Module A

Question 1

Tax systems:
- Personal:
- Corporate:
- Value added tax (VAT)

Answer 1

1. Progressive
2. Proportional
3. Regressive

Question 2

What is a marginal tax rate?

Answer 2

Amount of additional tax you pay for every additional dollar of income

Question 3

What is an effective tax rate?

Answer 3

Average rate on all income

Question 4

What is the formula for effective tax rate?

Answer 4

taxes paid/income

Question 5

What is the formula for calculating taxable income?

Answer 5

Net income
Less: General Deductions
= Net income for tax purposes

Less: Division C deductions
= Taxable income

Question 6

What is the formula for taxes payable?

Answer 6

Taxable income * tax rate schedule
= Gross taxes payable

Less: Non-refundable tax credits
= Net taxes payable

Less: Refundable tax credits
= Balance owing/(refund)

Question 7

Are deductions better for individuals with higher or lower tax brackets and why?

Answer 7

Deductions are better for individuals with higher tax brackets since each dollar deducted reduces taxable income at a higher rate

Question 8

Are tax credits better for individuals with higher or lower tax brackets and why?

Answer 8

Credits are better for those in a lower tax bracket because it provides a straight-forward deduction

Question 9

What is the calculation for net employment income?

Answer 9

= Compensation
+ Taxable benefits
- Employment expenses

Question 10

What is included in employment income?

Answer 10

1. Automobile expenses
2. Home office expenses
3. RPP contributions

Question 11

What is the calculation for taxable income?

Answer 11

= Employment income
- General deductions

Question 12

What is included in general deductions?

Answer 12

1. Moving expenses
2. Enhanced CPP

Question 13

What is the calculation for taxes payable?

Answer 13

= Gross taxes payable
- Non-refundable tax credits
- Refundable tax credits

Question 14

What is included in non-refundable tax credits?

Answer 14

Basic, CPP, EI, Canadian employment, tuitions, donations

Question 15

What are refundable tax credits?

Answer 15

Tax credits that can bring you into the negatives, income taxes withheld.

For prepayments to the government, if you pay too much or too little, you get a refund or you pay the difference respectively

Question 16

Deductions vs tax credits

Answer 16

Deductions are part of the net concept and reduce your taxable income.

Credits reduce your tax owing dollar for dollar

Question 17

What is GST and HST

Answer 17

Goods and Services Tax and Harmonized Sales Tax

They are a transaction based consumption tax

Question 18

What is the purpose of GST and HST

Answer 18

It is a tax value added from the supply chain

Question 19

Who charges and pays GST /HST to the government?

Answer 19

GST/HST registrants of taxable supplies. They must register to the CRA to collect GST/HST on the government’s behalf.

Businesses who added value to goods/services they sell

Question 20

What is a registrant of GST/HST?

Answer 20

Person registered/required to register for GST/HST

Businesses making/selling taxable supplies

Question 21

What is the exception to the GST/HST registration?

Answer 21

Small suppliers - businesses that make equal to or less than $30,000 in taxable sales in 4 consecutive quarters (year)

Question 22

What are the types of suppliers?

Answer 22

1. Fully taxable
2. Zero-rated
3. Exempt

Question 23

How does GST/HST work?

Answer 23

Consumers pay the price + GST/HST to the business in exchange for the product/service. The business then gives the GST/HST portion to the government

Question 24

How do you calculate GST/HST owing (refundable)?

Answer 24

Sales
GST/HST collected/collectible
- Input tax credits
= Net tax (positive = owing, negative = refund)

• Installments
• Rebates
  + Self-assessments
  = GST/HST owing (refundable)

Question 25

What are input tax credits?

Answer 25

A credit that GST/HST registrants can claim to recover the GST/HST paid/payable for suppliers of their commercial activities

Question 26

What are the 2 levels of sales tax in Ontario?

Answer 26

Federal (GST) and provincial (PST)

Question 27

Who are the registrants of GST/HST and what is the exception?

Answer 27

Businesses. that include corporations, partnerships, individuals, and estates/trusts

Exception: <= $30,000 in taxable sales within the 4 previous consecutive quarters

Question 28

Characteristics of a merchandiser that is fully taxable?

Answer 28

1. Supply they purchase is taxed
2. Merchandise they sell is taxed
3. To the government (selling price - manufacturing price) * 13% –> ITC

Question 29

Characteristics of a merchandiser that is zero-rated (+ give an example)

Answer 29

Pharmacy
1. Supply they purchase is taxed
2. Product they sell is NOT taxed
3. To the government (selling price) * 13% –> ITC

Question 30

Characteristics of a seller that is exempt (+ give example)

Answer 30

Landlord, E.g.,
1. Utilities provided is taxed
2. Property they sell is not taxed
3. Not eligible/allowed to register for GST/HST

Question 31

What is the GST/HST considered in businesses that are exempt?

Answer 31

Considered as a cost of doing business. It reduces taxable income rather than reducing GST/HST

Question 32

How is the tax rate determined for online purchases?

Answer 32

Rate is determined off of where the goods are being delivered

Question 33

Compliance and taxable sales

Answer 33

<= $1,500,000
Reporting period: Annually
Deadlines:
1. Individuals: pmt due April 30, filing June 30
2. Others: pmt + filing done 3 months after yr end

$1,500,001 - $6,000,000
Reporting period: Quarterly
Deadlines: pmt + filing done 1 month after yr end

> $6,000,001
Reporting period: Monthly
Deadlines: pmt + filing done 1 month after yr end

Question 34

Why do companies with higher incomes (> $1,500,001) get shorter periods to pay and file?

Answer 34

They have more income, leading to more frequent reporting periods, which means there is less information to sift through.