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Chapter 4

Chapter 4. Taxable Income and Tax Payable For Individuals. From Net To Taxable Income. Employment Income. Business And Property Income. Net Taxable Capital Gains. Other Sources Of Income. Other Deductions From Income. Division C Deductions. Taxable Income. Available Deductions.

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Chapter 4

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  1. Chapter 4 Taxable Income and Tax Payable For Individuals

  2. From Net To Taxable Income Employment Income Business And Property Income Net Taxable Capital Gains Other Sources Of Income Other Deductions From Income Division C Deductions Taxable Income

  3. Available Deductions Employee Stock Options (Chapter 3) Deductions For Payments Home Relocation Loan Lump Sum Payments Lifetime Capital Gains (Chapter 11) Northern Residents Deductions Loss Carry Overs (Chapter 11)

  4. Deduction For Payments Tax treaty exemptions Worker’s compensation Social assistance payments No Intention To Tax

  5. Home Relocation Loan Deduction Example: An employee receives a $100,000, interest free loan from his employer on July 1, 2012. During the remainder of the year, assume the relevant prescribed rate is 2 percent. ITA 80.4 Benefit [(2% - Nil)($100,000)(6/12)] $1,000 ITA 110(1)(j) Deduction [($1,000)($25,000/$100,000)] ( 250) Net Benefit $ 750 Available for 5 years only Can use rate at inception or go quarter to quarter

  6. Tax Payable - The Basic System 2012 Rates 1st $42,707 @ 15% $42,708 to $85,414 @ 22% $85,415 to $132,406 @ 26% Over $132,406 @ 29% Full Indexing Each Year

  7. The Basic System Example For 2012, an individual has Taxable Income of $132,406 and only his basic personal tax credit of $1,623 [(15%)($10,822)]. 15% of $42,707 $ 6,406 22% of ($85,414 - $42,708) 9,395 26% of ($132,406 - $85,415) 12,219 Total Before Credit $ 28,020 After credit ($28,020 - $1,623) $ 26,397

  8. Provincial Tax Payable All Provinces Except Alberta Apply Progressive Rates To Taxable Income Minimum = (5.05 + 15.0) 20.06% Combined Maximum = (21.0 + 29.0) 50.00% Combined Provincial Surtaxes Alberta Has Flat Tax @ 10%

  9. Tax Credit System Refundable Vs. Non-Refundable. In general, minimum rate applied to a base (15 percent for 2012). Some have income threshold. Provinces have similar credits.

  10. 2012 Personal Tax Credits Individuals ITA 118(1)(a): If Married ITA 118(1)(c): If Single [(15%)($10,822)] = $1,623

  11. 2012 Personal Tax Credits Spouse Or Common-Law Partner – ITA 118(1)(a) Includes common-law and same sex (15%)($10,822 – Net Income Of Spouse) Gets The $2,000 Family Caregiver Amount if infirm Maximum = $1,623 or $1,923 (If FCA)

  12. 2012 Personal Tax Credits Amount For Eligible DependantITA 118(1)(b) Same amount as spouse or common-law partner

  13. Conditions: you are single, divorced, separated, or widowed and you supported a dependant: who is under 18 (unless parent, grandparent, or infirm) living with the individual related by blood, marriage, or adoption resident of Canada (except child) dependent on individual for support Amount For Eligible Dependant

  14. 2012 Personal Tax Credits Child Tax Credit – ITA 118(1)(b.1) [(15%)($2,191)] = $329 Gets The $2,000 Family Caregiver Amount if infirm [(15%)($4,191)] = $629 For each child under 18 at end of year No income threshold Can take eligible dependant and this credit for the same child.

  15. Caregiver Conditions Maintain Household With Dependant Over 17 Resident Of Canada (Unless Child Or Grandchild) Infirm (Unless Parent Or Grandparent 65 Or Older) Not Available If Eligible Dependant Credit Available

  16. Caregiver Value [(15%)($4,402)] Maximum = $660 Gets The Family Caregiver Amount if infirm [(15%)($4,402 + $2,000)] to maximum of $960 Reduced By 15% Of Dependant’s Income In Excess Of $15,033

  17. Infirm Dependant Over 17 – ITA 118(1)(d) Dependants: Child Grandchild Parent Grandparent Brother Sister • Sister • Aunt • Uncle • Niece • Nephew [ITA 118(6)]

  18. Infirm Dependant Over 17 - ITA 118(1)(d) Conditions Reach 18 Before End Of Year Mentally Or Physically Infirm (15%)($6,402) = $960 Always includes the Family Caregiver Amount Not Available If Eligible Dependant Or Caregiver Credits Available

  19. Age - ITA 118(2) Reach 65 In The Year $1,008 = [(15%)($6,720)] Reduction 15% Of Income > $33,884 $78,684 - $33,884 = $44,800 [($44,800)(15%)] = $ 6,720

  20. Pension Income – ITA 118(3) Amount = 15% Of 1st $2,000 = $300

  21. Pension Income – ITA 118(3) Qualifying Amounts Age 65 Or Older At End Of Year Most Non-Government < Age 65 At End Of Year Life Annuities Amounts Resulting From Death Of Spouse No CPP, OAS, Or Provincial (QPP)

  22. Canada Employment – ITA 118(10) 15 percent of the lesser of $1,095 or employment income. Maximum = $164

  23. Adoption Expenses – ITA 118.01 Up to $1,716 [(15%)($11,440)]

  24. Adoption Expenses – ITA 118.01 Eligible Child Has not attained age 18 Issued adoption order Eligible Expenses Fees to agency Court and legal fees Other reasonable expenses

  25. Public Transit Passes – ITA 118.02 15% of cost Individual Spouse and children under 19 Qualifying pass Unlimited travel for 28 days 5 day passes if they cover 20 out of 28 days Electronic cards with at least 32 one-way trips.

  26. Child Fitness – ITA 118.03 15% of up to $500 of costs Maximum $75 Child under 16 Eligible expenses Does not include travel, food, or lodging child care costs

  27. Children’s Arts – ITA 118.031 15% of up to $500 of costs Maximum $75 Child under 16 Eligible expenses Does not include travel, food, or lodging child care costs

  28. First Time Home Buyer’s Tax Credit $750 [(15%)($5,000)] Can be claimed by individual or spouse No home purchase in preceding four years

  29. Volunteer Firefighter’s – ITA 118.06 15% of $3,000 Requires 200 hour of volunteer firefighting Cannot claim if paid for services by same department

  30. Charitable Donations – ITA 118.1 General Rules 15% (1st $200) + 29% Of Excess

  31. Charitable Donations – ITA 118.1 General Rules Limit: 75% Of Net Income (100% in individual’s year of death and preceding year), plus 25% of taxable capital gains on gifts of capital property (See Chapter 11), plus 25% of recapture on gifts of capital property (See Chapter 11)

  32. Charitable Donations – ITA 118.1 General Rules Carry Forward: 5 Years Subject to the same limitations

  33. Medical Expenses – ITA 118.2 General Rules 15% of eligible costs Reduced by the lesser of 3% of Net Income $2,109 (3%)($70,300) Any 12 month period ending in the year

  34. Medical Expenses – ITA 118.2 Spouse And Minor Dependants No Additional Reduction Dependants Over 17 Years Of Age Calculated For Each Dependant Each Dependant’s Medical Expenses, Reduced By The Lesser Of: $2,109 3% Of dependant’s Net Income

  35. Medical Expenses – ITA 118.2 Example: An individual with income > $100,000 and medical expenses of $2,500. His 20 year old child has medical expenses of $10,000 and net income of $9,000. Taxpayer’s Expenses $ 2,500 Threshold ( 2,109) Subtotal $ 391 Dependant Expenses - $10,000 Reduced By Lesser Of: (3%)($9,000) = $270 $2,109 9,730 Allowable Amount Of Medical Expenses $ 10,121 Credit (15%) $ 1,518

  36. Refundable Medical Expense Supplement – ITA 122.51 Qualifying Age 18 or over Earned income > $3,268

  37. Refundable Medical Expense Supplement – ITA 122.51 Refundable Supplement Lesser of: $1,119 25/15 Of The Medical Expense Tax Credit Then Reduced By 5% Of Family Income > $24,783

  38. Refundable Medical Expense Supplement – ITA 122.51 Refundable Supplement ExampleMs. Forbes has medical expenses of $3,500 and earned income of $22,000. Medical Expense Credit = $426 [(15%)($3,500 - $660)] [(25/15)($426)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $24,783)] = $710

  39. Disability Amount – ITA 118.3 Must Be Severe And Prolonged Significantly Restricts Basic Living Activities A Continuous Period Of At Least 12 Months Requires Form T2201

  40. Disability Amount – ITA 118.3 15% Of $7,546 = $1,132, No Income Test No Claim If: More Than $10,000 For Full Time Attendant Care Or Costs Of Nursing Home Are Claimed Can Be Transferred To Individual Making Claim Under ITA 118(b), (c.1) Or (d)

  41. Disability Supplement If under 18 at end of year: 15% Of $4,402 = $660 Combined Provides $1,792 [(15%)($7,546 + $4,402)] The $4,402 is reduced by child and attendant care costs in excess of $2,578

  42. Tuition Credit - ITA 118.5 Tuition 15% Of Actual Post-Secondary Cost > $100 No Upper Limit

  43. Tuition Credit - ITA 118.5 Tuition Includes all ancillary if mandatory Includes $250 of ancillary fees if not mandatory Includes examination fees Unlimited carry forward by student

  44. Education Credit – 118.6(2) Education 15% of $400 per month of Full Time attendance ($60) 15% of $120 per month of Part Time attendance ($18) Unlimited carry forward by student

  45. Textbook Credit Available for each month of education credit eligibility: Full time attendance = $10 [(15%)($65)] Part time attendance = $3 [(15%)($20)]

  46. Interest on Student Loans Interest On Student Loans 15% Of Amounts Paid Loans Under The Canada Student Loans Act, the Canada Student Financial Assistance Act, Or A Provincial Statute

  47. CPP And EI - ITA 118.7 15% Of Actual Payments Maximums For 2012 EI = [(1.83%)($45,900)] = $840 15% of $840 = $126 CPP = [(4.95%)($50,100 - $3,500)] = $2,307 15% of $2,307 = $346

  48. Transfer Of Credits Spouse - ITA 118.8 Eligible Child tax credit Age Pension Disability Current year tuition, education, and textbook After Personal, CPP, And EI Used

  49. Transfer Of Credits Tuition/Education/Textbook - ITA 118.9 N/A If Student’s Spouse Claims Credit Unused Amount After Personal, CPP, EI, And Disability To Parent Or Grandparent Max = 15%($5,000) = $750 Carry Forward By Student If Unused

  50. Political Contributions 3/4 First $400 1/2 Next $350 1/3 Next $525 Max = $650 For $1,275 Not Allowed For Corporations

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