Module 5 Taxation in Canada Flashcards
Average Tax Rate
Total Tax Payable / Total Income
Marginal Tax Rate
Rate that applies to one more $ of income
4 Gov objective with taxes
- Raise revenue
- Promote/discourage certain actions
- Promote social equality
- Manage economic trends
Tax-on-Tax Method
Obsolete since 2001, the provincial tax was based on a % of federal tax
Tax-on-Income Method
Each juresdiction (federal, provincial and teritorial) sets its own tax rates, brakets and credits and tax is based on taxable income
Non refundable tax credit
Tax credit that are used to reduce or eliminate tax owing but can not be used to generate income from tax refund
Interest Expenses
Tax deductible when borrowed to earn non tax sheltered investment income
Interest Income
Accrued interest is taxed at the same rate as income
Allowance Capital Loss
50% of capital loss and can be used to reduce capital gain. It can be carried back 3 years and forward indefinetly
Taxable Capital Gain
50% of capital gain, exept principal residence and possible exception of 500000 for small business
Dividends
Distribution of corporate earnings to shareholders. They are taxed twice
Taxable Dividends
Cash Dividends x Gross up
Bracket Creep
Overtime, income increases with inflation but tax brackets are fixed
How to increase RRSP contributions while saving the same amount?
You can file out a form with the CRA declaring your RRSP contribution during the year and get your employer to reduce tax withheld during the year. Thus contribution =savings/(1-tax rate)
