Please help,

Donna works as a security analyst. Her salary for 2013 was $120,000. During 2012 she bought 1,500 shares of Sweetheart Software Inc. at $10.00 on which she received dividends of $0.44 per share in both 2012 and 2013. At the end of 2013, she sold the 1,500 shares at $11.50. Ignore CPP and EI premiums.

Required (Based on her total income for 2013):

What is Donnas marginal tax rate on her salary only? (1 mark)

What is Donnas marginal tax rate on her dividend income only? (1 mark)

What is Donnas marginal tax rate on her capital gain only? (1 mark)

How much total tax will Donna pay in 2013? (4 marks)

What is her 2013 average tax rate on her total income? (1 mark)

What is Donnas after-tax proceeds on the sale of the shares? (1 mark)

What is better for Donna, receiving $1,000 in Dividends or $1,000 in Capital Gains?

(1 mark)

Hint: Follow the Dutta example and calculate taxes on Ordinary income and Capital Gains and Dividends separately.

2013 Tax Rates:

Federal tax:

% on the first 42,707 15.00%

% on the next 42,707 22.00%

% on the next 46,992 26.00%

% over 132,406 29.00%

Ontario tax:

% on the first 39,020 5.05%

% on the next 39,023 9.15%

% on the next 421,957 11.16%

% over 500,000 12.16%

Surtax % # 1 20.00% of the difference between Ontario Tax Payable and $4,413

Dividend Gross-up 38.00%

Federal DTC 20.73% (Dividend Tax Credit)

Ontario DTC 8.83%

Capital Gains 50.00 %

Surtax % # 2 56.00% of Ontario Tax Payable on Dividends and Capital Gains

Dutta's Example

Problem: What is Mr. Duttas total tax bill and his average and marginal tax rates for 2011 if he has $80,000 in taxable income, $2,000 in non-refundable federal tax credits, and $770 in non-refundable Ontario tax credits? Answer:

Answer

Calculations Tax Payable

Taxable income $80,000

Federal tax on first 41,544 (15%, from Table 7.3) is $ 6,232.00

on next (80,000 41,544) 38,456 @ 22% is 8,460.32

$14,692.32

Federal non-refundable tax credits (2,000.00)

Federal tax payable $12,692.32

Ontario Tax:

Taxable income $80,000

Tax on first 37,774 @ 5.05% is $ 1,907.59

on next 37,776 @ 9.15% is 3,456.50

on next (80,000 75,550) 4,450 @11.16% is 496.62

$ 5,860.71

Ontario non-refundable tax credits (770.00)

$ 5,090.71

Ontario surtax .2 (5,090.71 4,078) = 202.54

Ontario tax payable $ 5,293.25

Total tax payable $17,985.57

Average tax rate 17,985.57 80,000 = 22.48%

Marginal tax rate on ordinary income 22% + (11.16% 1.20) = 35.39%