Taxman
(Picture is from stock.xchng.)

Recently, I did some research on whether having increased salary means good news or not. It depends. Why? In Canada, when we have higher salary, we have to pay higher tax.

Here is a very simple example: there are two couples with the gross income of $90K and $80K respectively. Both are living in British Columbia, Canada. The first couple has one single source of income (only the husband/wife works). The second couple has two sources of income (both husband and wife works). Let’s assume that each person earns $40K, so both of them earn $80K in total.

According to Canada Revenue Agency web site, the amount of tax each couple has to pay is: (the calculation below is simplified; in reality, there are many other factors that affect the total amount of tax)

First couple

  • Federal tax: $17,717.06
  • Provincial tax: $6,897.47
  • Total: $24,614.53

Second couple

  • Federal tax: 2 x $6,148.3 = $12,296.6
  • Provincial tax: 2 x $2,232.56 = $4,465.12
  • Total: $16,761.72

Now, let’s calculate how much each couple earn after tax:

  • Net income for first couple: $90,000 - $24,614.53 = $65,385.47
  • Net income for second couple: $80,000 - $16,761.72= $63,238.28

As you can see, a couple who earn $90K from a single source earn almost the same amount as a couple who earn $80K from two sources. There is about $2K difference, although their income is $10K difference.