Module 6 Income tax planning strategy

Question 1

What are the 4 tax reducing strategies

Answer 1

Income Deferal
Income Spliting
Income spreading
Income Sheltering

Question 2

Income Deferal

Answer 2

Income is tax sheltered until it can be used for consumption

Question 3

What are the ways to acheive income deferal

Answer 3

RPP (Registered Pension Plan)

RRSP (Registered Retirement Saving Plan)

Question 4

Registered Pension Plan

Answer 4

Established by an employer do deffer income payable to his employees to retirement income for them. The employee’s pension contributions are tax deductible and accumulate at the before tax rate of return

Question 5

Registered Retirement Saving Plan

Answer 5

Contributions are made directly by the tax payer. Deducted from income for tax purposes up to year end + 60 days

Question 6

What are the 4 contributions rules to an RRSP

Answer 6

• Unused contribution can be carried forward
• $ Limit (22000 in 2010)
• 18% of income
• Pension Adjustment

Question 7

Earned Income

Answer 7

Net buisnedd income, Research grants, Royalties, Taxable spousal support, net rental income, disability pension income

Question 8

Reduction to earned income

Answer 8

Deductible alimony, deductible employment related expenses, traveling expenses, buisness los, rental loss

Question 9

Lifelong Learning Plan (LLP)

Answer 9

Allows to withdraw from RRSP up to 10000 a year and 20000 in total for education for you or your spouse. The “loan has to be repaid over 10 years for it to remain tax free

Question 10

Home Buyers Plan (HBP)

Answer 10

Allows you to withdraw up to 25000 to buy the family first home

Question 11

Income Splitting

Answer 11

Strategy to save on taxed by shifting income from the hands of the family member with higher tax bracket to a second family member with lower tax bracket

Question 12

Income spliting between spouses

Answer 12

Contribution to a spouse RRSP and clain the deduction. No double contribution + taxed back if withdrawned within 2 years

Question 13

Attribution Rule

Answer 13

When property (including money) is transfered directly or indirectly to a spouse, the income, loss, capital gain, capital loss, is attributed back.

Question 14

Attribution Rule with childrun

Answer 14

Income from property transfered to childrun under 18 is attributed back except for capital gain. The attribution rule does not apply to childrun age 18 and older

Question 15

Estate freezes

Answer 15

Freeses the value of the property in the hands of the original owner who places it is estate freeze

Question 16

Registered Education Saving Plan (RESP)

Answer 16

Ccontributions are not tax deductible but income is not taxed until withdrawn. Max:50000 per beneficiaries

Question 17

Canadian Education Saving Grant (CESG)

Answer 17

20% of the RESP contribution with a max of 500 per year and 7200 per child

Question 18

Canada Learning Bond ( CLB)

Answer 18

To families that qualify, provide 500 per childrun + 100 per year up to 2000 per child

Question 19

Income spreading

Answer 19

Technique used to smooth income over sevral years to reduce MTR. Use RESP

Question 20

Tax shelters

Answer 20

Instrument that offer a return either holly or partialy tax exempt

Question 21

Tax Free Savings Account

Answer 21

• Can save up to 5000 annualy
• contributions are not tax deductible but income from the account are not taxable at any time
• no limit on withdraw
• Unused contribution accumulates
• Withdraw can be replaced the next year

Question 22

Income Sheltering

Answer 22

Reducing tax paid on income because of some special characteristic

Question 23

Progressive Tax System

Answer 23

Higher level of taxable incomes are taxed at higher rates. The higher bracket only apply to the marginal income

Question 24

Term Deposit

Answer 24

Money deposit at a banking institution that can not be withdrawn for a certain term or period of time

Question 25

Deduction from taxable income

Answer 25

When calculating tax, RRSP and RPP are deductible from taxable income. Also, there is a minimum tax credit to be included

Question 26

What are the 4 eligible pension income that can be split up to 50% for tax purposes

Answer 26

- Taxable part of life annuity payments - annuity and Registered Retirement Income Fund - RRSP annuity - Employer pension payment

Question 27

how to bypass the attribution rule between spouses

Answer 27

The selling spouse can take payments in the form of a loan bearing interest at market rate. As long as the investment asset earns more than the market interest rate, income is split

Question 28

What are the 5 tax releif for medical issues or disability

Answer 28

1) Medical expense tax credit 2) Disability tax credit (DTC) 3) Dependant claims 4) Disability supports deduction 5) Registered Desability Saving Plan (RDSP)

Question 29

Medical expense tax credit

Answer 29

the tax payer may claim a tax credit for unreimbursed medical expenses if eligible

Question 30

Disability Tax Credit

Answer 30

A person with a disability serious enough to prevent them from performing at lease one of the basic action of normal living or a blind person is eligible for DTC

Question 31

Disability support deduction

Answer 31

A disabled person may claim attendant care expenses and other disability support cost if they are incured in order to attend school or earn income

Question 32

Registered Disability Saving Plan

Answer 32

Tax-assisted saving vehicle designed to allow a person who is eligible for the DTC and others who wish to contribute to the walfare of this person to help sae for his/her retirement