C70_Chapter8 - INCOME TAX PLANNING Looking for the most...

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INCOME TAX PLANNING Looking for the most desirable strategies within the Income Tax system
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8.1 Learning Objectives Explain the four fundamental tax minimization strategies: income deferral, income splitting, income spreading and tax shelters. Illustrate the strategies with the specific techniques commonly available in Canada.
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8.2 Income Deferral “A tax deferred is a tax saved.” Well, at least partly. If you can’t use income for consumption, then you may be able to defer tax, and the PV of paying tax later rather than now is beneficial If the amount set aside also compounds at the (higher) before-tax rate, you get a second benefit.
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8.3 Registered Pension Plan Your employer’s pension plan. Employer deducts your contributions from your paycheque, and you do not include them in taxable income — the pension is taxed when you receive it. Employer also makes contributions. The contributions earn income at the before- tax rate.
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8.4 Registered Retirement Savings Plan An RRSP is a do-it-yourself pension plan. Your contributions to an RRSP are deducted from taxable income and the income on them accumulates at the before-tax rate. All withdrawals are taxed. Limits on how much you can deposit, depends on income, employer pension, contribution room carried forward.
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8.5 Capital Gains Deferral You pay no tax on capital gains until you ‘realize’ them — that is, sell the asset and receive the proceeds. IF it is suitable to keep holding an investment, the
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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_Chapter8 - INCOME TAX PLANNING Looking for the most...

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