Chapter 24 - Canadian Taxation (Done) Flashcards
What are the different types of income for Canadian taxation?
Employment income, business income, income from property (rent), and capital gains/losses.
How do Canadian tax brackets work?
Different rates for different income levels. Only the portion of income within each bracket is taxed at the corresponding rate.
How are dividends taxed in Canada?
Eligible dividends are grossed up by 138%, with a dividend tax credit of 15.02% applied to reduce tax payable.
What are tax deductibles and what can be deducted?
- Acceptable: Interest on funds for investment income, certain investment advice fees, management fees, and accounting fees.
- Not acceptable: Interest for investments generating only capital gains, brokerage fees, interest for RRSPs, RESPs, RDSPs, TFSAs, and financial planning fees.
What are capital gains and losses?
- Capital gains: Profit from the sale of securities, including commissions in the cost base.
- Capital losses: 50% of the loss can offset gains, carried back three years or forward indefinitely.
What is a superficial loss?
Occurs when a security is sold at a loss and repurchased within 30 days before or after the sale. Not tax-deductible.
How is accrued interest taxed?
Accrued interest paid by the buyer is deducted from net interest income. The seller includes it as income, and proceeds of disposition are used for capital gain/loss calculation.
What are tax deferral and tax-free plans?
RPPs (defined contribution and defined benefit plans), RRSPs (tax-deductible contributions, tax-free accumulation), TFSAs (tax-free income and withdrawals), RESPs (tax-deferred education savings with government grants).
What are the features of RRIFs?
Minimum annual withdrawals starting the year after acquisition, with percentages increasing with age.
What are deferred annuities?
Provide regular payments over time, with contributions not tax-deductible. Only the interest portion is taxed.
How do TFSAs work?
Tax-free savings with income not taxed and contributions accumulating yearly. Withdrawals are tax-free.
What are the features of RESPs?
Tax-deferred savings for education, lifetime contribution limit of $50,000 per beneficiary, with pooled and self-directed options and government grants.
What are pooled registered pension plans (PRPPs)?
Federal government retirement savings plans pooling assets from multiple employers, offering lower investment management costs.
What are some tax planning strategies?
Splitting income, transferring income-producing assets, paying expenses by higher income spouse, making loans, discharging debts, sharing CPP, and gifting investments.
