Chapter 4 Flashcards
T or F? Self employed individuals do not have to pay tax on the their earned income
False. Self employed individuals have to estimate the amount of taxes that need to be paid
T OR F? An employer gives his employee the whole paycheque and allows he/she deal with tax themselves
False. The employer uses the TD1 to determine how much tax to withhold from the employee paycheque.
T OR F? for any year you earn income, you must file a tax return
True
What are taxes paid on?
Earned income, consumer purchases, capital assets and property
Define the term capital asset?
Any asset that is acquired and held for the purpose of generating income
When are taxes paid on capital assets?
When they are sold, gifted, transferred or inherited
How do homeowners pay property taxes?
They pay based on the assessed value of the property
T OR F? Taxes paid on property is minor source of revenue for municipal government
False!
What is WITB?
A refundable tax credit intended to provide tax relief for eligible working low-income individuals
In what scenarios would you have to file a tax return?
- 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)
define the term employment insurance?
government benefits that are payable for period of time when you are away from work due to specific situation
As a student, you are eligible for a refundable GST/HST credit if?
- 19 or older
- have or have a spouse or common law partner
- are or were a parent and live/lived with their child
what happens if a student has no tax payable?
tuituion, education and textbook tax credits are transferred to another taxpayer (relative) or carried to a year that he/she has tax pauable
when does the tax year end?
DEC 31st
Taxes and tax returns must be paid and filed by when?
April 30th of the following year
Self employed individuals have until when? to file income tax returns?
June 15th
Taxes owing must be paid by when?
April 30th
penalties (if tax is owing) for a missed tax deadline include?
5% of the amount owing, plus 1% for each additional full month that your return is late, to a maximum of 12 months
what are the two ways to file a tax return?
Electronically(NETFILE) and mail
To calculate your tax payable amounts, what documents need to be referred to?
Schedule 1: determine net federal income tax payable
Form 428: determine net federal income tax payable
What is GST
the goods and service tax - paid on consumer purchases
What is PST
provincial/harmonized sales tax - paid on consumer purchases
T OR F? GST is provincial, PST is federal
False, Gst is Federal and PST is provincial
What is Excise tax?
special taxes levied on certain consumer goods such as cigs, alcohol and gasoline
Steps to completing an income tax return
- calculate total income (from any source, wages, sales, awards etc.)
- subtract deductions
- calculate taxable income
- calculate net federal tax payable
- calculate net provincial tax payable
- Calculate total tax payable
- determine total tax already paid
- refund or balance owing
(tax refund & tax owing)
individuals are considered self employed if?
- 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
Are interest earned through investments and etc, taxable?
Yes they are, you pay tax on those as well
When is tax due on interest income
Tax is due on interest in the year it is earned not received
What is the T5 slip?
a document provided to you when you receive income other than salary income
define the term capital gain?
Money earned when you sell an asset at a higher price than paid for
define the term capital loss
occurs when you sell an asset for a lower price than bought
A taxable capital gain is currently equal to how much of the capital gain?
50 percent!!!
an allowable capital loss is currently equal to how much of the capital loss
50 percent
what is a deduction?
an item that can be deducted from total income to determine taxable income
examples of common deductions include
Registered pension plan, RRSP contributions, moving expenses, employment and childcare expenses etc.
how to deduct a registered pension plan
deduct the total amount shown in BOX20 of t4slip, in box32 of T4A slips and on any union or RPP receipts
when is childcare expenses deductable?
- reason for expense being incurred
- if the child was under 16 or had mental or physical infirmity during the year of the tax return
How to calculate taxable income?
Net income - some additional deductions
Explain the term marginal tax rate?
is the percentage of tax you pay on your next dollar of taxable income
What is average tax rate?
the amount of tax you pay as a percentage of your total income
What are tax credits
Specific amounts used to reduce tax liability
what are refundable tax credit
Portion of the credit not needed to reduce your tax liability may be paid to you (GST CREDIT, WITB, Ontario property tax credit)
T OR F? Most tax credit are non refundable, so cannot be paid back to you or carried forward
TRUE
what is the formula for Tax credits
the base amount for a non-refundable tax credit
X
the lowest marginal federal tax bracket (15% in 2017)
Examples of transferrable tax credit
Tuition amount (with annual limit)
- pension income amount (to spouse only)
Former tuition, education and textbook amount (pre-2017)
charitable contribution amount
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
it can be determined by looking at box22 of their T4 slip
Define the term tax refund
amount of total tax payable is less than the amount of total tax already paid
define the term tax owing
amount of total tax payable is greater than the amount of total tax already paid
Define the term tax planning
activities and transactions that reduce or eliminate tax
what is tax avoidance?
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
List some tax planning strategies?
- Dividend and capital gain income
- Registered accounts for tax-free income
- Maximize RRSP contributions
- Use tax credits
What are the questions to ask when tax planning in advance
- What deductions and/or credits are available
- what type of income will maximize tax payable
- what records should you keep
T OR F? only 50% of capital gain is payable
True
how much is the lifetime RESP contribution limit
50,000
What is the education assistance payment
the taxable amount paid to be a beneficiary from a RESP
define the term Accumulate income payment
the taxable amount paid to a subscriber from a RESP
What is a registered disability savings plan?
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
What is a tax free savings account
a registered investment account that allows you to purchase investments, with after-tax dollars, without attracting any tax payable in your investment growth
What is the formula to calculate total tax payable
Net federal tax + amount for provincial/Territorial tax
What is the formula for net federal tax?
Tax payable - non-refundable tax credits (after multiplied by 15%)
