Taxes. The bane of our existence right? Well, not if you are tax literate! You see taxes are actually a good thing because they keep society running smoothly. Americans are often thought of as the most tax illiterate people in the world. In Canada, we are not too far behind! So let’s play a game. We have some questions for you to answer below and see for yourself how tax-savvy you are:
- To your knowledge, are these items taxable or not?
a. Withdrawal from a registered retirement savings plan (RRSP) other than to study or to purchase a home
b. Withdrawal from a tax-free savings account (TFSA)
c. Employment insurance benefits
d. Lottery winnings
e. Child support received (after 1997)
f. Profits from selling a primary residence for more than it was originally bought
2. Taxpayer A and Taxpayer B, both single individuals, each deduct a $1,000 contribution to their RRSP. Taxpayer A has an annual income of $50,000 and Taxpayer B has an annual income of $100,000. Which of these statements is true?
a. Taxpayer A will see his taxes reduced by a larger amount than Taxpayer B
b. Taxpayer B will see his taxes reduced by a larger amount than Taxpayer A
c. Both Taxpayers A and B will see their taxes reduced by the same amount
d. Neither Taxpayers A nor B will see their taxes reduced
3. Couple A has someone with $100,000 in income and someone else who has no income. Couple B has two people who both make $50,000 in income. Which of the following statements is true?
a. Couple A will pay more income tax
b. Couple B will pay more income tax
c. The two couples will pay the same total amount of income tax
If it seems difficult to answer the questions, you might want to rethink how much attention you pay to Canadian taxes. The answers are as follows:
For Question 1: Only A and C are taxable, the rest are not taxable.
For Question 2: B is the correct answer.
For Question 3: A is the correct answer
The given questions came from the cross-Canada survey conducted by Leger in the spring of 2019. These questions cover the taxable nature of different sources of income, the way credits and deductions differ, tax progressivity, and the unit of taxation. Specifically, the second and third questions were used on RRSP deductions and family taxation respectively, as measures of respondents’ understanding of progressivity (though the last question also captures the understanding of the unit of taxation used in Canada).
If you find yourself struggling with tax literacy and financial literacy in general, do not fret because some programs and tools can help you.
Celebrating November as the National Financial Literacy Month, FCAC’s commissioner Judith Robertson encourages Canadians to take some time this month to learn more about how we can improve our financial resilience, especially in these challenging times.
The Financial Consumer Agency of Canada (FCAC) has launched a theme for each week of November: Managing expenses to keep up with bills and credit expenses, managing debt, managing savings to prepare for financial shocks and achieve financial goals, and navigating the financial marketplace with knowledge and confidence.
Last July, FCAC released a new national financial literacy strategy. The five-year plan aims to help Canadians improve their financial knowledge as the economy gradually recovers from the economic shock of COVID-19 and in the future.
The agency has financial tools and calculators and resources for managing money, debt and borrowing, and savings and investments on its website. It also hosts events, such as a one-hour webinar about how women can save more money on Nov. 17.
The FCAC’s website also has a Canadian financial literacy database, a complete list of financial literacy events, and resources offered by Canadian organizations.
The Ontario Securities Commission also announced several investor education sessions this month on topics such as financial elder abuse prevention.
While the non-profit organization ABC Life Literacy Canada has launched free financial literacy resources for adults.
Chartered Professional Accountants of Canada also has a financial literacy program that offers education seminars through its volunteer network.
CPA Canada has various publications, including A Parent’s Guide to Raising Money-Smart Kids, A Guide to Financial Decisions: Planning for the End of Life, and A Canadian’s Guide to Money-Smart Living.
With the ever-changing tax guidelines, the only thing certain about your taxes is uncertainty. It is easy to think that you know enough about taxes but you also have to know when it is time to get help from a pro. We at IDM Professional Corporation CPA, are dedicated to helping you with your tax concerns. Feel free to book a consultation with us.
