Chapter 4: Using Tax Concepts Planning

Question 1

Personal Income taxes

Answer 1

Taxes imposed on income earned.

Question 2

T1

Answer 2

For any year that you earn income, you must file a tax return that consists of a completed T1 General Income Tax and Benefit Return (T1 General), plus supporting documents. Your tax return will show whether a sufficient amount of taxes was already withheld from your paycheques, whether you still owe taxes, or whether the government owes you a refund. If you still owe taxes, you should include a cheque for the taxes owed along with your completed T1 General.

Question 3

Taxes Paid on Consumer Purchases

Answer 3

Many taxes, such as the goods and services tax (GST), are paid at the time of a transaction

Question 4

PST (provincial sales tax)

Answer 4

is imposed at the provincial level in most provinces.

Question 5

HST (harmonized sales tax)

Answer 5

Some provinces have combined their PST with the GST

Question 6

excise tax

Answer 6

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

Question 7

capital asset

Answer 7

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

Question 8

Taxes Paid on Property

Answer 8

Homeowners pay property tax on the value of their homes and land. This form of taxation is the major source of revenue for municipal governments. Property taxes are determined based on the assessed value of your property. In order to allocate taxes fairly, a municipality will multiply your assessed property value by a tax rate, also known as a mill rate.

Question 9

Mill rate

Answer 9

The mill rate reflects the amount of taxes that should be paid on property for every $1000 of assessed property value.

Question 10

Do You Have To File a Return?

Answer 10

■ You have to pay tax for a calendar year
■ The CRA sent you a request to file a return
■ You and your spouse or common-law partner elected to split pension income for the calendar year
■ You received Working Income Tax Benefit (WITB) advance payments in the calendar year
■ You disposed of property in a calendar year or you realized a taxable capital gain
■ You have to repay any of your OAS or EI benefits
■ You have not repaid all of the amounts you withdrew from your registered retirement savings plan (RRSP), Home Buyers’ Plan (HBP), or Lifelong Learning Plan (LLP)
■ You have to contribute to the Canada Pension Plan (CPP)

Question 11

WITB

Answer 11

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

Question 12

Employment Insurance (EI)

Answer 12

Government benefits that are payable for periods of time when you are away from work due to specific situations.

Question 13

Why Students Should File Tax Returns

Answer 13

1. , you may be eligible for a refundable GST/HST credit. The GST/HST credit is a quarterly tax-free payment made to low- and modest-income earners.
2. as a student, you likely have eligible tuition, education, and textbook tax credits that you can use to reduce your tax payable. If you do not have any tax payable, these tax credits can be transferred to another taxpayer (a parent or grandparent) or they can be carried forward so that you can claim them in years when you do have tax payable.
3. consider that your RRSP contribution room is based on every dollar of income you earn minus pension plan adjustments. By filing a return and declaring income, you will have more room to contribute to your RRSP in the future. Your RRSP is your personal pension plan and it is in your best interest to maximize your future contributions to it.

Question 14

Filing Your Return

Answer 14

The tax year for federal income taxes ends on December 31. Individual income tax returns must be filed and taxes must be paid by April 30 of the following year. Self-employed individuals have until June 15 to file their income tax returns, although any taxes owing must be paid by April 30. If a taxpayer does not file his or her tax return on time, interest charges and a penalty will be assessed based on any amounts owing.

Question 15

T4 slip

Answer 15

A document provided to you by your employer that displays your salary and all deductions associated with your employment with that specific employer for the previous year.

Question 16

steps to completing a T1 General Income Tax and Benefit Return

Answer 16

step 1: Calculate Total Income
step 2: subtract deductions
step 3: calculate taxable income
step 4: Calculate Net federal tax payable
step 5: calculate net provincial tax payable 
step 6: calculate total tax  payable
step 7: determine total tax already paid
step 8: Refund, or balancing owing

Question 17

total income

Answer 17

All reportable income from any source, including salary, wages, commissions, business income, government benefits, pension income, interest income, dividend income, and taxable capital gains received during the tax year. Income received from sources outside Canada is also subject to Canadian income tax.

Question 18

interest income

Answer 18

Interest earned from investments in various types of savings accounts at financial institutions; from investments in debt securities such as term deposits, GICs, and CSBs; and from loans to other individuals, companies, and governments.

Question 19

T5 slip

Answer 19

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

Question 20

dividend income

Answer 20

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 21

capital gain

capital gain

Answer 21

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

Question 22

capital loss

Answer 22

Occurs when you sell an asset for a lower price than you paid for it.

Question 23

deduction

Answer 23

An item that can be deducted from total income to determine taxable income.
common deductions are contributions to RPP (registered pension plan) RRSP (registered retirement savings plan),,, union dues, child care expenses, support payments

Question 24

net income

Answer 24

The amount remaining after subtracting deductions from your total income

Question 25

Taxable income

Answer 25

Taxable income is equal to your net income minus some additional deductions.
- helps the government decide what tax bracket you will be in

Question 26

marginal tax rate

Answer 26

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

Question 27

average tax rate

Answer 27

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

Question 28

tax planning

Answer 28

Involves activities and transactions that reduce or eliminate tax.

Question 29

tax avoidance

Answer 29

Occurs when taxpayers 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.

Question 30

tax evasion

Answer 30

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

Question 31

Registered Education Savings Plan (RESP)

Answer 31

Generally, anyone can contribute money to an RESP. Contributors, also known as subscribers, do not receive a tax deduction for the contributions they make. However, the first $2500 of annual RESP contributions will be matched by a 20 percent Canada Education Savings Grant (CESG) from Human Resources and Social Development Canada

Question 32

educational assistance payment (EAP)

Answer 32

The amount paid to a beneficiary from an RESP.

Question 33

tax-free savings account (TFSA)

Answer 33

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