ACTG 6730 Lecture Notes - Lecture 2: Tax Rate, Canadian Imperial Bank Of Commerce, Consumption Smoothing
7 Jun 2018
School
Department
Course
Professor
Week 2: Managerial Tax Planning
$1 (1+r(1-t))n = consumable cash flows
$1 (1+r(1-gt))n = consumable cash flows
g = 1 for interest income
g = 0.5 for CG
g = 0.73 for eligible dividends
g = 0.85 for ineligible dividends
½ t (P1 – P0) = ½ t * CG
t ½ (P1 – P0) = t * TCG
g = 0.5 reasoning
• Incentive to invest
• Some gains are inflated
The more goods you purchase, the greater your utility of consumption is, but it diminishes over
time.
We at to sooth osuptio oer our lifele; e do’t at to eperience extremes.
ACB = P0
PoD = P1 or Pn
CG = P1 – P0
Tax on CG = ½ t (P1 – P0)
After-tax income: P1 – P0 - ½ t (P1 – P0)
After-tax cash flow = P1 - ½ t (P1 – P0)
ROI = Income / Investment = Savings/Investment
• This is after-tax
• Compute pre-tax to compare against other investments
• This is a risk-free return
Loan rate = min (contractual rate, Prescribed rate)
• Locked in for future periods
• Pg. 37: 5% – 1% is the net family savings
• We PV twice b/c we assume we get the benefit in each year
• 11% is tax savings on a family basis
• ($415) is an outflow because it is been deducted by Beth; deducted at 35% by family
and included at 46% by family
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Document Summary
(1+r(1-gt))n = consumable cash flows g = 1 for interest income g = 0. 5 for cg g = 0. 73 for eligible dividends g = 0. 85 for ineligible dividends. T (p1 p0) = t * cg t (p1 p0) = t * tcg g = 0. 5 reasoning. Incentive to invest: some gains are inflated. The more goods you purchase, the greater your utility of consumption is, but it diminishes over time. We (cid:449)a(cid:374)t to s(cid:373)ooth (cid:272)o(cid:374)su(cid:373)ptio(cid:374) o(cid:448)er our life(cid:272)(cid:455)(cid:272)le; (cid:449)e do(cid:374)"t (cid:449)a(cid:374)t to e(cid:454)perience extremes. Tax on cg = t (p1 p0) After-tax income: p1 p0 - t (p1 p0) After-tax cash flow = p1 - t (p1 p0) Roi = income / investment = savings/investment: this is after-tax, compute pre-tax to compare against other investments, this is a risk-free return. Loan rate = min (contractual rate, prescribed rate: locked in for future periods, pg. Only consider average tax rate if considering employment outside of canada for comparability purposes.
