2 – Payroll and Deductions, Income Tax, CPP, EI

Question 1

What are the 3 deductions off your paycheck?

Answer 1

• Income tax: largest
• CPP
• EI
• (other deductions)

Question 2

What is progressive or graduated tax system?

Answer 2

• More you earn, the greater percentage of tax you pay
• *tax brackets

Question 3

Incorporation as a veterinarian (practice and individuals)

Answer 3

• Can NOT sue you personally
  o BUT NOT SHIELDED FROM NEGLIGENCE (if you get a wrong dose and many die=your problem)
  o *how it should be
• Pay yourself in dividends

Question 4

What is tax freedom day?

Answer 4

• Day in the year when the average Canadian family has earned enough money to pay the taxes imposed on it
• *JUNE 13

Question 5

Taxes are one form of redistribution of wealth

Answer 5

• More affluent pay more taxes=distributed to lower income classes
• *Federal government takes in 3x more money in personal taxes than it does in corporate taxes

Question 6

“corporations” should pay more taxes”, what is the problem with that?

Answer 6

• They would go to the countries that would give them money or ‘the best’ option
• *always a competition:
  o If too high=go elsewhere

Question 7

WWI and taxes

Answer 7

• ‘temporary measure’ in 1917: Income Tax War Act (corporate and personal taxes)
• Then Federal Sales Tax in 1920: to cover the debt accumulated during WWI

Question 8

Top 20% of income earns pay what % of federal/provincial income taxes

Answer 8

• 63.2%

Question 9

What is the equation for taxable income?

Answer 9

• Taxable income = gross income all sources – tax deductions
• *federal tax applied evenly to all Canadians, provincial sets its own tax brackets

Question 10

What is the marginal tax rate?

Answer 10

• Marginal tax rate = federal tax rate + provincial tax rate
• *you are not taxed on the same %, it is ‘gradual’

Question 11

Income that we’re required to pay a duty on

Answer 11

• EI
• Self employment income minus expenses
• Dividends
• Interest
• Income from selling property
• Pension income
• Withdrawals from RRSPs
• Foreign income
• Corporate income minus expenses

Question 12

Income exempt from taxes include

Answer 12

• Most lottery winnings
• Most inheritances and gifts
• Child benefits payments
• GST/HST credit
• Payouts from a life insurance policy
• School scholarships
• Withdrawals from TFSA
• Strike pay from a union

Question 13

Employee vs. self-employed

Answer 13

• Employee: employer deducts CPP and they need to match it
• Self-employed: you pay BOTH sides of it

Question 14

You are considered an employer when

Answer 14

• Pay salaries, wages, bonuses, vacation pay, tips
• Provide certain taxable benefits to your employees

Question 15

Contract of service OR contract for service

Answer 15

• Contract of service: employer-employee relationship
• Contract for service: individual is self-employed (but not if there is an employer-employee relationship

Question 16

What is risk proportional to?

Answer 16

• Reward

Question 17

What countries make their citizens pay taxes even if they are living in a different country? (2)

Answer 17

• US
• Eritrea

Question 18

What are the steps for payroll?

Answer 18

1. Find out if you need to make payroll deductions
2. Set up new employee
3. Open a payroll program account
4. Calculate deductions and contributions
5. Pay (remit) source deductions

Question 19

How to figure out the working relationship, things to consider

Answer 19

• Degree of control or independence
  o Can be difficult to determine
• The right of the payer to exercise control is relevant (not if they actually do it or not)
• Subordination
• Tools
• Financial risk
• Opportunity for profit (increase in income is NOT an increase in profit)

Question 20

Indications worker is self-employed

Answer 20

• Free to work when and for whom they want
• Relationship between payer and worker does NOT present a degree of continuity
• Tools: locums have own equipment (Ex. ultrasound machine) (exception: mechanic)
• Can sub-contract (applies more to a tradesperson, not really a locum)
• Financial risk: fixed ongoing costs (ex. CE, memberships, etc.)
• Do have an opportunity for profit

Question 21

Setting up a new employee

Answer 21

• Fill out Form FD1, Personal Tax Credits Return
  o For employer to know how much tax to deduct from your cheque to give to the government

Question 22

Tax brackets

Answer 22

• Federal: same for all provinces
• Provincial: different
  o AB: do not need to pay in highest tax bracket until you are over $350k at 15.0% (BC: 20.5% over $252k)
• **If over the ‘threshold’, you are only pay the higher % for the amount that is over the threshold amount
  o PROGRESSIVE (GRADUATED) SYSTEM

Question 23

EXAM QUESTIONWhat is the marginal tax rate?

Answer 23

• Additional tax rate at which every additional dollar of INCOME is taxed in a progressive system
  o Average tax rate shows the % of total tax you pay on your total taxable income

Question 24

Tax credit vs. tax deduction

Answer 24

• *credit directly reduces the amount of tax you owe
• deduction essentially reduces you total taxable income

Question 25

What are common tax credits?

Answer 25

• Basic personal amount (TD1)
• Disability tax credit
• Home buyer’s amount
• GST
• Child care credits

Question 26

What are the common deductions you can do for tax?

Answer 26

• RRSP
• Union/professional dues
• Child care expenses
• Disability support expenses
• Investment losses
• Moving expenses
• Interest paid on your student loans