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3520-1- updated 2009-jfth

3520-1- updated 2009-jfth - 3520-1 1-12 1 3520 Lecture 1...

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3520-1: 8/17/2009 1-12 1 3520 Lecture 1 CTP – Selected parts of Chapters 1 and 14 (see references below) For those who are interested in learning more, check out the urls. Recommended Problems All Ch. 1 and 14 Exercises All Ch. 14 Self-study problems 2 Introduction to Federal Taxation in Canada [ch. 1] Any tax system has a base (what to tax); taxpayer or unit of taxation (who to tax); and rate (how much to tax). 2.1 Alternative Tax Bases [1-1 to 1-6] Several different tax bases in Canada: For income taxes (i.e., personal and corporate income taxes), the base is income. For social security/Payroll taxes (e.g., EI, CPP, EHT), the base is salary and benefits. For the GST, the base is the FMV of (most) goods and services. Canada relies more heavily on personal income taxes and less heavily on social security taxes to raise revenues than do other countries. See CTP Figure 1-1. 2.2 Taxable Entities – Income Taxes [1-7 to 1-9] The Income Tax Act uses “person” to refer to the three entities that are subject to federal income taxation – individuals, corporations and trusts Individuals (not married couples) file T1s (i.e., personal tax returns) and are taxed at graduated personal rates The unit of taxation is the individual and the rate is graduated i.e., the rate is lower at lower income levels and rises as income rises. See http://www.parl.gc.ca/information/library/PRBpubs/prb0707-e.htm Corporations file T2s (i.e., corporate tax returns) and are taxed at flat corporate rates with special reductions for small businesses, etc. See http://www.parl.gc.ca/information/library/PRBpubs/prb0706-e.htm Trusts file T3s (i.e., trust tax returns). Trusts created on death (testamentary trusts) are taxed at graduated personal rates but trusts created by living taxpayers (inter vivos trusts) are taxed at the highest personal rate (29%) The base is taxable income (as defined in the Income Tax Act ) for all these taxpayers, although the rates differ Certain entities are exempt from income tax including: municipal governments; most Crown corporations; registered charities; most non-profit organizations; and pension trusts and pension corporations (including RPPs, RRSPs, deferred profit sharing plans and registered retirement income funds)
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3520-1: 8/17/2009 2-12 2.3 Federal Taxation & the Provinces – Personal Income Taxes Before 2000, only Quebec had different rules for personal taxes and a separate return. The other provinces charged their personal income tax based on a % of federal taxes. Now the federal government still collects personal income taxes for provinces other than Quebec but the provinces have their own computation of taxable income and tax rates. There are few significant differences so far. For example, Ontario uses the graduated rates and tax credits similar to what was used before. Only Alberta has something entirely different: a flat rather than graduated tax rate (i.e., the rate is the same no matter how much you earn).
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3520-1- updated 2009-jfth - 3520-1 1-12 1 3520 Lecture 1...

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