© 2006, C. Byrd Inc. 1 Chapter 6 Taxable Income And Tax Payable For Individuals

© 2006, C. Byrd Inc.2 From Net To Taxable Income Taxable Income Division C Deductions Employment Income Business And Property Income Net Taxable Capital Gains Other Sources Of Income Other Deductions From Income

© 2006, C. Byrd Inc.3 Available Deductions Employee Stock Options (Chapter 5) Employee Stock Options (Chapter 5) Deductions For Payments Deductions For Payments Home Relocation Loan Home Relocation Loan Residing In Prescribed Zone Residing In Prescribed Zone Lifetime Capital Gains (Chapter 14) Lifetime Capital Gains (Chapter 14) Losses (Chapter 14) Losses (Chapter 14)

© 2006, C. Byrd Inc.4 Deduction For Payments Tax convention exemptions Tax convention exemptions Workman’s compensation Workman’s compensation Social Assistance Payments Social Assistance Payments No Intention To Tax

© 2006, C. Byrd Inc.5 Home Relocation Loan Deduction Example: An employee receives a $100,000 loan from his employer on July 1, The rate on the loan is 1 percent and, during the remainder of the year, assume the prescribed rate is 3 percent. ITA 80.4 Benefit [(3% - 1%)($100,000)(1/2)]$1, (1)(j) Deduction [($25,000)(3%)(1/2)]( 375) Net Benefit$ 625 Available for 5 years only Can use rate at inception or go quarter to quarter

© 2006, C. Byrd Inc.6 Tax Payable - The Basic System 1st 15.25% 1st 15.25% $36,378 to 22% $36,378 to 22% $72,756 to 26% $72,756 to 26% Over 29% Over 29% Full Indexing Full Indexing

© 2006, C. Byrd Inc.7 The Basic System Example An individual has Taxable Income of $118,285 and only his basic personal tax credit. Example An individual has Taxable Income of $118,285 and only his basic personal tax credit % of $36,378$ 5,548 22% of ($72,756 - $36,378) 8,003 26% of ($118,285 - $72,756) 11,838 Total Before Credit$ 25,389 After credit After credit ($25,389 - $1,348)$ 24,041

© 2006, C. Byrd Inc.8 Provincial Tax Payable All Provinces Except Alberta Apply Progressive Rates To Taxable Income All Provinces Except Alberta Apply Progressive Rates To Taxable Income Minimum = ( ) 21.30% Combined Minimum = ( ) 21.30% Combined Maximum = ( ) 53% Combined Maximum = ( ) 53% Combined Provincial Surtaxes Provincial Surtaxes Alberta Has Flat 10% Alberta Has Flat 10%

© 2006, C. Byrd Inc.9 Tax Credit System Refundable Vs. Non-Refundable. Refundable Vs. Non-Refundable. In general, minimum rate applied to a base (15.25 percent for 2006). In general, minimum rate applied to a base (15.25 percent for 2006). Some have income threshold. Some have income threshold.

© 2006, C. Byrd Inc Personal Tax Credits 2006 Personal Tax Credits Individuals Individuals ITA 118(1)(a): If Married ITA 118(1)(a): If Married ITA 118(1)(c): If Single ITA 118(1)(c): If Single [(15.25%)($8,839)] = $1,348 [(15.25%)($8,839)] = $1,348

© 2006, C. Byrd Inc Personal Tax Credits Spouse Or Common-Law Partner – ITA 118(1)(a) Spouse Or Common-Law Partner – ITA 118(1)(a) Includes common-law and same sex Includes common-law and same sex [(15.25%)($7,505) - (Income > $751)] [(15.25%)($7,505) - (Income > $751)] Maximum = $1,145 Maximum = $1,145

© 2006, C. Byrd Inc Personal Tax Credits 2006 Personal Tax Credits Amount For Eligible Dependant Amount For Eligible Dependant Same amount as spouse or common-law partner Same amount as spouse or common-law partner

© 2006, C. Byrd Inc.13 Amount For Eligible Dependant Amount For Eligible Dependant Conditions: you are single, divorced, separated, or widowed and you supported a dependant: Conditions: you are single, divorced, separated, or widowed and you supported a dependant: who is under 18 (unless parent, grandparent, or infirm) who is under 18 (unless parent, grandparent, or infirm) related by blood, marriage, or adoption related by blood, marriage, or adoption resident of Canada (except child) resident of Canada (except child) dependent on individual for support dependent on individual for support 2006 Personal Tax Credits 2006 Personal Tax Credits

© 2006, C. Byrd Inc.14 Caregiver Conditions Conditions Maintain Household With Dependant Over 17 Maintain Household With Dependant Over 17 Resident Of Canada (Unless Parent Or Grandparent) Resident Of Canada (Unless Parent Or Grandparent) Infirm (Unless Parent Or Grandparent 65 Or Older) Infirm (Unless Parent Or Grandparent 65 Or Older)

© 2006, C. Byrd Inc.15 Caregiver Value Value $600 [(15.25%)($3,933)] $600 [(15.25%)($3,933)] Reduced By 15.25% Of Dependant’s Income In Excess Of $13,430 Reduced By 15.25% Of Dependant’s Income In Excess Of $13,430 Not Available If Eligible Dependant Or Infirm Dependant Over 17 Available Not Available If Eligible Dependant Or Infirm Dependant Over 17 Available

© 2006, C. Byrd Inc.16 Infirm Dependant Over (1)(d) Dependants: Child, Grandchild, Parent, Grandparent, Brother, Sister, Aunt, Uncle, Niece, Nephew [ITA 118(6)] Dependants: Child, Grandchild, Parent, Grandparent, Brother, Sister, Aunt, Uncle, Niece, Nephew [ITA 118(6)]

© 2006, C. Byrd Inc.17 Infirm Dependant Over (1)(d) Conditions Conditions Reach 18 Before End Of Year Reach 18 Before End Of Year Mentally Or Physically Infirm Mentally Or Physically Infirm [(15.25%)($3,933) - (Income > $5,580)] = Maximum Of $600 [(15.25%)($3,933) - (Income > $5,580)] = Maximum Of $600

© 2006, C. Byrd Inc.18 Age - ITA 118(2) Reach 65 In The Year Reach 65 In The Year [(15.25%)($4,066)] = $620 [(15.25%)($4,066)] = $620 Reduction Reduction 15% Of Income > $30,270 15% Of Income > $30,270 $57,377 - $30,279 = $27,107 $57,377 - $30,279 = $27,107 $27,107 (15%) = $4,066 $27,107 (15%) = $4,066

© 2006, C. Byrd Inc.19 Pension Income – ITA 118(3) Amount = 15.25% Of 1st $2,000 = $305 Amount = 15.25% Of 1st $2,000 = $305

© 2006, C. Byrd Inc.20 Pension Income – ITA 118(3) Qualifying Amounts Qualifying Amounts Age 65 At End Of Year Age 65 At End Of Year Most Non-Government Most Non-Government < Age 65 At End Of Year < Age 65 At End Of Year Life Annuities Life Annuities Amounts Resulting From Death Of Spouse Amounts Resulting From Death Of Spouse No CPP, OAS, Or Provincial (QPP) No CPP, OAS, Or Provincial (QPP)

© 2006, C. Byrd Inc.21 Adoption Expense – ITA Up to $1,525 [(15.25%)($10,000)] Up to $1,525 [(15.25%)($10,000)]

© 2006, C. Byrd Inc.22 Adoption Expense – ITA Eligible Child Eligible Child Has not attained age 18 Has not attained age 18 Issued adoption order Issued adoption order Eligible Expense Eligible Expense Fees to agency Fees to agency Court and legal fees Court and legal fees Other reasonable expenses Other reasonable expenses

© 2006, C. Byrd Inc.23 Charitable Donations – ITA General Rules General Rules 15.25%(1st $200) + 29% Of Excess 15.25%(1st $200) + 29% Of Excess

© 2006, C. Byrd Inc.24 Charitable Donations – ITA General Rules General Rules Limit: 75% Of Net Income Limit: 75% Of Net Income 100% in individual’s year of death and preceding year 100% in individual’s year of death and preceding year Plus 25 percent of capital gains on gifts Plus 25 percent of capital gains on gifts Plus 25 percent of recapture on gifts Plus 25 percent of recapture on gifts

© 2006, C. Byrd Inc.25 Charitable Donations – ITA General Rules General Rules Carry Over: 5 Years Carry Over: 5 Years Subject to the same limitations Subject to the same limitations

© 2006, C. Byrd Inc.26 Medical Expenses – ITA General Rules General Rules 15.25% of eligible costs 15.25% of eligible costs Reduced by the lesser of Reduced by the lesser of 3% of Net Income 3% of Net Income $1,884 (3%)($62,800) $1,884 (3%)($62,800) Any 12 month period ending in the year Any 12 month period ending in the year

© 2006, C. Byrd Inc.27 Medical Expenses – ITA Spouse And Minor Dependants Spouse And Minor Dependants No Additional Reduction No Additional Reduction Dependants Over 18 Years Of Age Dependants Over 18 Years Of Age Calculated For Each Dependant Calculated For Each Dependant Maximum Of $10,000 Per Dependant Maximum Of $10,000 Per Dependant Each Dependant’s Medical Expenses, Reduced By The Lesser Of Each Dependant’s Medical Expenses, Reduced By The Lesser Of $1,884 $1,884 3% Of Dependant’s Net Income 3% Of Dependant’s Net Income

© 2006, C. Byrd Inc.28 Medical Expenses – ITA Example: An individual with income > $100,000 and medical expenses of $2,000. His 20 year old child has medical expenses of $10,000 and net income of $9,000. Taxpayer’s Expenses$2,000 Threshold(1,884) Subtotal $ 116 Dependant Expenses - The Lesser Of: $10,000 – (3%)($9,000) = $9,730 Absolute Maximum = $10,000$9,730 Allowable Amount Of Medical Expenses$9,846 Credit (15.25%)$1,501

© 2006, C. Byrd Inc.29 Refundable Medical Expense Supplement – ITA Qualifying Qualifying Age 18 or over Age 18 or over Earned income > $2,919 Earned income > $2,919

© 2006, C. Byrd Inc.30 Refundable Medical Expense Supplement – ITA Refundable Supplement Refundable Supplement Lesser of: Lesser of: $1,000 $1,000 25/15.25 Of The Medical Expenses Tax Credit 25/15.25 Of The Medical Expenses Tax Credit Then Reduced By 5% Of Family Income > $22,140

© 2006, C. Byrd Inc.31 Refundable Medical Expense Supplement – ITA Refundable Supplement Example – Ms. Forbes has medical expenses of $3,500 and income of $22,000. Refundable Supplement Example – Ms. Forbes has medical expenses of $3,500 and income of $22,000. Medical Expense Credit = $433 [(15.25%)($3,500 - $660)] Medical Expense Credit = $433 [(15.25%)($3,500 - $660)] [(25/15.25)($433)] = $710 [(25/15.25)($433)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $22,140)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $22,140)] = $710

© 2006, C. Byrd Inc.32 Disability Amount – ITA Must Be Severe And Prolonged Must Be Severe And Prolonged Restricts Basic Living Activities Restricts Basic Living Activities A Continuous Period Of At Least 12 Months A Continuous Period Of At Least 12 Months Requires Form T2201 Requires Form T2201

© 2006, C. Byrd Inc.33 Disability Amount – ITA % Of $6,741 = $1,028, No Income Test 15.25% Of $6,741 = $1,028, No Income Test No Claim If More Than $10,000 For Full Time Attendant Care Or Costs Of Nursing Home Are Claimed 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) Or (d) Can Be Transferred To Individual Making Claim Under ITA 118(b) Or (d)

© 2006, C. Byrd Inc.34 Tuition Fees - ITA Tuition Tuition 15.25% Of Actual 15.25% Of Actual Post-Secondary Post-Secondary Cost > $100 Cost > $100 No Upper Limit No Upper Limit

© 2006, C. Byrd Inc.35 Tuition Fees - ITA Tuition Tuition Includes all ancillary if mandatory Includes all ancillary if mandatory Includes $250 of ancillary fees if not mandatory Includes $250 of ancillary fees if not mandatory Unlimited Carry Forward Unlimited Carry Forward

© 2006, C. Byrd Inc.36 Education Deduction – 118.6(2) Education Education 15.25% Of $400 Per Month Of Full Time Attendance 15.25% Of $400 Per Month Of Full Time Attendance 15.25% Of $120 Per Month Of Part Time Attendance 15.25% Of $120 Per Month Of Part Time Attendance Unlimited Carry Forward By Student Unlimited Carry Forward By Student

© 2006, C. Byrd Inc.37 Textbook (2006 Budget) $10 [(15.25%)($65)] $10 [(15.25%)($65)] For each month of education credit eligibility For each month of education credit eligibility

© 2006, C. Byrd Inc.38 Interest on Student Loans Interest On Student Loans Interest On Student Loans 15.25% Of Amounts Paid 15.25% Of Amounts Paid Loans Under The Canada Student Loans Act, the Canada Student Financial Assistance Act, Or A Provincial Statute Loans Under The Canada Student Loans Act, the Canada Student Financial Assistance Act, Or A Provincial Statute

© 2006, C. Byrd Inc.39 CPP And EI - ITA % Of Actual Payments 15.25% Of Actual Payments Maximums For 2006 Maximums For 2006 CPP = [(4.95%)($42,100 - $3,500)] = $1,911 CPP = [(4.95%)($42,100 - $3,500)] = $1, % of $1,911 = $291 EI = [(1.87%)($39,000)] = $729 EI = [(1.87%)($39,000)] = $ % of $729 = $ % of $729 = $111

© 2006, C. Byrd Inc.40 Transfer Of Credits Tuition/Education - ITA Tuition/Education - ITA N/A If Student’s Spouse Claims Credit N/A If Student’s Spouse Claims Credit Unused Amount After CPP, EI, And Disability Unused Amount After CPP, EI, And Disability To Parent Or Grandparent To Parent Or Grandparent Max = 15.25%($5,000) = $763 Max = 15.25%($5,000) = $763 Carry Forward By Student If Unused Carry Forward By Student If Unused Spouse - ITA Spouse - ITA Eligible Eligible Age Age Pension Pension Disability Disability Tuition Tuition Education Education After Personal, CPP, And EI Used After Personal, CPP, And EI Used

© 2006, C. Byrd Inc.41 Political Contributions 3/4 First $400 3/4 First $400 1/2 Next $350 1/2 Next $350 1/3 Next $525 1/3 Next $525 Max = $650 For $1,275 Max = $650 For $1,275 Same For Corporations Same For Corporations

© 2006, C. Byrd Inc.42 Labour Sponsored Funds 15 Percent Of Cost 15 Percent Of Cost First Registered Holder First Registered Holder Maximum Of $5,000, Or Credit Of $750 Maximum Of $5,000, Or Credit Of $750

© 2006, C. Byrd Inc.43 Canada Employment Credit New for 2006! New for 2006! percent of the lesser of $250 or employment income percent of the lesser of $250 or employment income. Maximum = $38 Maximum = $38 Base to $1,000 in 2007 Base to $1,000 in 2007

© 2006, C. Byrd Inc.44 Public Transit Passes Credit New For 2006 (as of July 1) New For 2006 (as of July 1) percent of cost of monthly or longer transit passes percent of cost of monthly or longer transit passes. Individual, spouse, dependent children under 19. Individual, spouse, dependent children under 19.

© 2006, C. Byrd Inc.45 Child Fitness Credit New for 2007 New for 2007 For enrollment of a child under 16 in an eligible program of physical activity For enrollment of a child under 16 in an eligible program of physical activity percent the lesser of fees or $ percent the lesser of fees or $500 Maximum = $76 Maximum = $76

© 2006, C. Byrd Inc.46 Apprenticeship Job Creation Credit New for 2006! New for 2006! Available to a business Available to a business 10 percent of salaries and wages 10 percent of salaries and wages Maximum = $200 [(10%)($2,000)] Maximum = $200 [(10%)($2,000)]

© 2006, C. Byrd Inc.47 Refundable GST Credit $232 $232 Individual Qualified Relation Eligible Dependant $122 $122 Qualified Dependant Less: Less: 5% Of Family Income > $30,270

© 2006, C. Byrd Inc.48 Child Tax Benefit System $104.58/Month For Each Qualified Dependant $104.58/Month For Each Qualified Dependant +$7.33/Month For Each Dependant Over Two +$7.33/Month For Each Dependant Over Two +$20.75/Month For Each Dependant Under Seven +$20.75/Month For Each Dependant Under Seven Working Income Supplement Working Income Supplement Less, 2% Of Family Income In Excess Of $36,378 (One Child) Less, 2% Of Family Income In Excess Of $36,378 (One Child) Less, 4% Of Family Income in Excess Of $36,378 (2+ Children) Less, 4% Of Family Income in Excess Of $36,378 (2+ Children)

© 2006, C. Byrd Inc.49 Clawback of EI Applicable if EI recipient’s net income exceeds $48,750 Applicable if EI recipient’s net income exceeds $48, percent of the lesser of: 30 percent of the lesser of: EI benefits received EI benefits received Excess of net income over $48,750 Excess of net income over $48,750

© 2006, C. Byrd Inc.50 Clawback Of OAS Lesser Of Lesser Of Payments Received Payments Received 15% Of Income In Excess Of $62,144 15% Of Income In Excess Of $62,144 Disappears At $100,917 Disappears At $100,917 Not Paid If Income Is High In Previous Years Not Paid If Income Is High In Previous Years