How WealthPath Handles Taxes
WealthPath models Canadian federal and provincial income taxes to give you a more realistic picture of your retirement trajectory. This guide explains what the tax engine does, where to configure it, and what simplifications it makes.
Quick Start
- Go to Profile and select your Province of residence.
- That's it — WealthPath automatically applies tax modeling to your projection and cash flow pages.
If you want to fine-tune how taxes work, the Tax Settings section on the Profile page gives you two additional controls (explained below).
What Gets Taxed
WealthPath treats each account type differently, matching Canadian tax rules:
| Account Type | Contributions | Growth | Withdrawals |
|---|---|---|---|
| RRSP | Tax-deductible (reduces your taxable income) | Tax-free while inside the account | Fully taxed as income |
| TFSA | Not deductible | Tax-free | Tax-free |
| Taxable (non-registered) | Not deductible | Taxed annually (tax drag) | Not taxed again (already taxed) |
| Property | Not deductible | Not taxed annually | Capital gains on sale (not modeled in v1) |
Tax Drag on Non-Registered Accounts
If you hold investments in a non-registered (taxable) account, the returns you earn each year are partially taxed. WealthPath breaks your returns into three components:
- Interest (default 20%) — fully taxed at your marginal rate.
- Eligible Canadian dividends (default 20%) — grossed up by 38%, taxed at your marginal rate, then reduced by the federal and provincial dividend tax credit.
- Capital gains (default 60%) — only 50% of the gain is included in your taxable income (the "inclusion rate").
This annual tax is subtracted from your non-registered account balance each year before the next year's returns are calculated. Over a 30-year accumulation period, this compounding tax drag can reduce your non-registered balance by 25-40% compared to a tax-sheltered account with the same return.
You can customize the return composition for each taxable asset on the Assets page. For example, a bond fund might be 90% interest / 10% capital gains, while an equity ETF might be 10% interest / 20% dividends / 70% capital gains.
RRSP Tax Refund
When you contribute to an RRSP, you receive a tax refund equal to your contribution multiplied by your marginal tax rate. For example, a $10,000 RRSP contribution at a 35% marginal rate generates a $3,500 refund.
By default, WealthPath tracks this refund but does not reinvest it. On the Profile > Tax Settings page, you can choose to reinvest the refund into:
- RRSP — the refund goes back into your RRSP (maximizing tax-deferred growth)
- TFSA — the refund goes into your TFSA (tax-free growth, no tax on withdrawal)
- Non-registered account — the refund goes into a taxable account
- Don't reinvest (default) — the refund is ignored for a conservative estimate
RRSP Withdrawal Taxes
When you withdraw from an RRSP (or RRIF) in retirement, the full withdrawal amount is added to your taxable income for that year. WealthPath computes the incremental tax on each year's RRSP withdrawals — that is, the additional tax you owe because the withdrawal pushed your income higher. This is shown in the Tax Cost column on the Projection page.
OAS Clawback (Recovery Tax)
If you receive Old Age Security and your net income (including CPP, OAS, pensions, and RRSP/RRIF withdrawals) exceeds the annual threshold (~$90,997 in 2025, indexed), 15% of the excess is recovered, up to your full OAS. WealthPath adds this recovery tax to your retirement Tax Cost and surfaces it as a distinct line item on the Projection → After-Tax Income tab. See the CPP & OAS guide for details.
Cash Flow Page
The Cash Flow page deducts estimated income tax from your employment income to show a realistic surplus (or shortfall). The tax is calculated using the same bracket engine as the projection — your employment income is run through the federal and provincial brackets for your province, and the resulting tax is shown as a separate Estimated Tax card and line item.
If you have RRSP contributions linked to an asset, those contributions reduce your taxable income before the tax is calculated (since RRSP contributions are tax-deductible).
Tax Settings
Found on Profile > Tax Settings:
Flat Effective Tax Rate
If you know your average tax rate and prefer a simpler model, check Use flat effective tax rate and enter a percentage (e.g., 30%). This replaces the bracket-based calculation everywhere — projections, cash flow, and refund calculations all use this single rate.
This is useful if:
- You have complex income sources that the bracket engine doesn't model (e.g., foreign income, business income).
- You want to match the rate shown on your Notice of Assessment.
- You prefer a quick, conservative estimate.
RRSP Refund Reinvestment
Controls what happens with the tax refund generated by RRSP contributions. See the "RRSP Tax Refund" section above.
How the Tax Bracket Engine Works
WealthPath includes the 2025 and 2026 federal tax brackets and provincial brackets for all 13 provinces and territories. For each projection year:
- Your employment income is run through the federal brackets (5 brackets, 15% to 33%) and your province's brackets.
- The basic personal amount (federal and provincial) is applied as a non-refundable credit — you pay no tax on income below this threshold.
- For future years, brackets are indexed to inflation using your configured inflation rate (default 2.5%), matching the CRA's annual bracket indexation.
- The resulting combined marginal rate (federal + provincial) is used for all tax calculations that year: tax drag, RRSP refunds, and withdrawal taxes.
Contribution Limits
WealthPath tracks annual contribution limits:
- RRSP: 18% of your prior year's earned income, up to an indexed dollar cap ($31,560 in 2024, increasing with inflation). Contributions above this limit are flagged.
- TFSA: An indexed annual limit ($7,000 in 2024, increasing with inflation). Contributions above this limit are flagged.
- Non-registered: No limit.
Note: WealthPath does not currently track carry-forward of unused contribution room from prior years. If you have accumulated room, the limit warnings may overstate your excess.
What the Model Does NOT Cover
WealthPath's tax model is designed for retirement planning, not tax filing. It makes several simplifications:
- No carry-forward of unused RRSP or TFSA room.
- No tax-loss harvesting in non-registered accounts.
- No Alternative Minimum Tax (AMT).
- No CPP/EI premiums on employment income.
- No Home Buyers' Plan or Lifelong Learning Plan RRSP withdrawals.
- No provincial surtaxes (e.g., Ontario's surtax on high incomes).
- Dividend tax credit is simplified — uses a combined federal + provincial rate rather than running the grossed-up amount through each bracket. This is accurate to within ~1% for typical incomes.
- Property disposition (selling your home or investment property) and the associated capital gains tax are not modeled.
- Non-employment income (rental, business) is not run through the bracket engine for cash flow tax estimates.
These simplifications are appropriate for a planning tool. For precise tax calculations, consult a tax professional or use dedicated tax software.
Where Tax Shows Up in the App
| Page | What you see |
|---|---|
| Cash Flow | "Estimated Tax" card and line item. Surplus is after tax. |
| Projection | "Tax Cost" column in the year-by-year table (accumulation: tax drag; retirement: withdrawal tax + OAS clawback). |
| Profile | Tax Settings card with flat rate override and refund reinvestment. |
| Assets | Return composition (interest/dividends/capital gains split) for taxable accounts. |
| Dashboard | Summary metrics reflect tax-adjusted projections. |