Fundamentals of Taxes in Canada

1
Fundamentals of Taxes in Canada

• Business Workshop
• Lakehead Shad

2
Taxes in Canada

• Income Tax (provincial and federal)
• Consumption taxes (GST, PST, HST)
• Excise taxes (on specific goods such as liquor,
  tobacco, gasoline)
• Capital taxes
• Estate taxes (fees) (probate)

3
Income Taxation

• Federal Tax Rates (2005)
• Provincial Tax Rates (2005)

4
Marginal Rates (2005)

• FEDERAL RATES
• Taxable Income Marginal Federal Tax Rate
• 0 35,594 15
• 35,595 - 71,190 22
• 71,190 - 115,739 26
• 115,740 29

PROVINCIAL RATES (Ontario) Taxable
Income Marginal Federal Tax Rate 0
34,010 6.05 34,011 - 68,020 9.15 68,021
11.16
5
Taxation of Investment Income

• Always use Marginal Tax Rates to make investment
  decisions.why?
• Tax treatment of interest income
• Tax treatment of dividend
• Tax treatment of capital gains

6
Three Forms of Investment Income

• Interest
• Dividends
• Capital Gains

7
Taxation of Investment Income

• Tax treatment of interest income
• All interest income including cash interest
  received as well as accrued interest not received
  is taxed each year at the tax payers marginal tax
  rate.

8
Taxation of Investment Income

• Tax treatment of dividend
• Subject to the gross-up/tax credit system
• Gross up 145
• Dividend tax credit 27.5 of actual dividend

9
Taxation of Investment Income

• Tax treatment of capital gains
• 50 of a realized capital gain is subject to
  tax in the year it is realized at the tax payers
  marginal tax rate.

10
Double Taxation involving Corporate Income
PST, CPP, EI, WSIB, insurance, cost of goods
sold, wages, etc.
Income Statement XYZ Company For the year ended
July 15, 2006 Total Revenue 10,000,000 Less
Total Expenses 9,000,000 Before Tax
Income 1,000,000 Corporate Taxes _at_
40 400,000 Net Income 600,000 Dividends 400,00
0
Personal Tax Return for the year ended Dec. 31,
2006 Income from Employment Net Business
Income Social Assistance Benefits Grossed up
Dividends (CCPC) Less deductions Equals Taxable
Income Calculate Taxes Less non-refundable tax
credits and dividend tax credit Net Taxes
Payable Gross income less deductions at source
less income tax equals personal disposable
income.
200,000 reinvested in the business