What is the difference between the average tax rate and the marginal tax rate in NaviPlan Standard?
On the Assumptions category – Tax tab,there are separate fields for the Average Tax Rate and Marginal Tax Rate. • The average tax rate (also referred to as the effective tax rate) is the percentage calculated when the total taxes paid are divided by the taxable income. NaviPlan Standard applies the average tax rate to determine the amount of tax payable in its projections. • The marginal tax rate is the combined federal and provincial tax rate and is the rate that will be applied to the next dollar of earnings. There is a difference between the two rates because Canada has a graduated tax rate system. Graduated tax rates simply mean that there are increasing levels of tax rates that apply as taxable income increases.
