Financial Planning - Chapter TWO Flashcards
Marginal Tax Rate
The highest rate that you personally pay on taxable income. Paid on last $ of work income
Progressive tax System
As taxable income increases, the tax rate increases
Combined Marginal Rate
Combination of marginal tax rate and provincial tax rate, then added to the federal tax rate
Average tax rate
Percentage of your gross income that you actually pay in income tax
Calculation for Tax Payable
Gross income-deductions=taxable income …. Taxable income x tax rate=total tax…. Total tax-tax credits=tax payable
Tax deduction
Serves to reduce taxable income (rrsp contribution, investing)
Credit
Is subtracted after total tax has been determined (tuition fees, medical expenses)
What income do we not pay tax on?
Gauranteed Income Supplement, Spouses Allowance, Workers Compensation, Welfare
What is the difference between capital gains and taxable capital gains?
Capital gains is not income, it is a change in wealth. Taxable Capital gain is only 50% taxable
What are the three categories of deductions?
Contributions to retirement pension plans(RRP, RRSP), Specified Expenditures (Union Dues, Moving Expenses, Child care), Capital Gains Exemption
How can capital loss reduce taxes?
Capital losses can only be used against capital gains, not against your income, can carry forward or back.
How to calculate Net Capital Gain
Sale Price- Purchase Price= Capital Gain
Capital Gain-Capital Loss- Net Capital Gain
Net Capital Gain x 50%= Net Taxable Capital Gain
What is the difference between refundable and non-refundable tax credits?
Refundable- get it back in cash
Non Refundable- Not in cash, but used to reduce income (Tuition fees, Donations, Disability, Medical)
What is the difference between tax avoidance and tax evasion?
Tax Avoidance- is legal and reduces amount of tax you pay.
Tax Evasion- Is illegal and is deliberately leaving income off your taxes
