement or money used to fund your lifestyle needs, it is important to take this into account so that you can make the necessary changes to meet your goals. This may be achieved by a reduction in spending, maximizing your tax deductions, or adjusting your investment asset mix to make up for the short-fall caused by the increase in taxes.

What can I do?
Creating or updating a financial plan will a­­­llow you to better understand the progress made towards your financial goals, so that you may make adjustments to stay on track. Touch base with your financial advisor to see how the new budget affects your own situation.

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[1]FV of $10,267.61, invested each year for 20 years with an expected rate of return of 3% after tax is equal to $275,894.47

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Kerr Financial Group was formed in 1979 for the purpose of assisting individuals to maximize their personal financial resources, alleviate their financial and retirement concerns and simplify the administration of their affairs.

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