FINA200 Personal Finance ©
Lesson 4 Using Tax Concepts for Planning
Lesson/Chapter sections not subject to examination:
LO 5. Step 6: Calculate provincial or territorial tax
LO 6. Focus on Ethics
LO 7. Registered Disability Savings Plans (RDSPs)
Quote:
“The hardest think in the world to understand is the income tax.” – Albert Einstein,
physicist
Lesson Objectives
1. Explain the importance of taxes for personal financial planning
2. Explain when you have to file a tax return
3. Outline the steps involved in completing a tax return
4. Describe the major deductions available to a taxpayer
5. Show how tax credits can be used to lower tax payable
6. Describe the difference among tax planning, tax evasion, and tax avoidance
7. Describe tax planning strategies that can be used to reduce tax payable
LO1: Explain the Importance of Taxes for Personal Financial Planning
Background on Taxes
Taxes are paid at the federal, provincial, municipal and First Nations levels.
The federal income tax system is administered by the Canada Revenue Agency
(CRA).
The CRA collects taxes on behalf of all provinces except Quebec, as well as First
Nations that have entered into First Nations Personal Income Tax Administration
Agreements.
The Quebec government collects its own provincial taxes via Revenu Québec.
© May not be copied or duplicated
without the permission of the owner. 1
, Taxes are paid on:
Earned income (federal and provincial)
Personal income taxes are withheld by the employer from gross salary and
remitted to federal and provincial governments using the TD1 (Personal Tax
Credits Return) to determine the level of tax to withhold.
Income earned off-reserve by Indigenous individuals and businesses is
subject to the same tax rules as other Canadian residents. For qualifying
income under Section 87 of the Indian Act, the individual can ask for a waiver.
Self-employed individuals will likely pay quarterly instalment taxes.
Consumer purchases (federal and provincial)
The federal goods and service tax (GST) and provincial sales tax (PST) are
charged on most goods and services. In some provinces, both are combined
into the harmonize sales tax (HST).
Excise taxes are levied on certain consumer products, such as tobacco.
Capital assets (federal and provincial)
A capital gain arises if a capital asset is sold for a price greater than its
acquisition cost.
A capital loss arises if the asset is sold for a price less than its acquisition
cost.
50% of the year’s net capital gains (gains minus losses) is taxable.
Residents of Canada can claim a tax exemption on the sale of a principal
residence.
Property (municipal)
Homeowners pay property tax to municipal governments on the assessed
value of their property.
A First Nations government has the power to impose property taxes on
reserve or settlement land.
LO2: Explain When You Have to File a Return
Do you have to file a return:
It is important to understand the circumstances under which you must file an income
tax return in any calendar year. These include:
You have to pay tax for a calendar year.
You want to claim a refund.
You or your spouse or common-law partner want to begin, or continue receiving, the
Canada child benefit (CCB), GST/HST credit, or Guaranteed Income Supplement
(GIS).
© May not be copied or duplicated
without the permission of the owner. 2
Lesson 4 Using Tax Concepts for Planning
Lesson/Chapter sections not subject to examination:
LO 5. Step 6: Calculate provincial or territorial tax
LO 6. Focus on Ethics
LO 7. Registered Disability Savings Plans (RDSPs)
Quote:
“The hardest think in the world to understand is the income tax.” – Albert Einstein,
physicist
Lesson Objectives
1. Explain the importance of taxes for personal financial planning
2. Explain when you have to file a tax return
3. Outline the steps involved in completing a tax return
4. Describe the major deductions available to a taxpayer
5. Show how tax credits can be used to lower tax payable
6. Describe the difference among tax planning, tax evasion, and tax avoidance
7. Describe tax planning strategies that can be used to reduce tax payable
LO1: Explain the Importance of Taxes for Personal Financial Planning
Background on Taxes
Taxes are paid at the federal, provincial, municipal and First Nations levels.
The federal income tax system is administered by the Canada Revenue Agency
(CRA).
The CRA collects taxes on behalf of all provinces except Quebec, as well as First
Nations that have entered into First Nations Personal Income Tax Administration
Agreements.
The Quebec government collects its own provincial taxes via Revenu Québec.
© May not be copied or duplicated
without the permission of the owner. 1
, Taxes are paid on:
Earned income (federal and provincial)
Personal income taxes are withheld by the employer from gross salary and
remitted to federal and provincial governments using the TD1 (Personal Tax
Credits Return) to determine the level of tax to withhold.
Income earned off-reserve by Indigenous individuals and businesses is
subject to the same tax rules as other Canadian residents. For qualifying
income under Section 87 of the Indian Act, the individual can ask for a waiver.
Self-employed individuals will likely pay quarterly instalment taxes.
Consumer purchases (federal and provincial)
The federal goods and service tax (GST) and provincial sales tax (PST) are
charged on most goods and services. In some provinces, both are combined
into the harmonize sales tax (HST).
Excise taxes are levied on certain consumer products, such as tobacco.
Capital assets (federal and provincial)
A capital gain arises if a capital asset is sold for a price greater than its
acquisition cost.
A capital loss arises if the asset is sold for a price less than its acquisition
cost.
50% of the year’s net capital gains (gains minus losses) is taxable.
Residents of Canada can claim a tax exemption on the sale of a principal
residence.
Property (municipal)
Homeowners pay property tax to municipal governments on the assessed
value of their property.
A First Nations government has the power to impose property taxes on
reserve or settlement land.
LO2: Explain When You Have to File a Return
Do you have to file a return:
It is important to understand the circumstances under which you must file an income
tax return in any calendar year. These include:
You have to pay tax for a calendar year.
You want to claim a refund.
You or your spouse or common-law partner want to begin, or continue receiving, the
Canada child benefit (CCB), GST/HST credit, or Guaranteed Income Supplement
(GIS).
© May not be copied or duplicated
without the permission of the owner. 2
