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Unformatted text preview: Chapter 11 Computation of Taxes Payable — Individuals Questions 11-1 Assuming that Barry will have the appropriate business insurance and other sources of income during the start-up phase of his juice stand, he should consider operating his business as a proprietorship. This would minimize the risk by being able to utilize any losses incurred during the first year or so of operation. Any such losses could be used to offset Barry’s other sources of income. When the business becomes profitable, the business could then be transferred to a corporation. 11-2 The union member’s analysis is at least partially correct. Her average federal tax rate of 26% is greater than the 15.5% federal tax credit received on the CPP contributions by the union member. Even though the marginal tax bracket of a taxpayer increases, the amount of tax credit stays at 15.5%. Many argue that this is unfair because the taxpayer is not getting a credit equal to her marginal tax rate. It could be argued that higher-income earners will receive more in CPP receipts upon retirement than lower-income earners and this is a vehicle for the redistribution of wealth equitably. With current government debt, the debate regarding the government’s ability to make CPP payments in the future remains in question. 131 132 TAXATION IN CANADA 11-3 The federal tax credits equally reduce the basic federal tax for all taxpayers, regardless of which province/territory they live in. As the provincial/territorial tax is calculated using the TONI system, the federal tax credit does not affect provincial taxes. 11-4 Higher-income earners favour deductions as these are realized at their marginal tax rates. On the other hand, lower-income earners tend to favour tax credits, or to be indifferent, as the credit is usually based on the lowest tax bracket rate, which is the bracket they are in. The tax credit provides more relative value to the lower-income earner. Changing the child care deduction to a non-refundable tax credit would make the tax recovery the same for all taxpayers. 11-5 Victor’s marginal tax rate, assuming a territorial tax rate of 15.4%: = Marginal federal tax rate + provincial rate = 22% + 15.4% = 37.4% Note: Victor’s taxable income of $38,200 puts him in the 22% marginal federal tax rate bracket....
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This note was uploaded on 06/03/2009 for the course BUSINESS AIT 805 taught by Professor Shirenekhan during the Winter '09 term at Seneca.
- Winter '09