Are US taxes really lower than Canadian's?

I have worked at both countries.

Based on my actual tax returns, I did a back-of-the-envelope calculation:

(Fed + State or Provincial taxes+CPP+EI or SS+Meidcare)/Totoal Income

..and got similar percentages for both. I filed single and put max allowed in RRSP/401k. I even owned my house when I was in the US.

Depends which state you live in. Some don't have income taxes, so the tax burden may be a little less there than in Canada.

I live in North Carolina, and with federal + state income taxes I pay about the same (within 1/2 % point) as I would if I were still in Ontario with the same income, plus there's city & state property taxes on our home AND CARS!, plus sales taxes and other various & sundry government fees. So I think in North CArolina I'm actually paying More taxes than I was back home in Ontario. And with much much fewer government services and benefits to show for it.

And there's the key really. Even if the taxes are higher in one place over another, do you actually get anything out of it? Like your property taxes, do you have more municipal services in one city over another? For income taxes, do you have access to government social services? Or do they just take the money and run?

Our taxes keep going up, but our services keep disappearing with continued budget cuts.

I have worked at both countries.

Based on my actual tax returns, I did a back-of-the-envelope calculation:

(Fed + State or Provincial taxes+CPP+EI or SS+Meidcare)/Totoal Income

..and got similar percentages for both. I filed single and put max allowed in RRSP/401k. I even owned my house when I was in the US.

Yes I always find this rather bemusing myself. At the end of the day things cost roughly the same amount of money, either the services you are getting are crap if the taxes are lower or they're more efficient.

People tend to focus on one thing, like income tax, which always drove me around the twist when I lived in the UK. "But the basic rate of tax is only 20%!" they would say. Mmm, and when you add on National Insurance, council tax, fuel duty, TV licence fee, VAT and so on, you are actually paying an enormous amount of tax, certainly a hell of a lot more than I pay here in Alberta. CGT rates are also generally a lot higher in the UK are certainly in the rest of Europe.

“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing” - Jean Baptiste Colbert

With the US it's easier to compare with Canada because the taxation systems work in a more similar way.

The key difference Canada has I think is that there are more tax avoidance methods in Canada (and frankly evasion altogether is easier as well). There's no equivalent for example to a CCPC in the US, instead they have S-corporations which are subject to the same rate of income tax as an individual, whereas a CCPC has it's own rate.

It does depend to a large extent where you live as well, if you compare Alberta or BC with say, NYC or California you may well be paying less tax in Canada. If you compare Florida or Texas with Ontario or Québec it's a very different result.

The one sticking point though is the healthcare, some Provinces have a surtax and others like Alberta just lump that cost in with income tax.

In the US, unless you live in Hawaii or Massachusetts it is really a big question mark how much you're going to pay for healthcare. Okay, Canadian healthcare can really be quite bad sometimes but you can usually get the basic stuff done in Canada okay, and you have the option of going to the US if you have to. Americans don't have that option, they have to pay, either out of their own pockets or their employer has to do it.

But some tax rates are much lower in the US, one of the better examples is the CGT rate which is 0% on a wide range of capital gains, whereas in Canada it's 50% of the income tax rate. The US however applies CGT to principal residences if the gain is over $250,000 I think, Canada doesn't have that.

Even when people look at "low tax" jurisdictions like The Bahamas or The Cayman Islands, in reality they're not as low tax as you may think. Both The Bahamas and the BVI have payroll taxes, just not income taxes (and they do have property taxes). And the import duties are absolutely eye-watering on those islands, compare the price of gas. Plus it's not so cheap if you have to get on a plane to have various medical procedures done that aren't offered there.

I was confused by substantial US tax advantages suggested by 'The Border Guide' (R Keats) as a key reason for relocating to the US, which motivated me to endure the pain of reviewing my tax returns yesterday.

Only a few things I can think of that make US taxes lower:
- Sales taxes, especially if you purchase big ticket items online or in some states where sales tax=0. One thing bugs me in ON is that they even tax on grocery!
- There seem more ways to bring yourself to a lower tax bracket which is more granular.

Therefore, I don't think taxes a reason for relocating to the US as difference is not substantial.

However, does it support the idea that one should keep tax home in Canada until s/he becomes a US PR?

-- Fri Jun 12, 2009 11:49 am --

PS - a friend suggested that there's meaningful difference in income taxes if filing jointly and with children

However, does it support the idea that one should keep tax home in Canada until s/he becomes a US PR?

Depends on the circumstances but if the plan is to stay in the US then I would say move your tax home to the US. Even if the amount of tax is the same it would still make more sense to do it.

Income tax rates are generally lower in the US on paper, like I said it depends where in Canada you're moving from and where in the US you're moving to. You actually have to sit there and work out the tax credit based on the rates paid in the US and Canada to see how much better off you are but it's rare on the income taxes at least that you'd be better off in Canada. The child tax credit only applies to US citizen or LPR children, so things like that have to be taken into account. Plus you can't file jointly on 1040NR unless one person earns below the exemption limit (which is around $3,500 at the moment I think).

If nothing else it saves filing two (or three if you can't file jointly) tax returns every year moving your tax home to the US if you live in the US.

There are reasons not do it but generally they revolve around someone who is only going to be there for a relatively short period, say less than three years.