Calculate the tax difference between a British Columbia resident and an Alberta resident both having $20,000 in interest income and $25,000 in capital gains.

Question

Quizplus · Accepted Answer

First, we need to determine the tax rates for each province:
- In British Columbia, the tax rate for interest income is 5.06% for the first $41,725 and 7.7% for the next $41,726 and above. The tax rate for capital gains is 14.7%.
- In Alberta, the tax rate for interest income is 10% for the first $131,220 and 12% for the next $26,244 and above. The tax rate for capital gains is 10%.

Now we can calculate the tax payable for each taxpayer:
- For the British Columbia resident:
    - Interest income tax: 5.06% of $20,000 = $1,012.00 + 7.7% of $0 = $0.00
    - Capital gains tax: 14.7% of $25,000 = $3,675.00
    - Total tax payable: $1,012.00 + $3,675.00 = $4,687.00
- For the Alberta resident:
    - Interest income tax: 10% of $20,000 = $2,000.00 + 12% of $0 = $0.00
    - Capital gains tax: 10% of $25,000 = $2,500.00
    - Total tax payable: $2,000.00 + $2,500.00 = $4,500.00

The difference in tax payable between the two taxpayers is:
$4,687.00 - $4,500.00 = $187.00

Therefore, the British Columbia resident would pay $187.00 more than the Alberta resident. However, the question asks for the tax "difference" between the two taxpayers, so we need to flip the sign and get the absolute value:

|$187.00| = $187.00

Finally, we compare this amount to the answer choices:
- A) British Columbia resident would pay $2,210.00 more than the Alberta resident. (Incorrect)
- B) British Columbia resident would pay $2,210.00 less than the Alberta resident. (Incorrect)
- C) British Columbia resident would pay $3,500.00 more than the Alberta resident. (Incorrect)
- D) British Columbia resident would pay $3,500.00 less than the Alberta resident. (Incorrect)
- E) There are no tax differences between the two tax payers. (Incorrect)

Therefore, the best choice is A), which is the closest answer to the actual tax difference of $187.00.

Calculate the Tax Difference Between a British Columbia Resident and an Alberta