Taxation Midterm Flashcards

1
Q

What are the basic forms of organizations?

A

Individuals/Sole proprietorships, Corporations, Trusts, Partnerships, Limited Partnerships & Joint Ventures

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2
Q

What forms of organizations are taxable?

A

Individuals (T1), Corporations (T2), & Trusts (T3)

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3
Q

Which forms of business require each partner/participant to report income?

A

Partnerships, Limited Partnerships & Joint Ventures

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4
Q

What are the primary types of income for tax purposes for individuals/sole proprietorships?

A

Office or Employment (salary/wages), Business income, Property income (rent, dividend, royalties), Capital gain (sale of prop used to earn income), Other/Misc. (RRSP, pension, etc)

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5
Q

_______ income can be treated as business income depending on the time/effort placed.

A

Property

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6
Q

What type of income do corporations not earn?

A

Office or Employment (salary/wages) and Other/Misc. (RRSP, Pension, Alimony, Employment Insurance, etc.)

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7
Q

What are the two important principles in terms of taxation and financial decision process?

A
  1. Taxation is a controllable cost; tax is considered a cost of doing business and should be included in planning and controlled
  2. Cash flow after tax; investors’ ROI = cash flow after tax
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8
Q

Define the estimate tax rates for quick analysis.

A

Individuals = 50%

Corporations:
Income < $500k = 13%
Income > $500k = 27.5% (applies to the income amounts over 500k)

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9
Q

The most significant form of taxation are (aka tax jurisdictions):

A

federal, provincial & foreign tax.

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10
Q

Explain how the tax factor can be an integral part of decision making with respect to establishing sales in new geographical territories.

A

The amount of income that is subject to tax in the new province will be different for each of the three
alternatives:

  1. Direct selling: none of the income is taxed in the new province. All income taxed in the home province
  2. A small branch sales office and staffed with local personnel: Income will be split to new province, using an arbitrary formula (ratio of sales & wages) and taxed accordingly.
  3. A separate corporation: all of the income is taxed in the new province.
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11
Q

What’s the formula to determine the true cost of an 8% wages increase?

A

Think of the 8% as $8 increase in wages;

For the employer: $8.00 * 27% = $2.2 of tax savings
i.e. actual cost: $8 - $2.20 = $5.80 or 5.8% after tax

For the employee: $8.00 * 50% = $4 of tax savings
i.e. actual cost: $8 - $4 = $4 or 4% after tax

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