A Prince Edward Island resident earned $20,000 in interest income and $10,000 in capital gains. Calculate the average tax rate.

Question

Quizplus · Accepted Answer

To find the average tax rate, we need to calculate the total amount of tax payable on the income and divide it by the total income. The tax payable on the interest income of $20,000 is calculated as $4,160 (20.8% * 20,000), and the tax payable on the capital gains of $10,000 is calculated as $2,000 (20% * 10,000). Therefore, the total tax payable is $6,160. The total income is $30,000 (20,000 + 10,000). So, the average tax rate is 20.53% (6,160 / 30,000), which is closest to option C, 39.48%.

A Prince Edward Island Resident Earned $20,000 in Interest Income