Question: I live in the US and have been working here for over 10years, but not managed to save too much. However, my cousin who is in Canada and has been working for only about 6yrs has saved more than i have. Is there any possibility of my saving more if i was living in Canada or am i simply going about savings wrong? Or, is the tax in Canada different from USA? What is the difference between Taxes in these two countries and the savings ratio that is possible in USA vis a vie Canada? If anyone can help me understand these two countries and the scenario in both places, i would be very grateful. Thank you
Answer: Both Canada and USA are developed countries where the economy is doing very well today. However, they do have the basic differences in terms of Geography, population and the government policies are also unique to each country. Let me now talk to you about the various other aspects involved in the financial scenario in comparison with USA and Canada…
Taxes in Canada Vs US
Canadian Federal tax is lower than USA: In Canada, the Income tax rate is at 28% – 29% whereas in USA it is much higher at 35% and is bound to go upto 39% in some cases. This does not include the Health care surcharge that will come into effect soon, which means the tax percentage goes up some more.
Talking about Income tax on investments, Canada wins hands down when compared with USA. This is because the tax on capital gains is considered only for half the value, and if you belong to the middle or higher income group, you pay only about 23%. In USA, if you live in a state that has low or no income tax, then you can match the scenario as in Canada.
This is a total contrast to the earlier category. Here, it is the USA that wins, but Canada is fast catching up. This also varies with the President in rule, and the policies they lay down. There are some provinces in Canada that add on sales tax in the range of 7% – 8% (Alberta is the noly place that is exempt from this).
This tax is lower in Canada when compared to USA, by a high margin. The employees in Canadian companies have lower deductions. In USA, employees belonging to a certain category will be shelling out heavier than others. This depends on the salary slab they are in.
In fact when you move to Canada from USA, you might find it difficult to meet the expenses and manage your lifestyle, while in USA it is all easier, at least relatively. Even if you don’t save high amounts, you will be able to enjoy the money you have put aside, tax free and with the interest rates prevailing..