Financial Unit 14 Reporting Income (TAXES!)

Discussion Questions Why do people have to report their income and pay taxes to the government? Why do people have to report their income and pay taxes to the government? What are tax deductions? What are they used for? What are tax deductions? What are they used for? What tax credits and tax deductions did Luna and Nikos qualify for? How did those deductions help them? What tax credits and tax deductions did Luna and Nikos qualify for? How did those deductions help them? What did Nikos mean when he said that it pays to be low-income at tax time? What did Nikos mean when he said that it pays to be low-income at tax time?

Have you ever received a T4, T5, or other tax form, or filed a T1? What are they? What are they? T4: the form on which an employer reports your earnings and paycheque deductions so that you can include them in your income tax return. T4: the form on which an employer reports your earnings and paycheque deductions so that you can include them in your income tax return. T5: the form on which a financial institution reports your earnings from investments so that you can include then in your income tax return. T5: the form on which a financial institution reports your earnings from investments so that you can include then in your income tax return. T1: the form on which you report your income and calculate the amount of tax you owe or any tax refund that is owed to you. T1: the form on which you report your income and calculate the amount of tax you owe or any tax refund that is owed to you.

Why do People Pay Income Tax? The federal and provincial government require all residents to pay a percentage of their income in tax (with exemptions for the first amount of annual income) The federal and provincial government require all residents to pay a percentage of their income in tax (with exemptions for the first amount of annual income) Canada has progressive income tax system. Canada has progressive income tax system. People pay a higher rate of tax if they have a higher income. People pay a higher rate of tax if they have a higher income. People with low income pay little or no tax. People with low income pay little or no tax.

What Happens to the Taxes that are Collected? Governments spend them to provide services like schools, hospitals, roads and policing, to assist low-income people such as students, seniors and the unemployed, and to pay for other levels of government such as cities. Governments spend them to provide services like schools, hospitals, roads and policing, to assist low-income people such as students, seniors and the unemployed, and to pay for other levels of government such as cities.

What are Paycheque Deductions? Why are they Made? Employers must withhold a portion of each employee’s pay (the pay cheque deduction) and send it to the government so that the government will have money to operate through the year. Employers must withhold a portion of each employee’s pay (the pay cheque deduction) and send it to the government so that the government will have money to operate through the year. Once a year, when completing their T1 income tax return, tax payers can review their total paycheque deductions and claim back any excess that was collected (or pay any unpaid taxes). Once a year, when completing their T1 income tax return, tax payers can review their total paycheque deductions and claim back any excess that was collected (or pay any unpaid taxes). The T1 return for the year must be filed by April 30 of the following year. The T1 return for the year must be filed by April 30 of the following year.

What Happens When People Receive Income Without Paycheque Deductions? All Canadian residents are required to pay tax on all income (except for approved exemptions). All Canadian residents are required to pay tax on all income (except for approved exemptions). However, paycheque deductions don’t apply to some sources of income, including investment income, self-employment and contract work. However, paycheque deductions don’t apply to some sources of income, including investment income, self-employment and contract work. In those cases, residents are required to report their own income, and may be required to submit tax installments monthly or quarterly. In those cases, residents are required to report their own income, and may be required to submit tax installments monthly or quarterly.

What Happens when People Don’t Report their Income or File a False T1 Income Tax Return? Tax inspectors have the right to inspect tax, income and other financial records to ensure the T1 return is complete and accurate. Tax inspectors have the right to inspect tax, income and other financial records to ensure the T1 return is complete and accurate. If it’s not, the taxpayer can be assessed for any missing taxes, plus interest and penalties. If it’s not, the taxpayer can be assessed for any missing taxes, plus interest and penalties. In serious cases, the taxpayer can be charged with tax evasion and, if found guilty, sent to jail. In serious cases, the taxpayer can be charged with tax evasion and, if found guilty, sent to jail.

Tax Reporting BENEFITS! Tax credits: an amount you can deduct from the taxes you owe. Tax credits: an amount you can deduct from the taxes you owe. Example: Example: GST credit: Low income Canadians can claim a credit to offset a portion of the Goods and Services Tax (GST) they’ve paid. GST credit: Low income Canadians can claim a credit to offset a portion of the Goods and Services Tax (GST) they’ve paid. Tax deductions: an amount you can subtract from your income when calculating the amount of income you have to pay tax on. Tax deductions: an amount you can subtract from your income when calculating the amount of income you have to pay tax on. Example: Example: Moving deductions: If you have to move for your job. Moving deductions: If you have to move for your job.

Can you describe any tax credits and deductions that are available to post secondary students? Can claim a credit for the amount of their tuition. Can claim a credit for the amount of their tuition. You can also claim an additional $400 (full time) or $120 (part time) students. You can also claim an additional $400 (full time) or $120 (part time) students.

What is an RESP (Registered Education Savings Plan)? RESP is a way to save for your education and get a tax break at the same time. When a person, like your grandmother, puts money into an RESP for you, the Government of Canada doesn’t get to charge her tax on the income that’s earned on that money. RESP is a way to save for your education and get a tax break at the same time. When a person, like your grandmother, puts money into an RESP for you, the Government of Canada doesn’t get to charge her tax on the income that’s earned on that money. If the income earned in the RESP is withdrawn to support your education at a qualifying post-secondary institution, it’s taxed as your income. It’s likely to be tax-free because your income while you’re taking classes is going to be very low. If the income earned in the RESP is withdrawn to support your education at a qualifying post-secondary institution, it’s taxed as your income. It’s likely to be tax-free because your income while you’re taking classes is going to be very low. If the income is withdrawn for any other reason, your contributor would generally have to pay income tax, with penalties on it. If the income is withdrawn for any other reason, your contributor would generally have to pay income tax, with penalties on it. As well, the Government of Canada will contribute up to $400 per year (in 2004) to RESPs under the Canadian Education Savings Grant Program. As well, the Government of Canada will contribute up to $400 per year (in 2004) to RESPs under the Canadian Education Savings Grant Program.

Can Anyone Describe a RRSP? (Registered Retirement Savings Plan) The Government of Canada encourages Canadians to save for their retirement by allowing them to deduct from their income the money they contribute to an RRSP. The Government of Canada encourages Canadians to save for their retirement by allowing them to deduct from their income the money they contribute to an RRSP. For Example: if you had $25,000 in taxable income in one year, but contributed $5,000 to an RRSP, you would only have to pay taxes on $20,000. For Example: if you had $25,000 in taxable income in one year, but contributed $5,000 to an RRSP, you would only have to pay taxes on $20,000. The money you contribute to your RRSP can grow, tax- free, until you withdraw it. The money you contribute to your RRSP can grow, tax- free, until you withdraw it. When you do withdraw it, the money is taxed as income. Of course, if you’re retired at that time, you’ll probably pay less tax because your income and your tax rate, are likely to be lower. When you do withdraw it, the money is taxed as income. Of course, if you’re retired at that time, you’ll probably pay less tax because your income and your tax rate, are likely to be lower. So RRSPs allow people to defer taxes on their retirement savings for many years, and may also result in a low tax bill at that time. So RRSPs allow people to defer taxes on their retirement savings for many years, and may also result in a low tax bill at that time.

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