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Personal Finance > Chapter 1-4 > Flashcards

Chapter 1-4 Flashcards

1
Q

Who must file the tax return?

A
  1. Canadian residents
    - icluding those earning abroad/ paying foreign govt
    -offset by foreign tax credits
    -tax residency status (as of dec 31st) determines the provincial tax return you are required to file.
  2. Non-canadians
    -present 1/2 yr or 183 days
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2
Q

Use of legitimate methods to reduce one’s taxes

A

Tax avoidance/planning

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3
Q

5 main components of total income

A

Investment
Net business
Capital gains
Other income
Employment

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4
Q

Investment income

A
  • property
    -interest
    -rental income
    -dividends
    —— eligible: 38% gross up
    ——- non e: 15%
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5
Q

Net business income

A
  • profit
  • sole proprietorship
    -partnership
    -corp
  • profession after expense
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6
Q

Taxable capital gain

A
  • accumulated wealth
    -sale of capital assets
    -real estate
    -stocks
  • bonds
    Capital loss- capital gain (50%)
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7
Q

Other income (total income)

A
  • retirement income
  • OAS Old age security
    -CPP
    -EI
    -Spousal and other child support payment
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8
Q

Employment income

A

Personal effort
Wages salaries commission bonus tips

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9
Q

Net income includes

A

Contribution to deferred income plans
Union and professional dies
Child care expenses
Disability
Moving
Other deductions

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10
Q

Contribution to deferred income plans include

A

RRSP
RPP
IPP

PS. TFSA AND REDP not tax deductible

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11
Q

Child care expense

A

Two parent families
- spouse with lower income

Single parent
- day nursing service
-daycamp
- babysitting
- boarding schools
-camps

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12
Q

Moving expenses

A

40km closer to the business(shortest normal route)
Start working @ a new location
Start a business

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13
Q

Other deduction net income

A

Capital loss
Spousal and child payments
Interest paid on loans
Employment expenses

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14
Q

Tax recordkeeping

A

3 yrs upon receving the notice pf assessment
3 yrs backup documentation
1yr filling
Total: 7 yrs

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15
Q

Housing document , docs rekated to the purchase snd sale of real estate recordkeeping

A

Indefinitely

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16
Q

Taxable income

A

Determining the amount of tax owed and comparing it with the amount of income tax payment withheld and made during the yr

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17
Q

Marginal tax rate

A

The rate applied to the next dollar(tax credit) of taxable income

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18
Q

Tax credit

A

Results in a dollar for dollar reduction in the amout of taxes owed.

Treated equally everyobe regardless of tax bracket

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19
Q

Average tax rate formula

A

Total tax due \ total income

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20
Q

Subtracted from the amount of taxes owed but can never reduce federal tax below zero

A

Non refundable tax credits

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21
Q

Used to compute tax payable

A

Tax rates
Tax credits

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22
Q

Federal tax owing/ tax payable

A

Calculation performed by CRA canada revenue agency
T1 income tax and benefit return

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23
Q

Refunded to indi if they qualify even if their tax liability is zero

A

Refundable tax credits

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24
Q

Tax credits include

A

Basic personal amount
Age amount 65 or older
Infirm dependant over 18
Spousal amount
Contri to CPP/EI
Caregiver amounts
Disability amount
Tuition and education expenses / interest on student loans
Medical expenses
Charitable expenses (0.15)
Dividend tax credit (0.03)

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25
Q

Stabdard tax credit( reduce your tax payable income directly accdg to how each may apply to your situation

A

Basic personal amount

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26
Q

Source withholding

A

Occurs as your employer and otherd are required to withhold tax at source and remit it to the CRA as well as the ministry of quebec
Apllied to all forms of taxable income

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27
Q

Step 5 mode of payment

A

Installment
- if the diff between payable taxes and source withheld is
>2000 in both current yr and either pf the preceding years.

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28
Q

Schedule of filing

A

Spouse, business income - June 15
Self employes - april 30

You are encouraged to file even though there is no tax to pay- affect the allowable rrsp contri

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29
Q

Withholding excessive amout for taxpayers …

A

Opportunity cost

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30
Q

Type of forms

A

T1- income tax and benefit return
- calculate by CRA
- federal tax owing

T4- annual earnings+ amounts deducted

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31
Q

Non tax deductible

A

TFSA
RESP

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32
Q

Tax deferred

A

RRSP
RPP
IPP
RESP

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33
Q

Income splitting

A

RESP
federal tax child tax benefit
Contri to spousal RRSP
Splitting CPP benefits with spouse

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34
Q

Benefits/ advantages of electronic filing

A

Benefits to the envt
Receive refund within few weeks
Reduce the risk of lost docs
Being able to keep all original documents
- records, receipts, cancelled cheques, evidence

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35
Q

(Avoid) common errors

A

Addtl tax+ interest + penalties

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36
Q

A detailed examination of your return for canada customs and revenue agency. Automatically recalculated you will receive a bill or a refund

A

Tax audit

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37
Q

Types of audit

A

Desk (simple)
Field (moe complex)

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38
Q

Field audit

A

Auditing agent visits you at your home, business or the office of the accountant

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39
Q

Why are we calculating manually tax

A
  1. Computers are not error-free
  2. The person might cause the error/ human errors
  3. How well the person understands the system/ undestanding and proficiency.”
40
Q

Factors need to consider when computing for compounded interest

A

n
I/y
Pmt
Cpdg

41
Q

2 different types of rates

A
  1. APR / Nom
  2. EAR/EFF
42
Q

APR annual percentage rate
Nom

A

Not compounded annually
- semi annual (2)
-monthly (12)
- bi weekly (56 weeks in a year \ 2= 26)
Posted rate, quoted

43
Q

EAR equivalent annual rate or effective

A

Annually compounded

44
Q

Fixed rate mortgages or loan

A

Quoted @ semi annual

45
Q

Variable rate mortgages or loan

A

Rate/12

46
Q

Types of financial services

A

Savings
Payment
Borrowing
Other financial services like insurance f planning, tax assistance

47
Q

A computer terminal that allows customer to conduct banking transactions

A

Automated terminal machine
- annual fee 10-20 bucks
Cover your pin whenever you are using it

48
Q

Occurs when someone tries to attain your pin while watching you enter it on a PIN pad.

A

Shoulder surfing

49
Q

Types of financial institutions

A

Deposit and non deposit

50
Q

Deposit type institutions

A

Trusted companies
Chartered banks
Credit unions

51
Q

Non deposit institutions

A

Life insurance companies
Investment companies
Mortgage and loan companies
Pawn shops
Cheque cashing outlets

52
Q

Offers a full range of financial services to indis, businesses and government agencies

A

Chartered banks

53
Q

Are user owner and non profit financial institutions offering a range of services . Provincial regulated

A

Credit unions

54
Q

Regular saving account/ passbook account benefit drawback alternative

A

Balance: low minimum; time deposit
Withdrawal: ease; -service charge
Insured: yes 100,000 per institutions

Drawback: low ROR

Alternative: high interest savings account

55
Q

High interest savings account

A

+ attractive rates - assumption of not going to withdraw the money and used for borrowing
+ usually not locked to any specific horizon

  • cannot used for daily activities
  • limit for eonline banking
  • doesnt have a passbook to get updated
  • transaction limit
56
Q

If interest is is at peak…

A

Short term savings
Long term loans, Gic

57
Q

If interest has dropped..

A

Long term savings
Short term loans , gic

58
Q

Term deposit / GIC. Guaranteed investment certs benefits drawbacks

A

+insured
+ guaranteed ROr

  • min deposit
    -penalty when witdraw before maturity

Term deposit 1-5 yrs

59
Q

Interest-earning chequing accounts

A

+ insured 100,00
+ chequing privileges
+ interest earned

  • service charge: below min balance
  • cost of printing
  • very low ROR
60
Q

Percentage increase in value due to interest
Increases with frequency of cmpdg

A

Rate of return

61
Q

Inflation

A

Rising prices cause lost buying power.

62
Q

Selecting a saving plan influences by the ff:

A

ROR
inflation
Liquidity
Restriction, fees
Taxes
Safety

63
Q

Basis when choosing a financial institution

A

Convenience
Services offered
Special program available
Rates and fees
Safety

64
Q

Concept of money management

A

Manage current economic resources while working for long term financial security.

65
Q

Opportunity cost and money mgt concept

A
  1. Spending money for expenses reduces savings and investment
  2. Saving and investing reduces amount of spending
  3. Buying on credit reduces available amount of spending.
  4. Buying on credit reduces available amount for spending
    Using savings for purchases results in lost interest earnings.
66
Q

Money management activities

A
  1. Storing personal financial records and documents
  2. Creating financial statements
  3. Implementing a plan for saving sharing (budgeting)
67
Q

Spending plan, basis for effective money management

A

Budget

68
Q

Personal financial records and documents

A

-foundation of systematic resource use
-business transactions / affairs
- property ownership
Legal matters

69
Q

Where personal financial records are kept?

A

Home files
Cloud
Safety deposit box
Mobile device
And other
Fireproof home safe

70
Q

Used to keep records for current needs and docs with limited value

A

Home files

71
Q

Storage for docs that are difficult to replace

A

Safety deposit box

72
Q

Items commonly stored in safety deposit box

A

Valuable stamps
Collectibles like rare coins
Birth , marriage cert
List of cc numbers, insurance

73
Q

Access to the contents of a safety deposit box

A

Keys
1. You
2. Financial institution

74
Q

How long should you keep pfinance records?

A

Birth certs - permanently
Property and investments- as long as you own these items
Tax related info- depends on the federal law , dictate the length of time
Audit - will go back only 3 yrs

75
Q

Purpose of budgeting

A

Spend less than income
Understand the sources and uses of cash
Prioritize and attain financial goals
Prepare an emergency fund
Develop a wise financial management habits

76
Q

Lifestyle is influenced by? 3 factors

A

Career
Family
Values

77
Q

Budgeting process 7 steps

A
  1. Set financial goals
  2. Estimate income
  3. Budgeting an emergency fund and savings
  4. B. Fixed expenses
  5. B. Variable expenses
  6. Recording spending amounts
  7. Review spending and saving patterns
78
Q

Financiak goals should be

A

Specific
Measurable
Time frame
Imply type of action to be taken

79
Q

Budgeting an emergency fund and savings

A

3-6 months of living expenses
3 months- stable income
6- seasonal

80
Q

Estimating income

A

If get paid weekly or twice a month
-plan spending based on the two payments you will receive each month. Plan on each pay

Diffucult if your earnings vary by season
- sales commission

Should not be considered until the money is actually received
- bonuses
-gifts
-unexpected income

81
Q

Telling you what you received and spent over the past month

A

Cash flow statement

82
Q

Reporting your current financial position

A

Balance sheet

83
Q

Fixed expenses

A

Definite obligations to pay
Savings included here

84
Q

Sourced that can help you plan your spending

A

Cash flow statement
Info on websites
Consumer expenditure data
Estimates of future income and expenses and anticipated changes in inflation rates

85
Q

Seasonal earner

A
  • like a sales commissioner
  • > 6 months emergecy fund
  • estimate income based on the past year
    And current year for expenditures
86
Q

Record and analyze spending and saving paaterns

A

Record and analyze 1-3 months

87
Q

Consumer Price index

A

Depends on where you live
Changes in the buying power of dollar
General price level of consumer

88
Q

Difference between amt budgeted and the actual amount received or spent

A

Budget Variance

89
Q

Busget surplus

A

> income
Budgeted amount < actual amount

90
Q

Budget deficit

A

<income> actual amount
</income>

91
Q

Most overspending areas

A

Entertainment and food

92
Q

Characteristics of successful budgeting

A

Well panned
Realistic
Flexible
Clearly communicated

93
Q

Suggestion for dual income households include

A

Pooled income
Sharing the bill
50:50
Proportionate contribution

94
Q

Reports what you owe and what you owe

A

Net worth or statement of financial position

95
Q

Used when calculating fringe benefits for the purpose of taxation

A

Gross-up

Personal Finance (1 decks)

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