FAQ: How Does the Tax & Benefit Anaylsis Section Work?

The Tax and Benefit Analysis chart aims to help you:

Visualize the combined impact of marginal tax rates and benefit clawbacks across different income levels.
Help clients understand how their income decisions — particularly around retirement planning and income sources — can push them into high-tax or high-clawback zones.
Create strategic income plans to minimize the marginal effective tax rate and optimize the client's overall tax and benefit situation.

Progressive Income Tax Rates
- The chart displays Canada’s marginal tax rates, which are progressive: as a client’s income increases, so does the rate at which they are taxed.
- For instance, in Ontario:
  - A person earning $250,000 will face a 53.53% marginal tax rate, meaning that over half of each additional dollar earned is taxed.
  - Conversely, someone earning $30,000 will only pay 20% on the next dollar of income.
Retirement Considerations
- The chart’s analysis extends into retirement, showing the impact of benefits like Old Age Security (OAS).
- For retirees, OAS is subject to a 15% clawback once their income surpasses a certain threshold. Since OAS is taxable, the effective reduction is around 10%, which raises the overall tax burden in retirement.
- This creates a scenario where retirees might face a marginal effective tax rate of 41-42%, even if their official tax rate seems lower. The chart helps visualize these potential “tax cliffs” and their effects on retirement planning.
Guaranteed Income Supplement (GIS)
- For low-income retirees, the chart also illustrates the availability of Guaranteed Income Supplement (GIS), which can be a very generous benefit. However, like OAS, the GIS has its own clawback system.
- The GIS clawback is also factored into the analysis, providing a clearer picture of how different income sources can affect total benefit eligibility in retirement.