Thursday, 21 June 2007
Back in March I posted a comparison of various personal tax rates for Ontario Canada and the UK using 2006 rates. Here's an update based on the 2007 rates.
This chart shows the rates for 2008-09. Not much change , the UK is still lower for every level of employment income except for a narrow sliver at around $75,000 taxable income where the top UK rate of 40% is a tiny bit higher than the Canadian 39.41% rate. Woohoo!
This time I've coloured cells green where one country or the other has better / lower rates. I've made a correction on the dividend tax for the UK - there is actually no exemption, the 10% rate applies as soon as tax kicks in up to the start of the highest band where it becomes 32.5%. This correction changes the advantage such that Canada generally comes out ahead with respect to dividends for almost every income level. With virtually everything else, the UK is better and usually by quite a bit, a seen by the content of the green cells. With respect to capital gains, though the rate is lower in Canada in low to middle income brackets, the availability of an annual exemption of almost Cdn$20,000 probably means the effective tax rate for a large proportion of UK investors is zero. For example, if a £100,000 portfolio has net 10% of £10,000 gains in a year, the £9200 exemption would mean almost no tax to pay. Adding the availability of tax-exempt ISA accounts in which up to £7000 can be placed annually, it is likely that all but the rich won't pay any capital gains tax in the UK.
A lot of UK interest income would likely be effectively tax-exempt within ISAs too, though not dividends because the tax is deducted before payment is made to the investor and it is not recoverable / claimable. The comparative Canadian RRSP account temporarily shelters interest, dividends and capital gains from tax of course. However, when I came to the point in my career/life where I could start saving larger amounts for retirement, my RRSP was maxed out so I had to put most of the annual savings into a non-registered taxable account. I really have been paying tax on those investments. Were I a UK taxpayer, my savings could have been absorbed by an ISA.
The conclusion I reached in March still holds - the UK is the clearly superior country when it comes to personal taxes.
Source for UK tax information: UK DirectGov website.
Source for Canadian tax rate: TaxTips website.
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