Question

Jordon Management Services has operated for the last 26 years in a northern province where the provincial income tax on corporate revenue is 6.7% per year. C. F. Jordon pays an average federal tax of 23% and reports taxable income of $7.9 million. Because of excessive labor cost increases, the president wants to move to another province to reduce the total tax burden. The new province may have to be willing to offer tax allowances or an interest-free grant for the first couple of years to attract the company. Problem 17.013.a: Calculate the effective tax rate You are an engineer with the company and are asked to determine the effective tax rate for C. F. Jordon. The effective tax rate is determined to be %.

Answer 1

The effective tax rate for C. F. Jordon Management Services, including both federal and provincial taxes, is calculated to be 29.7% on their taxable income of $7.9 million.

Step-by-step explanation:

The term effective tax rate refers to the percent of income that an individual or corporation owes/pays in taxes. The effective tax rate for individuals is the average rate at which their earned income, such as wages, and unearned income, such as stock dividends, are taxed. The effective tax rate for a corporation like C. F. Jordon Management Services is a measure of the average rate at which its corporate income is taxed. To calculate this rate, we must consider both federal and provincial tax rates. For C. F. Jordon, the federal tax rate is 23% and the provincial tax rate is 6.7%.

The total tax liability would be the sum of federal and provincial taxes on the reported taxable income of $7.9 million. The calculation for the effective tax rate (ETR) is as follows: ETR = (Federal Tax Rate + Provincial Tax Rate) / 1. The effective tax rate for C. F. Jordon is therefore 23% + 6.7% = 29.7%.