Chapter 22_ Canadian Taxation exam with complete solutions
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Course
Income tax
Institution
Income Tax
What is the five-step process to calculate income tax?
1. Calculate all sources of income
2. Make allowable deductions to arrive at taxable income
3. Calculate the gross or basic tax payable on taxable income
4. Claim allowable tax credits on tax payable
5. Calculate the net tax payabl...
Chapter 22: Canadian Taxation exam with
complete solutions
What is the five-step process to calculate income tax? - 1. Calculate all sources of
income
2. Make allowable deductions to arrive at taxable income
3. Calculate the gross or basic tax payable on taxable income
4. Claim allowable tax credits on tax payable
5. Calculate the net tax payable
Can you list and describe the four general types of income? - Employment
Income - wages
Business Income - selling products (self employ)
Income from Property - rent, dividends, interest
Capital Gains/Losses - stonks/selling property
What is the marginal tax rate? - tax rate for next dollar you earn
How is interest income taxed? - at the investor's marginal tax rate, either when it
is received or as it accrues
How is dividend income taxed? - A dividend tax credit is available on publicly-
traded dividend-paying shares of taxable Canadian companies.
Dividends get 'marked-up' as if companies distributed with EBITDA. Then a tax
credit is calculated as a % of this marked-up dividend income, which reduces ur
taxes
How are capital gains taxed? - 50% of the capital gain is taxable.
, Capital losses can be used to reduce any capital gains that have been earned
Can you describe how dividend income from a foreign corporation is taxed? -
Foreign dividends are generally taxed as regular income, in much the same way
as interest income.
Can you list four tax-deductible items related to investment income? - • Interest
paid on funds borrowed to earn such investment income as interest and
dividends
• Fees paid for certain investment advice
• Fees paid for management, administration, or safe custody of investments
• Accounting fees paid for the recording of investment income
What are some investment charges that cannot be deducted? - • Interest paid on
funds borrowed to buy investments that can only generate capital gains
• Brokerage fees or commissions paid to buy or sell securities
• Interest paid on funds borrowed to contribute to a registered retirement savings
plan (RRSP), a registered education savings plan (RESP), a registered disability
savings plan (RDSP), or a tax-free savings account (TFSA)
• Administration, counselling, or trustee fees for a regular or self-directed
registered retirement savings plan, or for a registered retirement income fund
(RRIF)
• Fees paid for advice such as financial planning
• Safety deposit box charges
Can you explain the process of calculating a taxable capital gain on the
disposition of shares? - selling price - buying price - commission
proceeds - costs
What is the definition of adjustable cost base? - The adjusted cost base of shares
sold is generally composed of the cost of purchase plus commission expense
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