Next week is Tax Freedom Day! This is the first day of the year in which Canada has earned enough income to pay its taxes. Every payment to the government of all levels that is officially considered a tax is counted. The purpose of having a tax free day is to provide tax paying citizens with a metric with which to estimate their “total tax bill.” 🙂
Tax freedom day is unique to every country. For example, it’s June 7th in Canada because 43% of all income earned by Canadians goes to tax collectively. But in the United States, it falls on April 24th because of a lower 31% tax burden.
How to calculate your personal tax freedom day
To determine our own tax freedom day we need to calculate our tax burden percentage. This can be done by adding up all the tax we pay to cities, provinces, and the federal government. Some forms of tax like tariffs are out of our control. But here’s a list of typical taxes I pay every year, and how much I pay into them relative to my gross income.
- Income tax – 14% (Federal + provincial)
- Payroll tax – 4% (employment insurance, state pension premiums)
- Sales tax – 2% (GST/PST, consumption tax)
- Property tax – 3% (apartment and farmland)
- Other surcharges, excise tax, environmental levies, and duties – 5% (tax on alcohol, electronics, gasoline, etc)
So as it turns out my tax burden percentage is about 29%. This is just a rough estimate. But it means in a 365 day year, my tax freedom day would be around mid April. 🙂 It used to be in May, but I’ve managed to lower my tax burden over the years. Despite earning a high income, I’ve learned to pay relatively low taxes. My goal is to eventually drop my tax burden to 25% of my total income. 😀
Here are some strategies I’m using to keep more money in my own pocket.
- Max out my retirement contribution (RRSP) every year. In 2017, I effectively lowered my taxable income by $12,000 this way, saving me over $3K of income tax.
- Earn business income. Instead of accepting income as an individual, I use a small business when conducting freelance work. This way I can spend money on business related expenses first, and then pay taxes on whatever profit is remaining.
- Learn to cook. Prepared meals either from the supermarket or restaurant are marked up with a sales tax. Basic groceries, meat, and produce are exempt from tax.
- Efficient commute. My city has the most expensive gasoline in North America. It broke records a month ago at CAD $1.62/Litre, (USD $4.72 per gallon.) A big reason for this is taxation. There’s carbon tax, motor fuel tax, and public transportation tax all built into the price of gas at the pump. I recommend either live closer to work, or take public transit. My car only gets driven about 5,000 Km per year.
Taxation is a major living expense for everyone. But luckily there are aspects of it that we can control and reduce. 🙂
Random Useless Fact: