Personal Finances

You got the job… now what? Employer will get you to fill out two TD1 forms. One is a federal form and the other is a provincial form. They are filled so as to find out how much income tax you pay to the federal and provincial government.

Pay Stub Has to have the following information Your legal name Your employee number The Pay period Your pay scale (amount you are paid) Deposit Date Quick one line of Gross Salary, Deductions and Net Income Detailed description of your Salary, Detailed description of your deductions, Detailed description of “other deductions”

Income Wage – payment made by an employer in exchange for work or services provided Overtime – hour worked beyond the regular hours Other Income – this could be commission, piecemeal, and other payments from the company Gross Income – the total amount of money earned (also called gross earnings) Net Income – the amount that you get to keep after deductions.

Vacation Pay Some employers opt to pay vacation pay and this is a form of income that is found on your paycheque. Employers must provide an additional 4% of your wage for vacation pay each year (six per cent after five years). For full-time employees, that works out to two (or three) weeks of paid vacation per year of money that is set aside and paid out to the employee once they take vacation. For part-time employees that money is paid out on each paycheque

Deductions Automatic deductions are Canada Pension Plan (CPP), Employment Insurance premiums (EI) and Income tax (IT) It is required by Canadian law to have these deductions taken automatically from your paycheque.

Deductions These deductions are used for the following purposes: CPP – pay citizens an income after they are 65 years old EI – provide an income replacement should you lose your job IT – pay for government expenses (building & maintaining roads, schools, hospitals, etc)

Federal Income Tax Rates 15% on the first $44,701 of taxable income, + 22% on the next $44,700 of taxable income (on the portion of taxable income over $44,701 up to $89,401), + 26% on the next $49,185 of taxable income (on the portion of taxable income over $89,401 up to $138,586), + 29% of taxable income over $138,586.

British Columbia Income Tax Rates 5.06% on the first $37,869 of taxable income, + 7.7% on the next $37,871, % on the next $11,218, % on the next $18,634, % on the next $45,458, % on the amount over $151,050

Example of being taxed A person making $95,000 annually Federal TaxesProvincial Taxes 15% = $6,705 22% = $11,045 26% = $1, % = $1, % = $2, % = $1, % = $988 Total = $19,205Total = $6997 Total Taxes Paid $19,205 + $6997 Total Tax Paid - $26,202 Income – Tax = $68,798

CPP and EI Deductions CPP Rates: 4.95 % of income EI Rates: 1.88 % of income Income of $95,000 annually 4.95% =$4, % = $1,786 Total =$6,488

Other deductions Benefits – if you are part of a union, you pay into a benefits package. By paying into a benefits package you are able to buy prescription drugs, glasses, psychology appointments, health costs (massages, physio and etc…) at a reduced price. Private pension – you can pay into an additional pension plan if you so choose. RRSPs are huge (will explain later), unions have pension plans as well. Health Insurance – you can pay additional money into your benefits package to get a better discount on specific drugs, prescriptions, hospital beds, massages, physios and etc…

Other Deductions Union Dues – If you are part of a union you pay a fee to your union so that the union can pay their employees, cover all their costs for doing tasks for you, and so forth. Professional Fees – As a teacher I have to pay a fee to the Teacher Regulation Branch in order to keep my certificate as a legal teacher in BC. Other professions pay a similar fee to their regulatory branch.

Other deductions Tax-Free Savings Accounts (TFSAs) - allows every Canadian aged 18 or over to save up to $5,000 a year in a TFSA and not pay any tax on the income they earn in the account. Registered Retirement Savings Plans (RRSPs) - allows Canadians to save money for their retirement in an RRSP and defer paying income tax on that money until they retire – when their tax rate will probably be much lower. The amount that is paid into the RRSP is money that has not been taxed yet, as such it will only be taxed once it is taken out of the RRSP.

Other Deductions Registered Education Savings Plans (RESPs) - allows a family member to save money for their child’s post-secondary education. Any income that is earned on money saved in an RESP is not taxed until it is withdrawn, and then it is taxed as income of the student. Most full-time students have little income and pay tax at a very low rate, or zero. Government grants are also available to add to the money saved in an RESP. Registered Disability Savings Plans (RDSPs)- helps family members and others save for the financial security of a person with disabilities. Income earned on RDSP contributions is not taxed until it is withdrawn, and then it is taxed as income of the person with the disability. These plans can be supplemented with Canada Disability Savings Grants and Canadian Disability Savings Bonds.

Other Deductions Person making $95,000 annually Benefits =$1,725 Pension 12.7% = $11,400 Union Dues 2.0 % = $1,900 Professional Certificates – One time $80 Total $15,105 This does not include TFSA’s, RRSP’s, RESP’s, and etc..

What are you left with? After you take your gross salary and subtract from it your deductions, the amount that is left over you get to keep. $95, 0000 annually Total deductions = $26, 202 (IT) + $6,488 (CPP EI) + $15,105 (Union dues, Benefits, Pension and etc…) = $47,795 Net income = gross salary – deductions  $95,000 - $47, 795 = $47,205 This is the money you will want to use to figure out your budget… which we will talk about later.