Exam 4: Tools for Financial Planning - Using Tax Concepts for Planning

Carrying charges and interest expense are an allowable deduction if they were used to earn investment income.

Meg makes RRSP contributions resulting in a tax rebate of $1200 each year. She is in a 30 percent tax bracket. What was the amount of her contribution?

Tax avoidance is normally best done at the end of the year when all sources of income are known.

Income earned from the sale of an asset for more than you paid for it is classified as

The basic personal exemption is an amount that reduces income for the taxpayer with high earnings.

Ralph has a gross income of $53 000. He has business expenses of $18 000 and incurred $4000 in college expenses for his daughter, who did not work and is a freshman at a local community college. Personal basic exemptions of $8500 and a tax rate of 26 percent apply. Compute Ralph's tax liability for the current year.

Tax credits are used to reduce total income.

Non-refundable tax credits should be used first to reduce tax because they cannot be carried forward to reduce taxes in later years.

You are being paid on a base pay, commission, and bonus incentive compensation package. The economy can have a lot to do with how much you earn in a year as well as your personal efforts to improve sales and increase your customer base. Your employer is very flexible as to when and how it makes incentive payments to you. For instance, it can switch between bonus and pension contributions as well as provide you with stock purchases and delay bonus disbursements until the new calendar year. Recent forecasts indicate that the economy will slow down next year and you have a sizable commission cheque and bonus payments owed to you this year. Under these circumstances, what would be your tax planning tactics to reduce taxes?

The knowledge of tax laws can help you

The tax rate a taxpayer is charged on his or her last dollar earned is called the

Which of the following reduces total income, unlike a tax credit amount that reduces tax payable?

You have a salary of $30 000, an RPP deduction of $2000, and union dues of $800. The federal tax rate is 15.5 percent. What federal tax do you owe?

Which of the following incomes are taxed at a lower rate?

If you are supporting a spouse who attended school and had very little income

RRSP contributions do not reduce the amount of tax you have to pay.

Tax evasion occurs when taxpayers attempt to deceive Canada Revenue Agency by knowingly reporting less tax payable than what the law requires them to pay.

Gross income consists of all reportable income from any source.

Canada's tax system is called "progressive," meaning that the more you earn the more you pay in taxes.

To qualify as a deduction, medical expenses must exceed 5 percent of total income.