Chapter 4: Using Tax Concepts Planning Flashcards
Personal Income taxes
Taxes imposed on income earned.
T1
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.
Taxes Paid on Consumer Purchases
Many taxes, such as the goods and services tax (GST), are paid at the time of a transaction
PST (provincial sales tax)
is imposed at the provincial level in most provinces.
HST (harmonized sales tax)
Some provinces have combined their PST with the GST
excise tax
Special taxes levied on certain consumer products such as cigarettes, alcohol, and gasoline.
capital asset
Any asset that is acquired and held for the purpose of generating income.
Taxes Paid on Property
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.
Mill rate
The mill rate reflects the amount of taxes that should be paid on property for every $1000 of assessed property value.
Do You Have To File a Return?
■ 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)
WITB
is a refundable tax credit intended to provide tax relief for eligible working low-income individuals
Employment Insurance (EI)
Government benefits that are payable for periods of time when you are away from work due to specific situations.
Why Students Should File Tax Returns
- , 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.
- 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.
- 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.
Filing Your Return
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.
T4 slip
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.
steps to completing a T1 General Income Tax and Benefit Return
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
total income
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.
interest income
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.
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.
capital gain
capital gain
Money earned when you sell an asset at a higher price than you paid for it.
capital loss
Occurs when you sell an asset for a lower price than you paid for it.
deduction
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
net income
The amount remaining after subtracting deductions from your total income
