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BU111 Study Guide - Final Guide: Tax Bracket, Tax Rate, Surtax

Course Code
Jim Mc Cutcheon
Study Guide

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L3 BU111 12/10/2011
The Canadian Tax System
Two branches of Canadian Tax Law:
Personal Tax Law
oPertains to taxation of individuals
oPertains to the taxation of unincorporated businesses (sole proprietorships,
Corporate Tax Law
oPertains to the taxation of private and public corporations
Personal Taxation
A graduated or progressive system based on an individual taxpayer’s level of
taxable income:
oTaxable income = Total Income – Allowable Deductions
The higher an individual’s level of taxable income, the higher that individual’s
marginal tax rateThe more you make, the more you pay!
Three different levels of tax must be paid by individuals living in Ontario:
oFederal Tax (Canada)
oProvincial Tax (Ontario)
oProvincial Surtax (Ontario)
Marginal Tax Rate
Marginal Tax Rate Definition:
oStrict Definition: Tax rate paid by an investor on his/her last dollar of
taxable income earned
More Useful Definition:
oThe rate of tax applied to every dollar of taxable income earned within a
given tax bracket
Determining an Ontario Resident’s Marginal Tax Rate For 2010
The combined federal/provincial marginal tax rate after surtax for an Ontario
resident in 2010 is the sum of:
oFederal Tax Rate + Ontario Tax Rate + Ontario Surtax Rate
Taxation of Investment Returns
There are three types of investment returns:
a. Dividends
b. Interest
c. Capital Gains
Each is taxed Differently
Investment returns should always be compared on an after tax basis
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