Chapter 4 - Using Tax concepts for planning

Question 1

Personal income taxes

Answer 1

taxes imposed on income earned.

Question 2

Excise taxes

Answer 2

special taxes levied on certain consumer products such as cigarettes, alcohol and gasoline

Question 3

what are the steps to completing an income tax and benefit return

Answer 3

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

Question 4

tax planning

Answer 4

involves activities and transactions that reduce or eliminate tax

Question 5

tax avoidance

Answer 5

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.

Question 6

Tax evasion

Answer 6

when taxpayers attempt to deceive the CRA by knowingly reporting less tax payable than what the law obligates them to pay.

Question 7

Capital Asset

Answer 7

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

Question 8

T4 Slip

Answer 8

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.

Question 9

What are some types of reportable income?

Answer 9

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

Question 10

Interest Income

Answer 10

Interest earned from investments in various types of savings accounts at financial institutions

Question 11

T5 Slip

Answer 11

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

Question 12

Dividend Income

Answer 12

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

Question 13

How much is a taxable capital gain equal to?

Answer 13

50 percent of the capital gain

Question 14

How much is a taxable capital loss equal to?

Answer 14

50 percent of the capital loss

Question 15

Net income

Answer 15

Amount remaining after subtracting deductions from your total income

Question 16

Deduction

Answer 16

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

Question 17

What are some common tax deductions?

Answer 17

*Registered Pension Plan (RPP)
*Registered Retirement Savings Plan (RRSP)
*Union/Professional Dues
*Child Care Expenses
*Support Payments
*Carrying Charges
*Moving Expenses
*Employment Expenses

Question 18

Canada has what kind of tax system?

Answer 18

Progressive - Higher an individual’s income the higher percentage of income paid in taxes

Question 19

Marginal tax rate

Answer 19

The percentage of tax you pay on your next dollar of taxable income

Question 20

Average tax rate

Answer 20

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

Question 21

Tax credits

Answer 21

Specific amounts used directly to reduce tax liability

Question 22

Refundable tax credit

Answer 22

Portion of the credit that is not needed to reduce your tax liability may be paid to you

Question 23

Non-Refundable tax credit

Answer 23

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.

Question 24

What are some transferable tax credits?

Answer 24

*Tuition Amount
*Pension income amount (to spouse only)
*Age amount (To spouse only)
*Disability amount

Question 25

what are the tax credits eligible to carry forward?

Answer 25

*Medical expenses amount
*Tuition amount
*Former tuition, education and textbook (pre 2017)
*Charitable contribution amount

Question 26

Educational assistance payment (EAP)

Answer 26

The taxable amount paid to a beneficiary from an RESP