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GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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50% - Moderately

Average Tax Rate


Synonyms:common rate, percentage, taxable amount
Filed Under: financial-banking, taxation
Tags: banking, rates, taxes
 

Definition of average tax rate

average tax rate
1. The average tax rate is the real rate of taxes paid after taking federal tax brackets into account. There are different tax rates for different income levels; you pay lower rates on the first part of your income, more on the later earnings. As you pass each income level, the money above that level is taxed at the next higher rate. Therefore, your average tax rate is less than the top rate you pay on a portion of income.

Related Terms and Acronyms:

  • direct tax   A tax that is paid straight to the government.
  • income tax   The main source of revenue for the federal government and many Provinces. The tax is based on your earned and unearned income. The amount or percentage taxed is based on the amount of income, using the governments graduated tax scale.
  • income-splitting   A financial strategy used for tax purposes to reduce the overall tax burden on a family. Income is shifted from one family member to another who is in a lower tax bracket, so the income is taxed at the lower rate to save the family money.
  • net income (NI)   The difference between effective gross income and expenses. The term is qualified as net income before depreciation and debt.
  • payroll taxes   A tax based on wages and salaries that is deducted from employees pay cheques.
  • tax-sheltered   A savings or investment plan that offers significant tax savings.
  • taxable income   Income that is subject to taxation after accounting for adjustments, exemptions, and deductions.

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