Module 8

Module 8: Daily Living

 

Bringing Ideas Together

 

In Get Started and Explore you examined how Canada Pension Plan, Employment Insurance, and federal and provincial/territorial income tax deductions are determined. You saw that these deductions are subtracted from your gross pay. There are additional deductions that reduce your take-home pay. These could include the following:

• union dues

• company pension plans

• medical-plan premiums

• voluntary charitable donations

Two of these deductions, union fees and company pension-plan contributions, will reduce your taxable income. In other words, the federal and provincial/territorial taxes are based on your income after these deductions are subtracted from your gross pay. You will remember that Northern residents also qualify for additional deductions from gross income.

 

Example 8

 

Georgina works in Hinton, Alberta. Her gross salary in 2010 is $3752.00/mo. She is a union member, so she has $75.00 in union dues deducted from her paycheque each month. She also has $250.00/mo deducted as her contribution towards a company pension. Her employer has determined her claim code to be 1.

1. What is Georgina’s monthly taxable income?
   
   
2. What is Georgina’s net income?

Solution

1. 
   
   

2. View and carefully follow the steps in “Example 8.b. Solution.” The solution is based on the CRA Payroll Deductions Online Calculator with January 1, 2010 set for the period.

Self-Check

 

In these questions you will determine problem situations involving net income using the CRA Payroll Deductions Online Calculator.

 

The solutions provided to you for comparison are based on the CRA Payroll Deductions Online Calculator set for the period January 1, 2010. To allow a direct comparison to the suggested answers, you should set the calculator to the same period.

 

SC 7. Use the information from Example 7.

 

What is Georgina’s take-home pay as a percentage of her gross pay? What percent were deductions? Round to the nearest tenth of a percent.

 

SC 8. Mercy works for a forestry company in British Columbia. Her biweekly salary is $2815.00. Her biweekly contributions to her company’s pension plan are $225.00. Her union dues are $57.00. She also contributes $100.00 to a Registered Retirement Savings Plan (RRSP) through payroll deductions. Finally, she contributes $45.00 in medical-plan premiums.

 

Mercy’s claim code is 2. What is Mercy’s biweekly take-home pay?

 

Hint: RRSP contributions reduce her taxable income, but medical-plan premiums do not.

 

SC 9. Using the results of SC 8, calculate what percent the income tax (federal and provincial combined) is of Mercy’s

1. gross earnings
   
   
2. taxable earnings

Round your answers to the nearest tenth of a percent.

 

SC 10. Matty works for a firm in Regina, Saskatchewan. In January 2010, Matty received $5400.00 in salary. In February, Matty received a 10% increase in pay. Will Matty’s take-home pay increase by 10%? Why or why not?

 

Use the CRA Payroll Deductions Online Calculator to help you answer this question. Assume that EI, CPP, and income taxes are Matty’s only deductions. Matty is taxed under Claim Code 1.

 

Compare your answers.

 

Mastering Concepts

 

In this lesson you discovered that the income on which you pay income tax is reduced by your company pension-plan contributions and Registered Retirement Savings Plan contributions. Why do think those who make these contributions pay less in income tax than those who do not make these contributions?

 

Compare your answer.

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