A tax bracket is a range of income that is taxed at a specific rate. Canada and many other countries use a progressive tax system, meaning higher levels of income are taxed at higher rates.
How It Works
Your income is divided into portions, with each portion taxed according to the bracket it falls into. For example, the first part of your income is taxed at the lowest rate, while higher portions are taxed at progressively higher rates. Only the income within each bracket is taxed at that bracket’s rate.
Why It Matters
- Fairness: Progressive taxation ensures those with higher incomes contribute more.
- Tax planning: Knowing your tax bracket helps plan contributions to RRSPs or other accounts to lower taxable income.
Final Thoughts
Understanding tax brackets helps individuals plan income, deductions, and contributions more effectively. It ensures smart decisions about saving, investing, and reducing overall tax liability.