Tax Credits and Conversion Rates

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Questions and Answers

What is the estimated net tax owing for Hruba in 2024?

$24,000 (correct)

$20,000

$36,000

$32,000

According to Alternative 1, how much should Hruba pay in quarterly instalments in 2024?

$4,000

$6,000 (correct)

$8,000

$10,000

If Hruba chooses Alternative 2, how much should she pay in quarterly instalments?

$8,000 (correct)

$6,000

$7,000

$9,000

What is the total amount Hruba should pay according to Alternative 3?

$32,000 Signup and view all the answers

When is the amount owing due for the taxes of the preceding year?

April 30th Signup and view all the answers

What happens if an individual does not pay the required instalment payment on time?

Interest is charged Signup and view all the answers

How is interest calculated on the deficient instalment amounts?

Compound daily interest Signup and view all the answers

When does the interest clock start ticking for the deficient instalment amounts?

On the date the instalment is due Signup and view all the answers

What is the conversion rate equal to?

The lowest marginal tax rate or 15% Signup and view all the answers

What happens to a non-refundable tax credit if it exceeds the taxpayer's tax liability?

The excess portion is lost Signup and view all the answers

Which of the following is an exception to the rule that non-refundable tax credits cannot be carried forward?

Charitable donations Signup and view all the answers

What is the result when a refundable tax credit exceeds the taxpayer's tax liability?

The taxpayer can generate a refund from the government Signup and view all the answers

What happens to George's tax credit of $500 if he has $200 in taxes owing?

He can use $200 of his tax credit to reduce his taxes to zero and generate a refund of $300 Signup and view all the answers

What is the main difference between refundable and non-refundable tax credits?

Refundable credits can generate a refund from the government, while non-refundable credits cannot Signup and view all the answers

Which of the following is an example of a refundable tax credit?

GST tax credit Signup and view all the answers

What is the consequence if a non-refundable tax credit exceeds the taxpayer's tax liability in a given year?

The unused portion is lost Signup and view all the answers

What is one of the benefits of filing taxes for low-income tax taxpayers?

Canada Child Tax Benefit Signup and view all the answers

What is the general deadline for individuals to file their tax return?

April 30 of the following year Signup and view all the answers

What is the extended deadline for filing taxes for individuals who are partners or sole proprietors?

June 15 of the following year Signup and view all the answers

When is the payment of all taxes owing due for individuals who are partners or sole proprietors?

April 30 of the following year Signup and view all the answers

What is the purpose of the extended deadline for deceased taxpayers?

To provide the deceased individual's representatives with sufficient time to deal with complications Signup and view all the answers

What is the primary method of filing taxes?

Either paper form or electronic method (E-File) Signup and view all the answers

What is the taxation year that individuals must use?

Calendar year (December 31) Signup and view all the answers

What happens if the filing due date falls on a weekend?

The deadline is extended to the next business day Signup and view all the answers

What is the penalty for knowingly making a false statement in a tax return?

The greater of $1000 or the lesser of the penalty which the other person would be liable if the other person knowingly made the statement and $100 000 plus the advisor's compensation Signup and view all the answers

Who must file a tax return?

All persons, including individuals, corporations, and trusts Signup and view all the answers

What is one reason to file an individual tax return?

You have tax payable Signup and view all the answers

Why might the Canada Revenue Agency (CRA) send you a request to file a tax return?

You have not filed a tax return in the past Signup and view all the answers

What is the consequence of not filing a tax return?

You may be subject to penalties and interest Signup and view all the answers

Who must contribute to the Canada Pension Plan (CPP)?

Both employees and self-employed individuals Signup and view all the answers

What is a reason to file an individual tax return in relation to a spouse or common-law partner?

Your spouse or common-law partner has elected to split their pension Signup and view all the answers

What is a situation in which you may need to file an individual tax return?

You have disposed of a capital property or realized a capital gain Signup and view all the answers

What is the lesser of for the penalty for unreported income?

10% of the unreported amount Signup and view all the answers

What is the range of the penalty for tax evasion?

50% to 200% of the relevant tax Signup and view all the answers

What is the minimum penalty for making a false statement in the course of a planning or valuation activity?

$1,000 Signup and view all the answers

What is the penalty for participating in a misrepresentation by an advisor?

$1,000 Signup and view all the answers

What is the penalty for gross negligence where there is an intention to disregard the Income Tax Act?

The greater of $100 and 50% of the understated tax Signup and view all the answers

Who is considered the 'RINGLEADER' in the context of tax planning arrangements?

The advisor Signup and view all the answers

What is the term for the penalty for making, or causing another person to make, a false statement?

The Planner Penalty Signup and view all the answers

What is the term for the penalty for participating in a misrepresentation by an advisor?

The Preparer Penalty Signup and view all the answers

Study Notes

Tax Credits

Non-refundable tax credits can be claimed by a taxpayer, but only to the extent it reduces their tax liability to zero.
Most tax credits can only be used to reduce a taxpayer's personal tax liability, although in limited circumstances, they can be transferred to a spouse or parent.
Unused portions of non-refundable tax credits are typically lost, except in certain circumstances, such as charitable donations, where they can be carried forward and used in a future year.
Refundable tax credits, such as the federal GST tax credit and certain provincial tax credits, are payable regardless of whether the taxpayer has taxable income.
Refundable tax credits can generate a refund from the government even if the taxpayer has reduced their tax liability to zero.

Filing Individual Tax Returns

The general rule is that individuals must file their tax return for a particular year on or before April 30 of the following year.
If the due date falls on a weekend, the filing deadline is extended to the next business day.
Individuals who are partners or sole proprietors have a filing deadline of June 15 of the calendar year following the relevant taxation year.
Payment of all taxes owing is required by the usual date of April 30, even if the return does not have to be filed until June 15.

Due Date for Individual Returns

Deceased taxpayers have an extended filing deadline to provide their representatives with sufficient time to deal with complexities.
Certain income-based benefits, such as the Canada Child Tax Benefit, GST credit, and Guaranteed Income Supplement (GIS), require individuals to file a tax return.

Instalment Payments

Interest is assessed on any amounts that are not paid when they are due.
Individuals who are required to make instalment payments must pay by the required instalment due date.
Compound daily interest is charged on deficient instalment amounts.
The penalty for not making instalment payments is the greater of $1000 and the lesser of the penalty which the other person would be liable if the other person knowingly made the statement, and $100,000 plus the advisor's compensation.

Requirement to File a Tax Return

All persons (individuals, corporations, and trusts) are required to file a tax return.
Reasons to file an individual return include:
- Having tax payable
- Receiving a request from the CRA to file
- Disposing of a capital property or realizing a capital gain
- Needing to contribute to the Canada Pension Plan (CPP) or pay Employment Insurance (E.I.) premiums

Penalties

False statements or omissions: 10% of the unreported amount, or an amount equal to 50% of the difference between the understatement related to the omission and the amount of any tax paid in respect of the unreported amount.
Gross negligence: the greater of $100 and 50% of the understated tax.
Evasion: penalties range from 50% to 200% of the relevant tax, and imprisonment for a period not exceeding 2 years.
Penalty for misrepresenting a tax planning arrangement: the greater of $1000 and the total of the person's gross entitlements arising from the false statement.
Penalty for participating in a misrepresentation: the greater of $1000 and the lesser of the penalty which the other person would be liable if the other person knowingly made the statement, and $100,000 plus the advisor's compensation.

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Description

This quiz covers the basics of tax credits, including refundable and non-refundable tax credits, and how they relate to conversion rates and tax liability.