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Personal financial planning > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

T or F? Self employed individuals do not have to pay tax on the their earned income

A

False. Self employed individuals have to estimate the amount of taxes that need to be paid

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2
Q

T OR F? An employer gives his employee the whole paycheque and allows he/she deal with tax themselves

A

False. The employer uses the TD1 to determine how much tax to withhold from the employee paycheque.

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3
Q

T OR F? for any year you earn income, you must file a tax return

A

True

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4
Q

What are taxes paid on?

A

Earned income, consumer purchases, capital assets and property

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5
Q

Define the term capital asset?

A

Any asset that is acquired and held for the purpose of generating income

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6
Q

When are taxes paid on capital assets?

A

When they are sold, gifted, transferred or inherited

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7
Q

How do homeowners pay property taxes?

A

They pay based on the assessed value of the property

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8
Q

T OR F? Taxes paid on property is minor source of revenue for municipal government

A

False!

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9
Q

What is WITB?

A

A refundable tax credit intended to provide tax relief for eligible working low-income individuals

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10
Q

In what scenarios would you have to file a tax return?

A
  • you have to pay tax for that year
  • CRA sent u a request to file a return
  • disposed a property, got capital gain
  • have to repay any old age security or employment insurance
  • split pension income for the year w your partner
  • not repaid amount withdrew from registered retirement savings plan (RRSP), home buyers plan (HBP) or lifelong learning plan (LLP)
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11
Q

define the term employment insurance?

A

government benefits that are payable for period of time when you are away from work due to specific situation

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12
Q

As a student, you are eligible for a refundable GST/HST credit if?

A
  • 19 or older
  • have or have a spouse or common law partner
  • are or were a parent and live/lived with their child
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13
Q

what happens if a student has no tax payable?

A

tuituion, education and textbook tax credits are transferred to another taxpayer (relative) or carried to a year that he/she has tax pauable

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14
Q

when does the tax year end?

A

DEC 31st

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15
Q

Taxes and tax returns must be paid and filed by when?

A

April 30th of the following year

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16
Q

Self employed individuals have until when? to file income tax returns?

A

June 15th

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17
Q

Taxes owing must be paid by when?

A

April 30th

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18
Q

penalties (if tax is owing) for a missed tax deadline include?

A

5% of the amount owing, plus 1% for each additional full month that your return is late, to a maximum of 12 months

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19
Q

what are the two ways to file a tax return?

A

Electronically(NETFILE) and mail

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20
Q

To calculate your tax payable amounts, what documents need to be referred to?

A

Schedule 1: determine net federal income tax payable

Form 428: determine net federal income tax payable

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21
Q

What is GST

A

the goods and service tax - paid on consumer purchases

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22
Q

What is PST

A

provincial/harmonized sales tax - paid on consumer purchases

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23
Q

T OR F? GST is provincial, PST is federal

A

False, Gst is Federal and PST is provincial

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24
Q

What is Excise tax?

A

special taxes levied on certain consumer goods such as cigs, alcohol and gasoline

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25
Q

Steps to completing an income tax return

A
  1. calculate total income (from any source, wages, sales, awards etc.)
  2. subtract deductions
  3. calculate taxable income
  4. calculate net federal tax payable
  5. calculate net provincial tax payable
  6. Calculate total tax payable
  7. determine total tax already paid
  8. refund or balance owing
    (tax refund & tax owing)
26
Q

individuals are considered self employed if?

A
  • they have control over the work they do
  • they taken the financial risk and reward of being self employed
  • job duties are independent of any employer
  • provide and maintain their own equipment
27
Q

Are interest earned through investments and etc, taxable?

A

Yes they are, you pay tax on those as well

28
Q

When is tax due on interest income

A

Tax is due on interest in the year it is earned not received

29
Q

What is the T5 slip?

A

a document provided to you when you receive income other than salary income

30
Q

define the term capital gain?

A

Money earned when you sell an asset at a higher price than paid for

31
Q

define the term capital loss

A

occurs when you sell an asset for a lower price than bought

32
Q

A taxable capital gain is currently equal to how much of the capital gain?

A

50 percent!!!

33
Q

an allowable capital loss is currently equal to how much of the capital loss

A

50 percent

34
Q

what is a deduction?

A

an item that can be deducted from total income to determine taxable income

35
Q

examples of common deductions include

A

Registered pension plan, RRSP contributions, moving expenses, employment and childcare expenses etc.

36
Q

how to deduct a registered pension plan

A

deduct the total amount shown in BOX20 of t4slip, in box32 of T4A slips and on any union or RPP receipts

37
Q

when is childcare expenses deductable?

A
  • reason for expense being incurred

- if the child was under 16 or had mental or physical infirmity during the year of the tax return

38
Q

How to calculate taxable income?

A

Net income - some additional deductions

39
Q

Explain the term marginal tax rate?

A

is the percentage of tax you pay on your next dollar of taxable income

40
Q

What is average tax rate?

A

the amount of tax you pay as a percentage of your total income

41
Q

What are tax credits

A

Specific amounts used to reduce tax liability

42
Q

what are refundable tax credit

A

Portion of the credit not needed to reduce your tax liability may be paid to you (GST CREDIT, WITB, Ontario property tax credit)

43
Q

T OR F? Most tax credit are non refundable, so cannot be paid back to you or carried forward

A

TRUE

44
Q

what is the formula for Tax credits

A

the base amount for a non-refundable tax credit
X
the lowest marginal federal tax bracket (15% in 2017)

45
Q

Examples of transferrable tax credit

A

Tuition amount (with annual limit)
- pension income amount (to spouse only)
Former tuition, education and textbook amount (pre-2017)
charitable contribution amount

46
Q

For employees that do not own any income-generating investment assets and are employed by the same company all year, where can total tax already paid be determined

A

it can be determined by looking at box22 of their T4 slip

47
Q

Define the term tax refund

A

amount of total tax payable is less than the amount of total tax already paid

48
Q

define the term tax owing

A

amount of total tax payable is greater than the amount of total tax already paid

49
Q

Define the term tax planning

A

activities and transactions that reduce or eliminate tax

50
Q

what is tax avoidance?

A

Legally applying tax law to reduce or eliminate taxes payable in ways that the CRA considers potentially abusive of the spirit of the income tax act

51
Q

List some tax planning strategies?

A
  • Dividend and capital gain income
  • Registered accounts for tax-free income
  • Maximize RRSP contributions
  • Use tax credits
52
Q

What are the questions to ask when tax planning in advance

A
  • What deductions and/or credits are available
  • what type of income will maximize tax payable
  • what records should you keep
53
Q

T OR F? only 50% of capital gain is payable

A

True

54
Q

how much is the lifetime RESP contribution limit

A

50,000

55
Q

What is the education assistance payment

A

the taxable amount paid to be a beneficiary from a RESP

56
Q

define the term Accumulate income payment

A

the taxable amount paid to a subscriber from a RESP

57
Q

What is a registered disability savings plan?

A

a savings plan to help parents and others save for the long-term financial security of a person who is eligible for the disability tax credit

58
Q

What is a tax free savings account

A

a registered investment account that allows you to purchase investments, with after-tax dollars, without attracting any tax payable in your investment growth

59
Q

What is the formula to calculate total tax payable

A

Net federal tax + amount for provincial/Territorial tax

60
Q

What is the formula for net federal tax?

A

Tax payable - non-refundable tax credits (after multiplied by 15%)

Personal financial planning (9 decks)

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