Canadian Federal Taxation - Assignment Example

Taxation Affiliation Case Study Charles Antoine is a Canadian citizen who works as a banker. Charles was born on 17/10/1980 and he will be turning 64 on October 2014. He lives in Quebec, where he was born and is married is married to Latesa Kiki Anne. Charles Antoine Identification Number is 3018-5978. Charles lives in the city of Montreal in Quebec Territory with his wife Latesa. His mailing address is 3115 Rue Sartelon Montréal and his postal address is 10-132/2MAINSTESE Montreal Quebec. As of 31st December 2013, Charles was still a residence of Quebec, where he has lived ever since he was born thirty four years ago. Charles’s language of correspondence is English even though he understands a little bit of French having studied French as a subject in school. Charles Antoine’s Social Insurance Number (SIN) is 193-456-787. Latesa Kiki, who is Charles’s wife, works as a Social and Health Care Service provider in a local Health and Social Care facility in Montreal Quebec. Latesa’s net income for the year 2013 after claim after credits is $80,000. Her Social Insurance Number is 193-567-674.The amount of Universal Care Benefit (UCCB) from line 117 of Latesa’s income is $1200 while the amount of Universal Child Benefit repayment from the line 213 of her return is $800 Charles Antoine is paid $9000 per month as his salary by the bank He works for. Apart from this income, he received $150,100 from a rental property he had but sold it in 2013.Charles also runs a personal business in his neighborhood where his younger works for him as the operator of the venture. Fro the personal business, he is able to earn an average of $2000 per month in terms of income. Charles is a staunch member of his church and every month, he gives $300 to his church which is a registered charity in Canada under the federal and territory laws. From his income, several deductions are normally made per month. Charles contributes towards the Canada Pension Plan (CPP) and towards the Employment Insurance benefit. Apart from his church contribution, he also contributes $150 every month towards the social and service health acre facility where his wife works. This facility is also a registered charity organization which helps the elderly and the underprivileged in Montreal. Calculating the RRSP To calculate the RRSP, it is important to know what Charles earned in the previous year in order to determine his RRSP deduction limit (Canadian Tax Calculator, 2014). Earned income includes the employment earnings (t4), rental income, net business income and alimony received and any other benefit. The T4 earnings include salary and wages. In order to calculate the earned income, it will be assumed that Charlie Antoine earned income that consisted of $9000 from salary, $6000 from rent and $5000 from business income. This gives a total of $20000 per month. Therefore the total earned income for the year 2012 for Mr. Charles is $20000 x 12 which gives a total of $240,000 The RSSP deduction limit is normally calculated as 18% of the earned income of the previous year Earned Income= Salary+ Rental. Income+ Income from the business =$ (9000+ 6000+ 5000) per month Earned Income for the year 2012= 20000x 12 =$240,000 RRSP for current year = 18% of the earned income in the previous year 2013 RRSP Deduction limit =18% x $240000 = $43000 This figure represents the RRSP limit that Mr Charles has in the year 2013 Calculating Capital Gain on the Sold Property The basic formula for calculating the capital gains on the property that had been sold by the client is subtracting the adjusted cost base and the outlays and expenses from the proceeds of disposition (Canada Revenue Agency, 2014). The proceeds of disposition refer to the amount that was received from the sale of the property. The outlays and expense are the costs that were incurred when selling the property. The adjusted cost refers to the initial amount that was spent on the rental property when Charles was buying it from the previous owner. Charles bought the property at $150,000.Before he could sell the property; he incurred $2000 in repair work on the property. The property had been bought four years ago by Charles form one of his friends at a cost of $100000 Calculating the Total Income for the year 2013 Therefore, in the year 2013, the total amount of earning for Charles from his three sources of income which include personal business, salary paid by the bank where he works and the capital gain that resulted from the sale of the rental property was $ 216,000 Charitable contributions All Canadian are entitled to claim a non refundable tax credit on donations that are made to charities that are registered with the authorities. The federal credit on donations normally amounts to 15 % on the initial $ 200 of the donation claimed in a year and 29 % for any other annual donation that is in excess of $200 (Heinzil, 2014). Charles case is not any different. On monthly basis Charles contributes towards the support of two registered charities in the Quebec territory where he lives. In a month, he donates $450 towards these registered charities. Taxable Income In order to calculate the amount of tax to be paid in the year 2013 by Charles, the earned income, RSSP contribution and other deductions are required to first determine his total taxable income. In calculating the total taxable income only 50% of the capital gain from the rental property that was sold by Charles will be taken into consideration as it is only the percentage that is normally taxed. Cover Letter to the client From the calculation of the earnings from salary, income from the sale of the rental property and income from the business, the total earned income for the year 2013 stood at $216,000.After the deductions, the taxable income was found to be $135,813.The deductions that were taken into consideration included the contribution to CPP, the charitable contributions, RRSP and the Employment Insurance contributions. Calculation of the tax factoring in the RRSP and the charitable contrition credit gave a figure of $27,144.46 for the total tax payable in the year 2013. Calculating the tax without factoring in the RSSP and the Credit on Donation on the other hand resulted in a total payable tax of $39,870. From these calculations it is clear that the charitable contribution, and the RRSP helped reduce the total payable tax by $12725. 78 in the year 2013.In terms of percentage reduction, the RRSP and the charitable contributions that were given to the registered charities in Canada helped to reduce the amount of payable tax by about 46.88%. Therefore RRSP and charitable donations help in reducing the taxable income and thereby reducing the payable tax. References Canadian Tax Calculator. (2014).Canadian federal tax rates. Retrieved from http://incometax.calculatorscanada.ca/federal-tax-rates-canada Canada Revenue Agency. (2014). Forms and publications. Retrieved from http://www.cra- arc.gc.ca/formspubs/menu-eng.html Heinzil, J. (2014).So what is the point f RSSP? The Globe and Mail. Retrieved from http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/rrsp- facts-to-liven-even-the-dullest-party/article16646045/ Read More