Happy New Year! Let’s welcome in 2022 with a new sense of optimism for the year that lies ahead. To kick the year off right, start by thinking about taxes!
Income tax is likely one of the single biggest expenses you have each year. Navigating our tax code can be daunting but doing so can be greatly rewarding for your personal finances. If you want to put your best tax foot forward in 2022, start by examining:
Your 2021 Income
If you have your last paystub from 2021, now is the time to look over it in detail. How much was your gross income for the year? What deductions came from your employment (pension, group RRSP, union dues, etc…)? How much income tax was withheld? Did anything surprise you?
These details can assist you in determining whether or not an RRSP purchase, before the deadline (March 1, 2022 for the 2021 tax year), is valuable to you. These details can also give you a sense of the net income you’ve been accustomed to live on in your working years, so you can budget for retirement more sensibly!
By understanding “where you’ve been” you can get a better picture of “where you’re going.”
A Forecast for 2022
Now that you know how last year looked, let’s forecast what 2022 will hold. Are there any reasons for a material change in your income for the next 12 months? Will you be starting CPP or OAS? Do you have a pension change or variable incomes? What about a pay raise or opportunity for more/less overtime hours?
Once you have a rough idea of your income, you can predict the tax bracket you’ll fall into:
2022 Combined MB and Federal Income Tax Brackets
| 2022 Taxable Income | Other Income Sources | Capital Gains | Eligible Canadian Dividends | Non-Eligible Canadian Dividends |
| First $34,431 | 25.80% | 12.90% | 3.84% | 18.38% |
| $34,432 up to $50,197 | 27.75% | 13.88% | 6.53% | 20.63% |
| $50,198 up to $74,416 | 33.25% | 16.63% | 14.12% | 26.95% |
| $74,417 up to $100,392 | 37.90% | 18.95% | 20.53% | 32.30% |
| $100,392 up to $155,625 | 43.40% | 21.70% | 28.12% | 38.62% |
| $155,626 up to $221,708 | 46.78% | 23.39% | 32.79% | 42.51% |
| Over $221,708 | 50.40% | 25.20% | 37.78% | 46.67% |
Marginal tax rate for dividends is a % of actual dividends received (not grossed-up taxable amount).
Marginal tax rate for capital gains is a % of total capital gains (not taxable capital gains).
Gross-up rate for eligible dividends is 38%, and for non-eligible dividends is 15%.
For more information see Manitoba dividend tax credits.
If you can reasonably forecast your income in advance, you can make some tweaks to your savings or withdrawal habits to minimize the tax pain. For those near the next highest tax bracket, you may consider attempting to defer income for future years. For those with lots of wiggle room in their tax bracket, 2022 might be a year to take on additional income at a known tax rate.
Looking Beyond This Year
If you’re at or near retirement, it’s even more important to look beyond a single tax year. Minimizing taxes today is great, but not if it leads to additional tax down the road. Factors like Old Age Security clawback or large estate tax bills can be mitigated by planning ahead. If you don’t have a proper income tax forecast for your retirement, talk to your Financial Advisor!
Tax planning is arguably the single best activity for moving your retirement plans in a positive direction. But you can’t plan for what lies ahead if you don’t take the time dive into the details. If you’ve spent years “burying your head in the sand” until the filing deadline rolls around, let’s break that habit!
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