Chapter 1-4 Flashcards
Who must file the tax return?
- 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. - Non-canadians
-present 1/2 yr or 183 days
Use of legitimate methods to reduce one’s taxes
Tax avoidance/planning
5 main components of total income
Investment
Net business
Capital gains
Other income
Employment
Investment income
- property
-interest
-rental income
-dividends
—— eligible: 38% gross up
——- non e: 15%
Net business income
- profit
- sole proprietorship
-partnership
-corp - profession after expense
Taxable capital gain
- accumulated wealth
-sale of capital assets
-real estate
-stocks - bonds
Capital loss- capital gain (50%)
Other income (total income)
- retirement income
- OAS Old age security
-CPP
-EI
-Spousal and other child support payment
Employment income
Personal effort
Wages salaries commission bonus tips
Net income includes
Contribution to deferred income plans
Union and professional dies
Child care expenses
Disability
Moving
Other deductions
Contribution to deferred income plans include
RRSP
RPP
IPP
PS. TFSA AND REDP not tax deductible
Child care expense
Two parent families
- spouse with lower income
Single parent
- day nursing service
-daycamp
- babysitting
- boarding schools
-camps
Moving expenses
40km closer to the business(shortest normal route)
Start working @ a new location
Start a business
Other deduction net income
Capital loss
Spousal and child payments
Interest paid on loans
Employment expenses
Tax recordkeeping
3 yrs upon receving the notice pf assessment
3 yrs backup documentation
1yr filling
Total: 7 yrs
Housing document , docs rekated to the purchase snd sale of real estate recordkeeping
Indefinitely
Taxable income
Determining the amount of tax owed and comparing it with the amount of income tax payment withheld and made during the yr
Marginal tax rate
The rate applied to the next dollar(tax credit) of taxable income
Tax credit
Results in a dollar for dollar reduction in the amout of taxes owed.
Treated equally everyobe regardless of tax bracket
Average tax rate formula
Total tax due \ total income
Subtracted from the amount of taxes owed but can never reduce federal tax below zero
Non refundable tax credits
Used to compute tax payable
Tax rates
Tax credits
Federal tax owing/ tax payable
Calculation performed by CRA canada revenue agency
T1 income tax and benefit return
Refunded to indi if they qualify even if their tax liability is zero
Refundable tax credits
Tax credits include
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)
Stabdard tax credit( reduce your tax payable income directly accdg to how each may apply to your situation
Basic personal amount
Source withholding
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
Step 5 mode of payment
Installment
- if the diff between payable taxes and source withheld is
>2000 in both current yr and either pf the preceding years.
Schedule of filing
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
Withholding excessive amout for taxpayers …
Opportunity cost
Type of forms
T1- income tax and benefit return
- calculate by CRA
- federal tax owing
T4- annual earnings+ amounts deducted
Non tax deductible
TFSA
RESP
Tax deferred
RRSP
RPP
IPP
RESP
Income splitting
RESP
federal tax child tax benefit
Contri to spousal RRSP
Splitting CPP benefits with spouse
Benefits/ advantages of electronic filing
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
(Avoid) common errors
Addtl tax+ interest + penalties
A detailed examination of your return for canada customs and revenue agency. Automatically recalculated you will receive a bill or a refund
Tax audit
Types of audit
Desk (simple)
Field (moe complex)
Field audit
Auditing agent visits you at your home, business or the office of the accountant
Why are we calculating manually tax
- Computers are not error-free
- The person might cause the error/ human errors
- How well the person understands the system/ undestanding and proficiency.”
Factors need to consider when computing for compounded interest
n
I/y
Pmt
Cpdg
2 different types of rates
- APR / Nom
- EAR/EFF
APR annual percentage rate
Nom
Not compounded annually
- semi annual (2)
-monthly (12)
- bi weekly (56 weeks in a year \ 2= 26)
Posted rate, quoted
EAR equivalent annual rate or effective
Annually compounded
Fixed rate mortgages or loan
Quoted @ semi annual
Variable rate mortgages or loan
Rate/12
Types of financial services
Savings
Payment
Borrowing
Other financial services like insurance f planning, tax assistance
A computer terminal that allows customer to conduct banking transactions
Automated terminal machine
- annual fee 10-20 bucks
Cover your pin whenever you are using it
Occurs when someone tries to attain your pin while watching you enter it on a PIN pad.
Shoulder surfing
Types of financial institutions
Deposit and non deposit
Deposit type institutions
Trusted companies
Chartered banks
Credit unions
Non deposit institutions
Life insurance companies
Investment companies
Mortgage and loan companies
Pawn shops
Cheque cashing outlets
Offers a full range of financial services to indis, businesses and government agencies
Chartered banks
Are user owner and non profit financial institutions offering a range of services . Provincial regulated
Credit unions
Regular saving account/ passbook account benefit drawback alternative
Balance: low minimum; time deposit
Withdrawal: ease; -service charge
Insured: yes 100,000 per institutions
Drawback: low ROR
Alternative: high interest savings account
High interest savings account
+ 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
If interest is is at peak…
Short term savings
Long term loans, Gic
If interest has dropped..
Long term savings
Short term loans , gic
Term deposit / GIC. Guaranteed investment certs benefits drawbacks
+insured
+ guaranteed ROr
- min deposit
-penalty when witdraw before maturity
Term deposit 1-5 yrs
Interest-earning chequing accounts
+ insured 100,00
+ chequing privileges
+ interest earned
- service charge: below min balance
- cost of printing
- very low ROR
Percentage increase in value due to interest
Increases with frequency of cmpdg
Rate of return
Inflation
Rising prices cause lost buying power.
Selecting a saving plan influences by the ff:
ROR
inflation
Liquidity
Restriction, fees
Taxes
Safety
Basis when choosing a financial institution
Convenience
Services offered
Special program available
Rates and fees
Safety
Concept of money management
Manage current economic resources while working for long term financial security.
Opportunity cost and money mgt concept
- Spending money for expenses reduces savings and investment
- Saving and investing reduces amount of spending
- Buying on credit reduces available amount of spending.
- Buying on credit reduces available amount for spending
Using savings for purchases results in lost interest earnings.
Money management activities
- Storing personal financial records and documents
- Creating financial statements
- Implementing a plan for saving sharing (budgeting)
Spending plan, basis for effective money management
Budget
Personal financial records and documents
-foundation of systematic resource use
-business transactions / affairs
- property ownership
Legal matters
Where personal financial records are kept?
Home files
Cloud
Safety deposit box
Mobile device
And other
Fireproof home safe
Used to keep records for current needs and docs with limited value
Home files
Storage for docs that are difficult to replace
Safety deposit box
Items commonly stored in safety deposit box
Valuable stamps
Collectibles like rare coins
Birth , marriage cert
List of cc numbers, insurance
Access to the contents of a safety deposit box
Keys
1. You
2. Financial institution
How long should you keep pfinance records?
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
Purpose of budgeting
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
Lifestyle is influenced by? 3 factors
Career
Family
Values
Budgeting process 7 steps
- Set financial goals
- Estimate income
- Budgeting an emergency fund and savings
- B. Fixed expenses
- B. Variable expenses
- Recording spending amounts
- Review spending and saving patterns
Financiak goals should be
Specific
Measurable
Time frame
Imply type of action to be taken
Budgeting an emergency fund and savings
3-6 months of living expenses
3 months- stable income
6- seasonal
Estimating income
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
Telling you what you received and spent over the past month
Cash flow statement
Reporting your current financial position
Balance sheet
Fixed expenses
Definite obligations to pay
Savings included here
Sourced that can help you plan your spending
Cash flow statement
Info on websites
Consumer expenditure data
Estimates of future income and expenses and anticipated changes in inflation rates
Seasonal earner
- like a sales commissioner
- > 6 months emergecy fund
- estimate income based on the past year
And current year for expenditures
Record and analyze spending and saving paaterns
Record and analyze 1-3 months
Consumer Price index
Depends on where you live
Changes in the buying power of dollar
General price level of consumer
Difference between amt budgeted and the actual amount received or spent
Budget Variance
Busget surplus
> income
Budgeted amount < actual amount
Budget deficit
<income> actual amount
</income>
Most overspending areas
Entertainment and food
Characteristics of successful budgeting
Well panned
Realistic
Flexible
Clearly communicated
Suggestion for dual income households include
Pooled income
Sharing the bill
50:50
Proportionate contribution
Reports what you owe and what you owe
Net worth or statement of financial position
Used when calculating fringe benefits for the purpose of taxation
Gross-up
