Adhira has Taxable Income of $110,000 before any consideration of a CPP deduction (26 percent federal income tax bracket). She is a self-employed hairdresser. How much will her federal tax payable decrease as a result of the $5,796 contribution to CPP that she must make in 2020?

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Quizplus · Accepted Answer

The CPP contribution is deductible from taxable income. Therefore, the tax savings is the contribution amount multiplied by the tax rate: $5,796 * 26% = $1,507. However, since she is self-employed, she can claim half of the CPP contribution as a non-refundable tax credit, which is $5,796 / 2 * 15% = $434.70. The total tax savings is $1,507 - $434.70 = $1,072.30, which is closest to option B.

Adhira Has Taxable Income of $110,000 Before Any Consideration of a CPP