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FIN 502 (35)
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Chapter 8.docx

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FIN 502
Joan Lobo

Chapter 8: Income Tax Planning Basic aspects of nature of income taxation: 1. tax rate progressive and rate for each higher bracket applies only to additional/marginal income 2. govt try to achieve objective w/ taxation laws: o revise rev o promote social equity o encourage/discourage certain fin actions and manage ecn trends 3. tax deferral save $ b/c of TVM Income Deferral if cant use income for consumption → shouldn't have to pay tax until can use it if can invest tax deferred income at rate of return that's untaxed ← get faster compounding Registered Pension Plans (RPP) - est by employer to defer income payable to employees to provide retirement income - pmts f/ employer and employee → employee retire and re/ pension - contrib/pmt to plan not taxed as income in employees hands at time put plan → employer deduct contrib for income tax purposes when they're paid - employee pays tax on pension as it re/ ← employees pension contrib = deductible f/ taxable income to accum at b4 tax rate of return - contrib fixed by employment Registered Retirement Savings Plan (RRSP) - do-it yourself pension plan - tax pay contrib part of income to trusteed fund - contrib deducted f/ income for tax purposes yr its paid into fund and income accum tax free - tax pay w/draw → principle and accrued earnings = taxable - amt can contrib in yr = lesser of 18% of earned income in preceding yr and total dollar limit + unused contrib allowance f/ prev yrs - if have employer pension plan → RRSP contrib limit ↓ - primary uses as retirement saving - used legally to defer income tax → will w
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