Question

2019 Tax Bill

Please compute the total tax due (April 30th, 2020) for the following single (non-senior, nonmarried) resident of Ontario. During the 2019 tax year, they earned $160,000 in (gross) T4 employment income. From this sum, $40,000 was deducted by their employer (for provincial and federal taxes) at source and remitted to the Canada Revenue Agency, which may or may not be enough to cover their tax bill. They also paid the full Canadian Pension Plan (CPP) premiums and Employment Insurance (EI) premiums for 2019. They contributed $10,000 to an RRSP and plans to utilize the entire deduction. In addition, they received $3,500 in interest income from a Canadian bank and $350 in dividends from her stockholdings (which involved only Canadian companies). Lastly, they provided 4.5 hours of volunteer service to their local fire department each Sunday and made $6,500 in charitable contributions during the 2019 tax year.

Part A: How much does the individual owe in total (Federal and Provincial and surtax) income tax for the year? (This amount would be due on April 30th, 2020.) Make sure to use the proper Ontario and Federal tax rates for 2019. Make assumptions if necessary but do not assume away any valid deductions or credits. Use the 2019 tax rates and carefully show all your work, including (i.) Federal Tax, (ii.) Ontario basic Tax, and (iii.) Ontario Surtax.

Part B: What is the marginal tax rate? Average tax rate? Explain the difference between the two rates.

Answer 1

1. COMPUTATION OF SINGLE INCOME TAX FOR THE YEAR PARTICULARS Gross income. 1,60,000 Add: Interest received from bank. 3500 Dividend received from bank. 350 Less : Deducted by employer towards. 40000 Provincial and federal taxes. Contribution to RRSP. 10000 Charitable contributions. 6500 TOTAL TAX @ 26%. [107350 x 26%). 107350 27911 NOTES: a. Interests and dividends received from banks are taxable b. An employer must deduct the following amounts from employment earnings 1.income tax 2. Employee contribution to employ insurance 3. Employee contributions to Canada pension plan (CPP) The individual will get credit for having paid these amounts which are reported on T4 when we file our annual tax return. C. Contribution made to RRSP are tax deduct which reduce the amount of income tax we will pay. It allows you to shelter investment earnings from tax d. Charitable donation is an itemized deduction 2. MARGINAL TAX RATE Marginal tax rate measure the impact of taxes on incentives to earn ,save invest and spend.lt helps to make effective financial decisions. AVERAGE TAX RATE: Average tax rate measures tax burden Average tax rate. = total amount of tax / total income