What Is Income? Grade 10 Business

Questions we will cover… What are some different sources of income? What are the different forms of employment income? What information is on a paystub? A T4 slip? How much income tax do we have to pay? Why do some people get a tax refund? What are gross, net, disposable and discretionary income? What can we do with the money we earn?

Sources of Income Income is money that an individual or business receives from different sources: 1. Employment income (from a job) 2. Self-employment income (their own business) 3. Investment income (interest, dividends, capital gains, rental income) 4. Government transfers (EI, CPP, family benefit)

Forms of Employment Income Depending on the type of job you have, employees get paid differently: Commission (% of sales made) Salary (certain amount per year, no matter how many hours) Salary + Commission (certain amount PLUS % of sales) Wage (paid by the hour) Bonus (after reaching a goal) Piecework (paid by how many items you produce) 4

Your Pay Stub Gross Pay – Pay BEFORE Deductions Deductions – Amounts subtracted from your pay Standard deductions – CPP, EI and income taxes Other deductions – savings plans, benefit plans, charitable donations, life insurance, union dues, etc. Net Pay – Pay AFTER deductions Also called “take-home pay” and “discretionary income”

Your Pay Stub Will either be attached to your paycheque, or will be handed or ed to you if your pay is directly deposited into your bank account Check pay stubs carefully against your records – always keep track that your pay is accurate Keep pay stubs for at least a year until you get a T4 form (used for tax returns; we will look at these in more detail later)

Deductions EI (Employment Insurance) – paid to government; can be accessed if you lose your job or when you are on parental leave or family leave CPP (Canada Pension Plan) – money set aside for you when you retire Tax – federal and provincial income tax Benefits – employees sometimes share the cost of benefits with their employer Company pension – most employers contribute money on top of your contributions Union Dues – paid to the union

Income Tax Your income tax rate is based on how much you make – the more you make, the more you pay You can receive income tax credits to pay less tax overall (governments can change these credits each year!) Federal taxes are paid to the Canada Revenue Agency Provincial taxes are paid to the provincial government If you pay too much tax over the year, the government gives you a ‘tax refund’ If you didn’t pay enough tax, the government will send you a tax bill! Tax returns are filed every April for the previous year E.g. April 2014 (for earnings made in 2013 tax year)

T4 Slips Each year, your employer is required to give you a T4 slip for any work done If you have more than one job during the year, you will receive more than one T4 slip Your T4 summarizes your gross income, your deductions and your net income for the previous tax year Details on your T4 are used to complete your personal income tax return, which determines if… You will receive a tax refund (if you have overpaid) You owe additional taxes (if you have underpaid)

Net Pay Calculator People can experience a lot of financial success EVEN if they don’t make ‘A LOT’ Need to live within your means, whatever that might be Let’s look at some scenarios… Net Pay Calculator

Where does the money go? You have 4 options for the money you make: Save it Spend it Donate it Invest it With a partner, write down an advantage and a disadvantage of each option…

Pay Stubs & T4 Slips In groups, you will be given a pay stub and a T4 slip for 4 different people Using the documents, answer the following: 1. Where does each employee work? 2. Is each employee full-time or part-time? How do you know? 3. Who makes the most money? 4. What is the annual rate of income tax paid by each person? Hint: income tax deducted / employment income *100

Wealth

Wealth: It doesn’t matter how much money you make; if you know how to manage it, anyone can be WEALTHY! To achieve the goals you set for your future, you need to build wealth. Building wealth requires good information, proper planning and responsible choices. Need to learn how to earn money, to budget, to save, to invest and to control debt.

Assets – INCREASE in value Wealth is made up of assets Assets are items we own Generally, assets earn money or rise in value Examples: Houses, real estate Savings accounts Retirement plans/pensions Investments (e.g., stocks, bonds)

Liabilities – REDUCE wealth Liabilities are amounts we owe Also called debts (note the spelling – there is no ‘p’ in debt!) Examples: Mortgage on a home Student loans Car loans

Possessions – DECREASE in value Possessions become less valuable over time Examples: Vehicles Electronics Clothing

Net Worth When you subtract your liabilities from your assets, you determine your NET WORTH Your net worth is your WEALTH Assets – Liabilities = Net Worth The Forbes Five: Hip-Hop's Wealthiest ArtistsHip-Hop's Wealthiest Artists