Bank of Canada rate increase today | Page 5 | General financial discussion | Discussion forum

Bill, I don't get the feeling you appreciate the difference between average tax rate and marginal tax rate, which can be quite substantial. The 20% you quote is a marginal rate.
There's no magic in what I do. I just follow the rules and do a lot of income planning and tax planning. We probably have more tax credits than most people our age, and we use them all.

There is truth in what you say, Bill. As you know, however, there are lots of very wealthy people who brag about paying little or no tax, Warren Buffet among them. I saw him explain on youtube recently that he doesn't pay tax because his money is all invested in Berkshire Hathaway and there it remains. I doubt this is literally true. Surely he must take some out as income to live on, but the point for me is that he has controlled his declared income, and that is what I have endeavoured to do, no doubt to a far lesser extent, as those billions have so far escaped my reach!

It depends on what you mean by "not very high" income, of course, but it's quite possible for a senior couple to have declared household income significantly over 100K and still pay less than 20% average tax by using available strategies - don't forget income splitting, "sharing" and deferral; political donations, charitable donations, and small business expenses. And those non-refundable tax credits are no use unless you would otherwise have a tax bill to equal them, which the low income folks would not have.

It's all in how you arrange your income and tax credits. Your generosity can have a significant impact, and we are significant donors, well above the national average. It gives us a bigger bang for our buck than self-indulgence or watching governments squander it. This is a strategy that the very rich discovered long ago and exercise in spades. The tax that bugs me the most is property tax, because there is no room for manoeuvring. That said, if I were in government, I would definitely raise the tax rates on people like me, because I don't like the size of gov't debt. We can afford it, even if we don't like it. nobody does.

In the years to come I expect our average tax rate to increase because declared income will increase and will have to be arranged differently. It's complicated, but part of a larger strategy. I haven't worked it out but it may well go over 20%. However, that is not a concern as there will be lots of capital to see us through and, at that point, fewer years to be concerned with. Also, I would not be at all surprised if taxes go up, because they're going to have to. So, I'd rather have bigger income at that stage than now, in order to be able to pay them without too much damage.

As I've said elsewhere, my biggest concern is the value of the Cdn dollar. I haven't resolved that one yet as I also find the USD problematic.

christinad said
What worries me are things like property taxes, strata fees and car insurance yearly increases. These inevitably rise more than inflation.  

I agree, in general.
Next time you replace your car, if you do, inquire about the insurance rates of various models before you get into serious shopping. You may be surprised. I was. Some vehicles are more 'accident-prone' than others, which is to say that the kinds of people who buy certain kinds of cars are more likely to have accidents; and all owners pay for that.
My current car is much more insurance-efficient than its predecessor.