22
lacible | Mai 2017
FEATURE ARTICLE
Tax and social measures
Many tax measures, especially for families, are
calculated as a percentage of net income, which is
found on line 236 of the federal tax return and line
275 of the Québec tax return.
If this net income declines, the amount received for
many tax measures increases.
Let's look at a couple with two children and a family
income of $52,000, earned in a proportion of 60%-
40%, that decides to contribute $1,000 in an RRSP.
Reducing taxable income by contributing $1,000
to an RRSP adds $135 to their Canada Child Tax
Benefit, $40 to their Child Assistance Payment and
$50 to their GST credit. That puts a tax-free $225
in the family's pocket, upping their marginal rate
by 22.5%.
Before going any further with the analysis, is it
beneficial to have an RRSP with an adjusted MTR
of 59.62% (22.5% + marginal tax rate for a family
with an income of $52,000, that is, 37.12%)? For
most families on a tight budget, contributing to an
RRSP in this situation would be a good idea.
Another possible benefit: the amount received
for measures such as the tax credit for medical
expenses might be increased.
Effective marginal tax rate
In 1999, UQAM professor Claude Laferrière decided
to publish tables illustrating the effective marginal
tax rate (EMTR), which takes all available tax
measures into account. Every year, his tables are
updated on the Centre québécois de formation en
fiscalité (CQFF)
3
website.
This indispensable financial planning tool vividly
shows the effect of EMTR and clarifies the short-
term impact of an RRSP contribution. This is
important for people to understand when they are
trying to build wealth and a retirement nest egg.
There are probably thousands of different
situations. The idea is not to find someone's exact
EMTR but to make people aware of the benefits
of contributing to an RRSP and, above all, the real
impact.
TAX INEQUITIES AND
RRSPs
Still today, the connections between investments
and taxation are not fully understood by most
people. And yet these two areas are completely
entwined, especially when it comes to assessing
the real impact of an RRSP contribution.
A s yo u k n ow, t h e C a n a d i a n t a x syste m i s
progressive, calculated as a percentage of taxable
income. In 2017, the maximum marginal tax rate
(MTR) of 53.3% applies to taxable incomes over
$200,000, and it declines progressively to 0% for
an income of $11,474. Since 73.1% of Québecers
earn under $50,000,
1
you might think that most
of them have a marginal tax rate of 37.12% or less
(which is the rate for the brackets between $45,282
and $84,779).
2
The tax system and its impact on RRSPs
If we limit our analysis to this first level, we can
conclude that for a taxpayer with a taxable
income of $50,000, an RRSP investment is to their
disadvantage, since their marginal tax rate is 37.12%.
If we compare this taxpayer's situation with their
neighbour's, whose MTR is 53.3%, we have to admit
it's not fair. Some people even claim it is better for
low-income households to invest in a TFSA, since the
deduction is "not worth it."
A quick Google search shows that lots of media,
bloggers and seemingly legitimate "experts" explain
that if your MTR is low, it is not to your benefit to
contribute to an RRSP.
But let's take our analysis a little further.
André Lacasse
F.Pl., MBA
Director of business development
Centre financier SFL de la Montérégie
1 See online at .
2 See online at .
3 See online at .
