Chapter 4 PCL

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Author:
kkcarebear
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103491
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Chapter 4 PCL
Updated:
2011-09-21 22:55:47
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PCL
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Chapter 4 - Income Tax
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  1. What are the criteria used to determine which provincial/territorial tax rates to apply to an employee's taxable income?
    Depends on the employee's work location. If the ee works on the employer's premises, the provincial/territorial taxa rate of that location applies to the ee's income. If the ee does not work on the employer's premises, the location of the employer's office that pays the employee determines which provincial/territorial tax rate to apply to the ee's income. If the employer does not have a location in Canada, ee's are taxed at a rate for employee's working beyond the limits of any province.
  2. List three of the five tax deductible amounts that are deducted from gross taxable income before income taxes are applied to an employee's renumeration.
    • ee contributions to a Registered Pension Plan (RPP)
    • contributions to a Registered Retirement Savings Plan (RRSP)
    • union dues (not applicable in the province of Quebec)
    • deductions for living in a prescribed zone as claimed on the ee's federal TD1
    • CRA authorized deductions
  3. Doris receives the following renumeration on her pay of July 13:
    Bi-weekly salary = $1364.85
    Overtime = 342.96
    4% vacation pay on overtime = 13.72
    Group term life insurance non-cash taxable benefits = 15.75
    Taxable car allowance = 75
    What is Dori's gross taxable income for this pay?
    • 1364.85+342.96+13.72+15.75+75 =
    • $1812.28 Gross Taxable Income
  4. Doris receives the following renumeration on her pay of July 13:
    Bi-weekly salary = $1364.85
    Overtime = 342.96
    4% vacation pay on overtime = 13.72
    Group term life insurance non-cash taxable benefits = 15.75
    Taxable car allowance = 75
    Doris contributes 3% of her bi-weekly salary to the employer's RPP plan and also pays $5.00 in union dues each pay. Calculate her net taxable income for the pay of July 13.
    1364.85+342.96+13.72+15.75+75 = $1812.28 Gross Taxable Income

    • Deductions used to determine net taxable income:
    • RPP contributions (1364.85x.03) = 40.95
    • Union dues = 5.00
    • Total Deductions = 45.95

    • Gross Taxable Income: 1812.28
    • Less: Total deductions: 45.95
    • Net Taxable Income = $1766.33
  5. What is the purpose of federal and provincial/territorial Personal Tax Credits Returns - TD1s?
    Used by the employer or payer to determine the amount of federal and provincial or territorial income tax to deduct frm and individual's employment income or other income such as pension income.
  6. In what situations would an employee complete the federal Worksheet for the Personal Tax Credits Return - TD1-WS?
    • The TD1-WS worksheet is used to calculate partial claim amounts on the TD1 for:
    • Age
    • Caregiver
    • Infirm Dependant age 18 or older
  7. When do the claim codes on the federal TD1 have to match the claim codes on the provincial/territorial TD1?
    • Only when a non-resident employee has a federal claim code of '0'; in that case, the provincial/territorial claim code must also be '0'.
    • Otherwise the amounts on either TD1 may not be the same, as the dollar values for the individual credits differ federally and provincially/territorially.
  8. In which situations would you use the manual method of calculating tax withholdings at source?
    • Used for employees who:
    • report a claim code of 'X' on the federal and/or provincial/territorial TD1 forms
    • are claiming labour-sponsored funds tax credits
    • earn more than the maximum amounts provided in the payroll deduction tables
  9. Frank earns $750 weekly in Alberta. He receives a non-cash taxable benefit of $4.50 per week. He is on-call for his employer and receives on-call pay of $30 per week. Federal and provincial claim code is 1.
    Determine the employee's gross taxable income, net taxable income, CPP contributions, EI premiums, and federal and provincial income tax withholdings. He will not reach the annual maximums for CPP or EI on this pay.
    • Gross Taxable Income: 750+30+4.5 = $784.50
    • Gross Pensionable Earnings: 784.50
    • Less: CPP exempt (3500/52): 67.30
    • Contributory Earnings = 717.20
    • x CPP rate (4.95%)
    • CPP Contribution = $35.50
    • Insurable Earnings: 780.00
    • x EI rate (1.78%)
    • EI Premium = $13.88
    • Gross Taxable Income: 784.50
    • Less: deductions used to determine net taxable income
    • Net Taxable Income = $784.50
    • Federal Tax on 784.50 = $107.10
    • Provincial Tax on 784.50 = $51.70
  10. Melissa works 80 hrs per bi-weekly pay period and earns $15.50 per hour. This pay period she worked 7 hrs of overtime, and will be paid $23.25 for each hour of overtime. She is a member of the union and pays $7 per pay for union dues. Her federal claim code is 8 and her provincial claim code is 4. Determine the employee's gross taxable income, net taxable income, CPP contributions, EI premiums, and federal and provincial income tax withholdings. She will not reach the annual maximums for CPP or EI on this pay.
    • Gross Taxable Income: 1240+162.75 = $1402.75
    • Gross Pensionable Earnings: 1402.75
    • Less: CPP exempt (3500/26): 134.61
    • Contributory Earnings = 1268.14
    • x CPP rate (4.95%)
    • CPP Contribution = $62.77
    • Insurable Earnings: 1402.75
    • x EI rate (1.78%)
    • EI Premium = $24.97
    • Gross Taxable Income: 1402.75
    • Less: deductions used to determine net taxable income 0.00
    • Less: Union Dues 7.00
    • Net Taxable Income = $1395.75
    • Federal Tax on 1395.75 (claim code 8) = $110.65
    • Provincial Tax on 1395.75 (claim code 4) = $66.20
  11. Paula is paid a salary of $4000 per month, and receives a monthly $400 taxable car allowance. The employer's pension plan allows Paula to contribute 6% of her monthly salary to the plan, which she does. Her federal claim code is 3 and her provincial claim code is 1. Determine the employee's gross
    taxable income, net taxable income, CPP contributions, EI premiums, and federal and provincial income tax withholdings. She will not reach the
    annual maximums for CPP or EI on this pay.
    • Gross Taxable Income: 4000+400 = $4400
    • Gross Pensionable Earnings: 4400
    • Less: CPP exempt (3500/12): 291.66
    • Contributory Earnings = 4108.34
    • x CPP rate (4.95%)
    • CPP Contribution = $203.36
    • Insurable Earnings: 4400
    • x EI rate (1.78%)
    • EI Premium = $78.32
    • Gross Taxable Income: 4400
    • Less: deductions used to determine net taxable income (RPP 4000x.06): -240
    • Net Taxable Income = $4160
    • Federal Tax on 4160 (claim code 3) = $600
    • Provincial Tax on 4160 (claim code 1) = $304.30
  12. If the employee works on the employer's premises, what income tax rate would apply?
    The provincial/territorial tax rate of the location of the employer's premises.
  13. If the employee does not work on the employer's premises, which tax rate is applied?
    The provincial/territorial tax rate of the location of the employer's office that the employee is paid from would apply.
  14. If the employee does not work on the employer's premises and is paid from the employer's business located outside Canada, how is the income tax rate applied?
    The employee does not pay provincial tax but is taxed using a tax rate for 'employees working in Canada beyond the limits of any province'.
  15. Renumeration subject to income tax includes:
    Earnings plus the value of any Taxable Benefits and Allowances
  16. How are tax deductable amounts used to calculate Net Taxable Income?
    Tax deductable amounts (like RRSP, RSP, and Union Dues except QB) are subtracted from Gross Taxable Income to determine the Net Taxable Income that taxes are calculated on.
  17. The CRA federal and provincial/territorial - Personal Tax Credits Return - TD1 and TD1-WS are completed by an employee who:
    • has a new employer or payer and is receiving salary, wages, commissions or any other renumeration
    • wishes to increase the amount of income tax deducted at source ('additional tax')
    • has changes in the personal amounts/credits previously claimed on the TD1 form
  18. What is used by the employer to determine the amount of federal and provincial or territorial income tax to deduct from an individual's employment income or other income such as pension income?
    The total claim amount or the claim code on the federal and provincial Personal Tax Credits Return - TD1 form.
  19. True or False: Employee's are required to complete the provincial/territorial tax credit return that corresponds to their province or territory of employment, or province/territory of residence in the case of a pensioner.
    True
  20. True or False: The Canada Revenue Agency publishes teh Payroll Deductions Tables - T4032, which contain the withholding requirements for CPP, EI and federal and provincial/territorial tax by jurisdiction.
    True
  21. Which pay period frequencies do the Payroll Deductions Tables provide the statutory deduction withholdings for?
    • Weekly (52)
    • Bi-Weekly (26)
    • Semi-Monthly (24)
    • Monthly (12)
  22. True or False: The Payroll Deductions Online Calculator (PDOC) calculates CPP, EI, federal and provincial/territorial income tax withholdings for regular salary, paid vacation, pension income, bonuses, retroactive pay and commissions for all jurisdictions, except Quebec.
    True
  23. The manual method of calculating tax withholdings at source is used for employees who:
    • report a claim code "X" on their TD1 forms
    • are claiming labour-sponsored funds tax credits
    • earn more than the maximum amounts provided in the payroll deduction tables
  24. The formula method of calculating tax is used by:
    Organizations that process their payrolls using an in-house software program. It is also the method used by payroll service providers to process their client's payroll.
  25. True or False: Nine provinces and three territories use the same method as the federal government to determine which types of renumeration are subject to income tax.
    True
  26. True or False: The method for calculating income taxes and the remittance schedules are defined in the Income Tax Regulations (ITR).
    True
  27. True or False: The terms 'taxable income', 'gross taxable income', or 'net taxable income' are defined in the Income Tax Act
    False. They are only terms commonly used by payroll practioners, they are not in the Income Tax Act
  28. True or False: the appropriate provincial/territorial tax rate to apply to an employee's taxable income depends on the employee's workplace location
    True
  29. John lives in Gatineau, Quebec, and works in the accounting department at Castle Equipment in Ottawa, Ontario. Which province/territory tax rates will be used to calculate his income tax deducations at source?
    The Ontario tax rates would be used as this is the province where he reports to work.
  30. Susan works for Castle Equipment, Ottawa, as a salesperson. She works out of her home in St. John, New Brunswick. Her sales territory includes Eastern Ontario, Quebec and New Brunswick. Which province/territory tax rates will be used to calculate her income tax deductions at source?
    As Susan does not report to work at any establishment of her employer but is paid from the Ontario office, Susan will have provincial income tax deductions at source calculated based on Ontario tax rates.
  31. A organization located in the United States has hire Monica, a Canadian resident to work as a sales person in British Columbia. She works from her home office and reports to the employer's business in the United States.
    The employee's tax is determined by using the Payroll Deductions Tables - Income Tax Deductions - In Canada Beyond the Limits of Any Province or Outside Canada - T4032OC. No provincial tax is deducted.
  32. Is provincial tax deducted from employees who do not work on the employer's premises and are paid from the employer's business located outside Canada?
    NO - the employee does not pay provincial tax, but is taxed using a tax rate for employees working in Canada Beyond the Limits of any Province.
  33. What types of renumeration are subject to income tax?
    • salary, wages, overtime, retroactive payments, commissions, and wages in lieu of notice
    • bonuses, vacation pay and gratuities
    • pensions, retiring allowances, severance pay and death benefits
    • the value of any taxable benefits and allowances
    • Note: the total of this renumeration is the employee's Gross Taxable Income
  34. Vera received the following renumeration:
    Monthly Salary: 2500
    Bonus: 450
    Group term life taxable benefit: 50
    What is her Gross Taxable Income?
    2500+450+50= $3000
  35. What amounts are considered tax deductable and are subtracted from gross taxable income before income taxes are calculated and applied?
    • ee contributions to a registered pension plan (RPP)
    • RRSP contributions
    • union dues (not applicable to province of Quebec)
    • CRA authorized deductions
    • deductions for living in a prescribed zone, as claimed on teh ee's federal TD1; under the Income Tax Regulations, an area is a prescribed zone if it is in the Yukon, the Northwest Territories, Nunavut, Labrador or north of specified latitudes in the provinces of BC, AB, SK, MB, ON or Quebec.
  36. What are the prescribed zones in which living deductions are considered tax deductable (subtracted from Gross taxable income)?
    under the Income Tax Regulations, an area is a prescribed zone if it is in the Yukon, the Northwest Territories, Nunavut, Labrador or north of specified latitudes in the provinces of BC, AB, SK, MB, ON or Quebec.
  37. True or False: Tax Credits increase the total amount of tax payable.
    False. Tax Credits reduce the total amount of tax payable
  38. Who receives a tax credit for a basic personal amount?
    Every Canadian receives the basic personal amount tax credit
  39. True or False: Taxpayers who have additional tax credits may wait until their tax return is assessed to receive a tax refund, or they may complete a TD1 to inform the employer of the additional tax credits that will be claimed that taxation year.
    True
  40. What are the two ways that taxpayers who have additional tax credits can receive their refund?
    • Either by waiting until their tax return is filed and assessed to receive a refund
    • OR
    • by submitting a TD1 to their employer to inform the employer of the additional tax credits to be applied for that taxation year
  41. True or False: By claiming additional tax credit amounts on the federal TD1, an employee can reduct the amount of federal income tax they have to pay at source.
    True
  42. The Worksheet for the Personal Tax Credits Return - TD1-WS is used to calculate partial claim amounts on the TD1 for:
    • age
    • caregiver
    • infirm dependent age 18 or older
  43. True or False: The employee must file the TD1-WS with the employer.
    False - the worksheet is kept by the employee for their records, not given to the employer
  44. Federal claim code '0' is used for employees who:
    • are non-resident employees not entitled to the personal tax credits
    • have another job and have already claimed their basic personal tax amount on the TD1 they filed with their other employer
  45. Within how many days of a change to their tax credits must an employee submit a new federal TD1?
    within 7 days of the change
  46. True or False - The CRA provides a TD1 -WS worksheet for all provinces/territories except Quebec
    True
  47. True or False: The TD1 forms will have a direct impact in determining the employee's tax deductions.
    True - the claim code or Total Claim Amount on the TD1 form will determine which tax amount on the deduction tables apply
  48. What are the 4 methods available to calculate income tax deductions?
    • Payroll Deduction Tables
    • Payroll Deductions Online Calculator (PDOC)
    • Manual Method
    • Formula Method
  49. Who publishes the Payroll Deduction Tables (T4032)?
    The Canada Revenue Agency publishes the Payroll Deduction tables January 1st of each year.
  50. Who publishes the Payroll Deductions Supplementary Tables (T4008) and what type of employers use it?
    Published by The Canada Revenue Agency. Used by employers who have an unusual pay period frequency such as hourly, daily (240 working days), or 10, 13, or 22 pay periods in a year.
  51. True or False: The WinRAS program is used to calculate Quebec-specific payroll deduction online
    True - WinRAS is found on Revenu Quebec's website
  52. True or False: The Payroll Deduction Online Calculator (PDOC) program is more precise because it uses the exact salary amount to calculate the deduction, whereas the paper Payroll Deduction Tables use the mid-point of the salary range to calculate the deduction.
    True
  53. Christine will be claiming a large amount for child care expenses on her income tax return and, as a result, expects to receive a tax refund. She doesn't want to wait to receive her income tax assessment. What does she have to do to reduce her income tax deductions at source?
    She should complete and submit a T1213 (Request to Reduce Tax Deductons at Source) to the CRA. The CRA will send her a letter of authority which she can then submit to her employer as permission to reduce her taxable income during the year.
  54. What is the formula to calculate Net Pay manually?
    • Step 1: Determine Gross Earnings (Earnings+Taxable Allowances+Non-Taxable Allowances+Cash Taxable Benefits)
    • Step 2: Determine Non-Cash Taxable Benefits (**is not used for EI calc)
    • Step 3: Determine CPP Contribution (Earn_Taxable Allowance+Cash Taxable Benefits+Non-Cash Taxable Benefits = Gross Pensionable/Taxable Income)
    • Step 4: **Determine EI Premium (Earnings+Taxable Allowance+Cash Taxable Benefits = Gross Insurable)
    • Step 5: Determine Federal/Provincial Income Tax (Gross Pensionable/Taxable Income less RPP less RRSP less Union except QB, less Prescribed Zone, less CRA Authorized Ded = Net Pensionable/Taxable Income)
    • Step 6: Determine Total Deductions (CPP, EI, Tax)
    • Step 7: Net Pay (Gross Earnings minus Total Deductions)

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