If you have a full-time job, you work about 40 hours per week for 52 weeks a year to make a living, but are you really working for yourself?
To answer this question let’s look at this example: With a $50,000 salary you are making about $24.00 per hour which is nice, except this is BEFORE TAX! After tax, you are really only making $16.00/hour! Taxes can be a great thing as our government uses taxes to fund public services such as health care, education, and etc, but it also significantly reduces your spending power.
You can calculate the amount of taxes you owe with a simple 2 step process:
**Disclaimer: I am not a tax expert and the follow concepts have been simplified for better understanding.**
Step 1. Determine your TAXABLE INCOME:
Taxable income is the amount of your income is allowed to be taxed by the government. You start with your annual salary and then add or subtract certain items.
- Additional profit from your side-hustle or other sources of income
- Almost any benefits that you receive from your company: (ex. free trips, free car, free rent, etc).
- RRSP contribution, pension and a few other things. (TBH not many choices
For an example let’s say your annual salary is $50,000. You have additional benefits of $10,000 that you add, and you contribute $5,000 to your RRSP which is subtracted. That means your TAXABLE INCOME is $55,000. This means you get taxed on $5000 MORE than your annual salary. In summary, almost every benefit you get is added to your taxable income, with very few chances to reduce it.
Step 2. Determine your Tax Rate
The next step is to determine your tax rate which is based on the “tax bracket” that you are in. (the image below shows which tax bracket you are in for 2019). So if you’re Taxable Income is $55,000 your tax rate is about 30% so the amount of tax you need to pay is $16,500, and the income remaining is only $38,500.
WHY IS THIS BAD?
In other words, for every 12 months of work, you work about 3.5 months solely for the government. To make it worse, imagine if you were making $200,000+ annually, MORE than 50% of your salary would go straight into taxes! Which means you spend HALF the year working for someone else other than yourself!
In Canada, we are VERY fortunate to be one of the few countries where the citizens pay the highest amount of taxes. XD (I’m being sarcastic). On top of paying taxes you still need to pay for expenses like your car, groceries, rent, and everything else, which leaves you with hardly any money at the end of the day.
So let me ask you again, WHO ARE YOU ACTUALLY WORKING FOR?