Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.1 Chapter 4 Taxable Income and Tax Payable For Individuals

Canadian Tax Principles Copyright © 2013, Clarence 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

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.3 Available Deductions Employee Stock Options (Chapter 3)Employee Stock Options (Chapter 3) Deductions For PaymentsDeductions For Payments Home Relocation LoanHome Relocation Loan Lump Sum PaymentsLump Sum Payments Lifetime Capital Gains (Chapter 11)Lifetime Capital Gains (Chapter 11) Northern Residents DeductionsNorthern Residents Deductions Loss Carry Overs (Chapter 11)Loss Carry Overs (Chapter 11)

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.4 Deduction For Payments Tax treaty exemptionsTax treaty exemptions Worker’s compensationWorker’s compensation Social assistance paymentsSocial assistance payments No Intention To Tax

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.5 Home Relocation Loan Deduction Example: An employee receives a $100,000, interest free loan from his employer on July 1, 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

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.6 Tax Payable - The Basic System 2012 Rates2012 Rates –1st 15% –$42,708 to 22% –$85,415 to 26% –Over 29% –Full Indexing Each Year

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.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)].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 creditAfter credit ($28,020 - $1,623)$ 26,397

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.8 Provincial Tax Payable All Provinces Except Alberta Apply Progressive Rates To Taxable IncomeAll Provinces Except Alberta Apply Progressive Rates To Taxable Income –Minimum = ( ) 20.06% Combined –Maximum = ( ) 50.00% Combined –Provincial Surtaxes –Alberta Has Flat 10%

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.9 Tax Credit System Refundable Vs. Non-Refundable.Refundable Vs. Non-Refundable. In general, minimum rate applied to a base (15 percent for 2012).In general, minimum rate applied to a base (15 percent for 2012). Some have income threshold.Some have income threshold. Provinces have similar credits.Provinces have similar credits.

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc Personal Tax Credits 2012 Personal Tax Credits IndividualsIndividuals ITA 118(1)(a): If MarriedITA 118(1)(a): If Married ITA 118(1)(c): If SingleITA 118(1)(c): If Single [(15%)($10,822)] = $1,623[(15%)($10,822)] = $1,623

Canadian Tax Principles Copyright © 2013, Clarence 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 –(15%)($10,822 – Net Income Of Spouse) –Gets The $2,000 Family Caregiver Amount if infirm –Maximum = $1,623 or $1,923 (If FCA)

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc Personal Tax Credits 2012 Personal Tax Credits Amount For Eligible Dependant ITA 118(1)(b)Amount For Eligible Dependant ITA 118(1)(b) –Same amount as spouse or common-law partner

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.13 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) living with the individualliving with the individual related by blood, marriage, or adoptionrelated by blood, marriage, or adoption resident of Canada (except child)resident of Canada (except child) dependent on individual for supportdependent on individual for support Amount For Eligible Dependant Amount For Eligible Dependant

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc Personal Tax Credits Child Tax Credit – ITA 118(1)(b.1)Child Tax Credit – ITA 118(1)(b.1) [(15%)($2,191)] = $329[(15%)($2,191)] = $329 –Gets The $2,000 Family Caregiver Amount if infirm [(15%)($4,191)] = $629[(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.

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.15 Caregiver ConditionsConditions –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

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.16 Caregiver ValueValue –[(15%)($4,402)] Maximum = $660Maximum = $660 –Gets The Family Caregiver Amount if infirm [(15%)($4,402 + $2,000)] to maximum of $960[(15%)($4,402 + $2,000)] to maximum of $960 –Reduced By 15% Of Dependant’s Income In Excess Of $15,033

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.17 Infirm Dependant Over 17 – ITA 118(1)(d) Dependants:Dependants: –Child –Grandchild –Parent –Grandparent –Brother –Sister –Aunt –Uncle –Niece –Nephew [ITA 118(6)]

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.18 Infirm Dependant Over 17 - ITA 118(1)(d) ConditionsConditions –Reach 18 Before End Of Year –Mentally Or Physically Infirm (15%)($6,402) = $960(15%)($6,402) = $960 Always includes the Family Caregiver AmountAlways includes the Family Caregiver Amount –Not Available If Eligible Dependant Or Caregiver Credits Available

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.19 Age - ITA 118(2) Reach 65 In The YearReach 65 In The Year $1,008 = [(15%)($6,720)]$1,008 = [(15%)($6,720)] ReductionReduction –15% Of Income > $33,884 –$78,684 - $33,884 = $44,800 –[($44,800)(15%)] = $ 6,720

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.20 Pension Income – ITA 118(3) Amount = 15% Of 1st $2,000 = $300Amount = 15% Of 1st $2,000 = $300

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.21 Pension Income – ITA 118(3) Qualifying AmountsQualifying Amounts –Age 65 Or Older At End Of Year Most Non-GovernmentMost Non-Government –< Age 65 At End Of Year Life AnnuitiesLife Annuities Amounts Resulting From Death Of SpouseAmounts Resulting From Death Of Spouse –No CPP, OAS, Or Provincial (QPP)

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.22 Canada Employment – ITA 118(10) 15 percent of the lesser of $1,095 or employment income.15 percent of the lesser of $1,095 or employment income. Maximum = $164Maximum = $164

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.23 Adoption Expenses – ITA Up to $1,716 [(15%)($11,440)]Up to $1,716 [(15%)($11,440)]

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.24 Adoption Expenses – ITA Eligible ChildEligible Child –Has not attained age 18 –Issued adoption order Eligible ExpensesEligible Expenses –Fees to agency –Court and legal fees –Other reasonable expenses

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.25 Public Transit Passes – ITA % of cost15% of cost –Individual –Spouse and children under 19 –Qualifying pass Unlimited travel for 28 daysUnlimited travel for 28 days 5 day passes if they cover 20 out of 28 days5 day passes if they cover 20 out of 28 days Electronic cards with at least 32 one-way trips.Electronic cards with at least 32 one-way trips.

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.26 Child Fitness – ITA % of up to $500 of costs15% of up to $500 of costs –Maximum $75 –Child under 16 –Eligible expenses –Does not include travel, food, or lodgingtravel, food, or lodging child care costschild care costs

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.27 Children’s Arts – ITA % of up to $500 of costs15% of up to $500 of costs –Maximum $75 –Child under 16 –Eligible expenses –Does not include travel, food, or lodgingtravel, food, or lodging child care costschild care costs

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.28 First Time Home Buyer’s Tax Credit $750 [(15%)($5,000)]$750 [(15%)($5,000)] Can be claimed by individual or spouseCan be claimed by individual or spouse No home purchase in preceding four yearsNo home purchase in preceding four years

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.29 Volunteer Firefighter’s – ITA % of $3,00015% of $3,000 –Requires 200 hour of volunteer firefighting –Cannot claim if paid for services by same department

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.30 Charitable Donations – ITA General RulesGeneral Rules –15% (1st $200) + 29% Of Excess

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.31 Charitable Donations – ITA General RulesGeneral 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)

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.32 Charitable Donations – ITA General RulesGeneral Rules –Carry Forward: 5 Years –Subject to the same limitations

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.33 Medical Expenses – ITA General RulesGeneral Rules –15% of eligible costs –Reduced by the lesser of 3% of Net Income3% of Net Income $2,109 (3%)($70,300)$2,109 (3%)($70,300) –Any 12 month period ending in the year

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.34 Medical Expenses – ITA Spouse And Minor DependantsSpouse And Minor Dependants –No Additional Reduction Dependants Over 17 Years Of AgeDependants Over 17 Years Of Age –Calculated For Each Dependant –Each Dependant’s Medical Expenses, Reduced By The Lesser Of: $2,109$2,109 3% Of dependant’s Net Income3% Of dependant’s Net Income

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.35 Medical Expenses – ITA 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(3%)($9,000) = $270 $2,109 9,730$2,109 9,730 Allowable Amount Of Medical Expenses$ 10,121 Credit (15%)$ 1,518

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.36 Refundable Medical Expense Supplement – ITA QualifyingQualifying –Age 18 or over –Earned income > $3,268

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.37 Refundable Medical Expense Supplement – ITA Refundable SupplementRefundable Supplement –Lesser of: $1,119$1,119 25/15 Of The Medical Expense Tax Credit25/15 Of The Medical Expense Tax Credit Then Reduced By 5% Of Family Income > $24,783

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.38 Refundable Medical Expense Supplement – ITA Refundable Supplement Example Ms. Forbes has medical expenses of $3,500 and earned income of $22,000.Refundable Supplement Example Ms. 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

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.39 Disability Amount – ITA –Must Be Severe And Prolonged Significantly Restricts Basic Living ActivitiesSignificantly Restricts Basic Living Activities A Continuous Period Of At Least 12 MonthsA Continuous Period Of At Least 12 Months –Requires Form T2201

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.40 Disability Amount – ITA –15% Of $7,546 = $1,132, No Income Test –No Claim If: More Than $10,000 For Full Time Attendant Care OrMore Than $10,000 For Full Time Attendant Care Or Costs Of Nursing Home Are ClaimedCosts Of Nursing Home Are Claimed –Can Be Transferred To Individual Making Claim Under ITA 118(b), (c.1) Or (d)

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.41 Disability Supplement If under 18 at end of year: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

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.42 Tuition Credit - ITA TuitionTuition –15% Of Actual –Post-Secondary –Cost > $100 –No Upper Limit

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.43 Tuition Credit - ITA TuitionTuition –Includes all ancillary if mandatory –Includes $250 of ancillary fees if not mandatory –Includes examination fees –Unlimited carry forward by student

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.44 Education Credit – 118.6(2) EducationEducation –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

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.45 Textbook Credit Available for each month of education credit eligibility:Available for each month of education credit eligibility: –Full time attendance = $10 [(15%)($65)] –Part time attendance = $3 [(15%)($20)]

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.46 Interest on Student Loans Interest On Student LoansInterest On Student Loans –15% Of Amounts Paid –Loans Under The Canada Student Loans Act, the Canada Student Financial Assistance Act, Or A Provincial Statute

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.47 CPP And EI - ITA % Of Actual Payments15% Of Actual Payments Maximums For 2012Maximums For 2012 –EI = [(1.83%)($45,900)] = $840 15% of $840 = $126 15% of $840 = $126 –CPP = [(4.95%)($50,100 - $3,500)] = $2,307 15% of $2,307 = $346

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.48 Transfer Of Credits Spouse - ITA 118.8Spouse - ITA –Eligible Child tax creditChild tax credit AgeAge PensionPension DisabilityDisability Current year tuition, education, and textbookCurrent year tuition, education, and textbook –After Personal, CPP, And EI Used

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.49 Transfer Of Credits Tuition/Education/Textbook - ITA 118.9Tuition/Education/Textbook - ITA –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

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.50 Political Contributions 3/4 First $4003/4 First $400 1/2 Next $3501/2 Next $350 1/3 Next $5251/3 Next $525 Max = $650 For $1,275Max = $650 For $1,275 Not Allowed For CorporationsNot Allowed For Corporations

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.51 Political Contributions Federal Accountability ActFederal Accountability Act –Individuals limited to $1,100 for registered partyregistered party candidate or leadership contestantcandidate or leadership contestant nomination contestantnomination contestant –Corporations Totally bannedTotally banned

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.52 Labour Sponsored Funds 15 Percent Of Cost15 Percent Of Cost First Registered HolderFirst Registered Holder Maximum Of $5,000, Or Credit Of $750Maximum Of $5,000, Or Credit Of $750

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.53 Refundable GST Credit $260$260 Individual Qualified Relation Eligible Dependant $137$137 Qualified Dependant Less:Less: 5% Of Family Income > $33,884

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.54 Working Income Tax Benefit The problem: At minimum wage, an individual may be better off not workingThe problem: At minimum wage, an individual may be better off not working –Reductions in social assistance –Loss of subsidized housing –Other low income benefits

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.55 Working Income Tax Benefit Benefit for single individual – Lesser of:Benefit for single individual – Lesser of: –25% of working income in excess of $3,000 –Max = $970 Reduced by 15 percent of income in excess of $11,011Reduced by 15 percent of income in excess of $11,011

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.56 Working Income Tax Benefit Benefit for couples – lesser of:Benefit for couples – lesser of: –25% of family working income in excess of $3,000 –Max = $1,762 Reduced by 15 percent of family working income in excess of $15,205Reduced by 15 percent of family working income in excess of $15,205

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.57 Child Tax Benefit System BasicBasic –$1,405/Year For Each Qualified Dependant –+$98/Year For Each Dependant Over Two –Eroded when family income exceeds $42,707 SupplementSupplement –$2,177/Year for 1 st child –$1,926/Year for 2 nd –$1,832/Year for 3 rd and subsequent –Eroded when family income exceeds $24,863

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.58 Clawback of EI Applicable if EI recipient’s net income exceeds $57,375Applicable if EI recipient’s net income exceeds $57, percent of the lesser of:30 percent of the lesser of: –EI benefits received –Excess of net income over $57,375

Canadian Tax Principles Copyright © 2013, Clarence Byrd Inc.59 Clawback of OAS Lesser OfLesser Of –Payments Received –15% Of Income In Excess Of $69,562 Disappears At $112,772Disappears At $112,772 OAS Not Paid If Income Is High In Previous Two YearsOAS Not Paid If Income Is High In Previous Two Years

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