Textbook Notes (362,796)
Canada (158,054)
Finance (361)
FIN 502 (69)
Chapter 7

Chapter 7.docx

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Ryerson University
FIN 502
Steve Joyce

stChapter 7 Personal Income TaxJanuary 31 2012General Concepts of Income TaxCanadian income taxation is based on selfassessmentEvery resident limited corporation trust or individual is required to complete an income tax return on prescribed forms shows if taxpayer owes money or is owed money and how muchCanadian system for individuals is progressive o Higher levels of taxable income are taxed at higher rates o Lower rate applies to all income up to a specified level then all income above that level is taxed at higher level Calculate bother marginal and average tax rates o Average tax ratetotal tax payabletotal income o Marginal tax rate is the rate that applies to one more dollar of income o If you are in the higher category or tax bracket and you are deciding whether to invest your money in a term deposit the marginal aftertax rate of return you receive will be 1marginal tax rate x interest rateo Under progressive system the average rate will be equal to or less than the marginal rate o The tax payable on taxable income in the different tax brackets is added up and then tax credits are deducted to arrive at Basic Federal Tax o Calculate provincial taxable income and tax by bracket in the same way and deduct provincial tax credits to arrive at provincial tax o Federal and provincial taxable income are identicalo Surtaxes payable temporary or so governments claim and usually apply most heavily on upper tax brackets Financial effect is identical to an increase in the basic tax rate as far as financial decisions are concerned o Taxpayer may have paid installments or had tax withheld at source Basic Outline of Personal Income Taxation Keyed on T1 Form page 142 Page 1 of the T1 Completing an Income Tax ReturnT1 package includes two copies of the return and schedules and a detailed linebyline guide to completing it is available in post offices from about February to early May every yearT1 is four pages long and all lines that have numbers entering into the calculations are numberedCRA employees enter each form into a computer format using these numbered lines and the program then verifies all calculationsLine numbers are the link to an extensive Guide that accompanies the ReturnFrom page taxpayer enter personal informationIndividuals must file their own personal returns based on calendar yearsThe deadline to file the return is April 30 of the year following the calendar yearTaxpayers who have business income and their spouses get an extended deadline their threturns are due June 15 Popular option is to file electronically on Netfile Total Income o First section accumulates all forms of income employment investment business etco All of page 2 is devoted to it o Several lines have both a gross and a net amount
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