Chapter 4 - Using Tax concepts for planning Flashcards
Personal income taxes
taxes imposed on income earned.
Excise taxes
special taxes levied on certain consumer products such as cigarettes, alcohol and gasoline
what are the steps to completing an income tax and benefit return
1) identification and other information
2) calculate total income
3) calculate net income
4) calculate taxable income
5) calculate federal tax
6) calculate provincial or territorial tax
7) refund or balance owing
tax planning
involves activities and transactions that reduce or eliminate tax
tax avoidance
legally applying tax law to reduce or eliminate taxes payable in ways that the CRA considers potentially abusive the spirit of the Income Tax Act.
Tax evasion
when taxpayers attempt to deceive the CRA by knowingly reporting less tax payable than what the law obligates them to pay.
Capital Asset
Any asset that is acquired and held for the purpose of generating income.
T4 Slip
a document provided to you by your employer that shows your salary and all deductions associated with your employment with that specific employer for the previous year.
What are some types of reportable income?
1) Employment Income
2) Business Income
3) Property Income
4) Capital gains and losses
5) Other Income
*Income received from sources outside Canada is also subject to Canadian Income Tax
Interest Income
Interest earned from investments in various types of savings accounts at financial institutions
T5 Slip
A document provided to you when you receive income other than salary income
Dividend Income
Income received from corporations in the form of dividends paid on stock or on mutual funds that hold stock. Dividend income represents the profit due to part owners of the company
How much is a taxable capital gain equal to?
50 percent of the capital gain
How much is a taxable capital loss equal to?
50 percent of the capital loss
Net income
Amount remaining after subtracting deductions from your total income
Deduction
An item that can be deducted from total income to determine taxable income
What are some common tax deductions?
*Registered Pension Plan (RPP)
*Registered Retirement Savings Plan (RRSP)
*Union/Professional Dues
*Child Care Expenses
*Support Payments
*Carrying Charges
*Moving Expenses
*Employment Expenses
Canada has what kind of tax system?
Progressive - Higher an individual’s income the higher percentage of income paid in taxes
Marginal tax rate
The percentage of tax you pay on your next dollar of taxable income
Average tax rate
the amount of tax you pay as a percentage of your total taxable income
Tax credits
Specific amounts used directly to reduce tax liability
Refundable tax credit
Portion of the credit that is not needed to reduce your tax liability may be paid to you
Non-Refundable tax credit
portion of the credit that is not needed to reduce your tax liability will not be paid to you and cannot be carried forward to reduce your tax liability in the future.
What are some transferable tax credits?
*Tuition Amount
*Pension income amount (to spouse only)
*Age amount (To spouse only)
*Disability amount
what are the tax credits eligible to carry forward?
*Medical expenses amount
*Tuition amount
*Former tuition, education and textbook (pre 2017)
*Charitable contribution amount
Educational assistance payment (EAP)
The taxable amount paid to a beneficiary from an RESP
