True, but it doesn't change the fact that careful tax planning, and RRSP contributions are much more important to a low-income family than to an upper middle-class one, because the benefits (of getting 60%, 70% or 80% back) are significantly higher than for someone who gets less than 50% back.OhGreatGuru wrote:An interesting point of view. But I think there is a problem with the methodology. Once income reaches the level where benefits have all been clawed back, and the credits reduced to zero, the marginal tax rate then falls back down below 50%.
I didn't think I presented it as a typical scenario. The original post was meant to both highlight the 70%+ tax and benefit clawback rate that any low-income family may pay, as well as the highest possible effective MTR that exists in our country (which is maximized for a working senior with children). A senior with children is not typical, but it's plausible and relatively frequent.PS: It also seeemed to me unusual that the "typical" tax payer is +65 years of age (collecting OAS and eligible for the age amount) but aslo has multiple minor children.
I started the post with the Age Amount and the OAS clawback for a simple reason: they are the only clawbacks that are not complicated by family income or expense levels.
It is meaningful, and not only for the small tax bracket. If you look at the $72,000-$72,600 step, you can't assume it's only important to those making between between $72K and $72,600. If you have a taxable income of $78,000 and contribute $2450, you'll get to the beginning of your current tax bracket and get a 35.69% refund. However, if you can spare additional RRSP savings to bring your taxable income to $72,000, you'll get 37% back from the extra contribution (excluding other clawbacks, if any). These micro brackets mess up common logic and are worth extra calculations for those seeking to optimize tax planning.PPS: The "Step Funcion" of the Ontario Health Premium does induce a high marginal rate every time you cross a threshold, and that is one of the reasons why II dislike it too But is that really statistically meaningful?
Our tax planning always include considerations for these micro tax brackets, because going down to the previous health tax bracket (rather than just the previous income tax bracket) may give reasons for increasing RRSP contributions beyond the (sometimes suggested) beginning of the current tax bracket.