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CHAPTER 8 income tax planning.docx

2 Pages
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Department
Finance
Course Code
FIN 502
Professor
Steve Joyce

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Description
CHAPTER 8 income tax planningINCOME DEFERRALIncome deferral bring income into taxable income at a future date and so deferring the payment of income tax until later o Present value of future tax payment is less than if ti were paid at onceRegistered pension plan RPP established by employer to defer income payable to employees to provide retirement income for them o Contributions to RPP are not taxed as income as it is put into the plan pays taxes as it is received o Contributions are deductible from taxable income and accumulate at beforetax rate of returnRegistered retirement savings plan RRSP a doityourself pension plan o Taxpayer contributes part of her income contribution is deducted from income for tax purposes in the year it was paid into the fund and income on it accumulates taxfree o When amount is withdrawn principle and accrued earnings are taxable o Amount you can contribute in a year is lesser than 18 of earned income in the previous year plus any unused contribution allowance from previous years o The extra income can push you to a higher tax bracketCapital gains no tax is payable until they are realized shares can increase in value at beforetax rate of return if the return consists of capital gains instead of dividendsINCOME SPLITTINGIncome splitting allocating income to family members with lower marginal tax rates to reduce the total family tax bill o Between spousesSpouse with the higher i
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