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Emilio files his tax return

Posted by David Gobeil on

For 2020, Emilio is self-employed, and he expects that his business income will be $82,000. His marginal tax rate (MTR) is 38%. The federal conversion rate for the CPP contribution tax credit was 15%. He lived in a province with a conversion rate for the CPP contribution tax credit of 9.8%.

 Emilio will have to pay base CPP contributions of $5,464.80, calculated as:

  •  (((the lesser of (contributory earnings and YMPE)) - YBE) × employee and employer’s contribution rates for base CPP); or
  • (((the lesser of ($82,000 and $58,700)) - $3,500) × (95% + 4.95%)).

 Emilio will have to pay first additional CPP contribution of $331.20, calculated as:

  •  (((the lesser of (contributory earnings and YMPE)) - YBE) × combined employee and employer’s contribution rates); or
  • (((the lesser of ($82,000 and $58,700)) - $3,500) × (0.3%+ 3%)).

 Emilio will have to pay base and first additional CPP contributions of $5,796.00, calculated as:

  •  (base CPP contributions of $5,464.80 + first additional CPP contribution of $331.20).

 Emilio can claim a CPP contribution tax credit on the employee’s base CPP contributions of $677.64, calculated as:

  • (employee’s contribution × (federal + provincial conversion rates)); or
  • (($5,464.80 ÷ 2) × (15% + 8%)).

 Emilio can claim a personal income tax deduction for the employee’s first additional CPP contributions that results in an income tax reduction of $62.93, calculated as:

  • (employee’s contribution × MTR); or
  • (($331.20 ÷ 2) × 38%).

Emilio will also receive a business deduction on the employer’s portion, which provides a tax reduction of $1,101.24, calculated as:

  • (employer’s contribution × MTR); or
  • (($5,796.00 ÷ 2) × 38%).

Emilio’s total tax relief will be $1,841.81, calculated as:

  • (tax credit + personal tax reduction + business tax reduction); or
  • ($677.64 + $62.93 + $1,101.24).

 

 

 

 

 

 

 

 

 


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