C70_Chapter7 - PERSONAL INCOME TAX The Basic Structure of...

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PERSONAL INCOME TAX The Basic Structure of Personal Income Tax in Canada
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7.1 Learning Objectives Basic understanding of personal income taxation in Canada Explain differences in taxation of different forms of investment income Understand and calculate marginal tax rates and after-tax discount rates
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7.2 Legal Background beware! beware! The text gives a very basic and general introduction to taxation — the field is much more complicated. Income Tax Act is a federal statute — apply literally each province has its own tax statute. Before 2001, all provinces but Québec calculated tax as % of federal tax; now they do it on income (a TONI system).
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7.3 Administration Canada Revenue Agency (CRA), which was formerly Canada Customs and Revenue Agency, administers the system federally, and does most of the work for the provinces, except Québec. Each province has its own revenue ministry, too. Many procedures are not in the statutes. Interpretation Bulletins, Information Circulars and a large body of case law also set tax rules.
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7.4 General Concepts self-assessment on prescribed forms progressive — higher tax rate on higher income marginal — higher tax rate applies only to income over a specified level (tax bracket). tax deductions reduce taxable income. tax credits reduce tax payable directly. surtax = tax on tax, usually only for high incomes.
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1. Add all Sources of income (pg. 2 of T1) Deductions (pg. 2 of T1) = Taxable Income (carried forward to Schedule 1) 2. Add all personal tax credits (line 335, pg. 1 of Schedule 1 ) = P Federal t ax credit is 16%, or .16P Add all charitable donations = D Federal tax credit is 16% on first $200, 29% on the rest = [ .16 × MIN (D, 200)] + .[29 × (D – 200)] Total non-refundable tax credits = .16P + [.16 × MIN (D, 200)] + [.29 × (D – 200)] 7.5 TABLE 7.1 Basic Outline of Personal Income Taxation — 1
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7.6 TABLE 7.1 Basic Outline of Personal Income Taxation — 2 3. Federal tax calculation :
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This note was uploaded on 07/20/2011 for the course MGMT 70 taught by Professor Ahmed during the Spring '11 term at University of Toronto- Toronto.

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C70_Chapter7 - PERSONAL INCOME TAX The Basic Structure of...

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