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CHAPTER 7 personal income tax.docx

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FIN 502
Steve Joyce

CHAPTER 7 personal income taxGENERAL CONCEPTS OF INCOME TAXATIONPrescribed forms Canadian income taxation based on selfassessment completed on income tax returnProgressive for Canadian system for individuals that higher levels of taxable income are taxed at higher rates o Lower rate applies to all income up to a specific level then al income above that level is taxed at the higher levelAverage tax rate total tax payable divided by total incomeMarginal tax rate rate applied to one more dollar of income o Average tax rate will be equal to or less than the marginal rate Marginal aftertax rate1marginal tax rate x interest rateSurtaxes taxes based on the tax they are temporary and usually apply most heavily on upper tax bracketsINVESTMENT INCOMEDividends tax credit neutralizes the effect of double taxation o A company pays dividends after it has paid tax on them when shareholders receive dividends from the company they must pay income tax on the dividends o Any dividends received from a Canadian company is grossed up by onequarter multiplied by 125 and grossedup amount called taxable amount is included in incomeDeduct federal tax payable a dividends tax credit equal to 23 of grossupDeduct federal tax payable a dividends tax credit
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