2. Chapter 3 Taxable Income And Tax Payable For Individuals

3. © 2009, 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

4. © 2009, Clarence Byrd Inc.3 Available Deductions Employee Stock Options (Chapter 2) Employee Stock Options (Chapter 2) Deductions For Payments Deductions For Payments Home Relocation Loan Home Relocation Loan Lump Sum Payments Lump Sum Payments Lifetime Capital Gains (Chapter 10) Lifetime Capital Gains (Chapter 10) Northern Residents Deductions Northern Residents Deductions Loss Carry Overs (Chapter 10) Loss Carry Overs (Chapter 10)

5. © 2009, Clarence Byrd Inc.4 Deduction For Payments Tax treaty exemptions Tax treaty exemptions Worker’s compensation Worker’s compensation Social assistance payments Social assistance payments No Intention To Tax

6. © 2009, Clarence Byrd Inc.5 Home Relocation Loan Deduction Example: An employee receives a $100,000 loan from his employer on July 1, 2009. The rate on the loan is 3 percent and, during the remainder of the year, assume the relevant prescribed rate is 5 percent. ITA 80.4 Benefit [(5% - 3%)($100,000)(6/12)]$1,000 ITA 110(1)(j) Deduction [($25,000)(5%)(6/12)]( 625) Net Benefit$ 375 Available for 5 years only Can use rate at inception or go quarter to quarter

7. © 2009, Clarence Byrd Inc.6 Tax Payable - The Basic System 2009 Rates 2009 Rates 1st $40,726 @ 15% 1st $40,726 @ 15% $40,727 to $81,452 @ 22% $40,727 to $81,452 @ 22% $81,453 to $126,264 @ 26% $81,453 to $126,264 @ 26% Over $126,264 @ 29% Over $126,264 @ 29% Full Indexing Each Year Full Indexing Each Year

8. © 2009, Clarence Byrd Inc.7 The Basic System Example For 2009, an individual has Taxable Income of $126,264 and only his basic personal tax credit of $1,548 [(15%)($10,320)]. Example For 2009, an individual has Taxable Income of $126,264 and only his basic personal tax credit of $1,548 [(15%)($10,320)]. 15% of $40,726$ 6,109 22% of ($81,452 - $40,726) 8,960 26% of ($126,264 - $81,452) 11,651 Total Before Credit$ 26,720 After credit After credit ($26,720 - $1,548)$ 25,172

9. © 2009, Clarence 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 = (5.06 + 15) 20.06% Combined Minimum = (5.06 + 15) 20.06% Combined Maximum = (19.25 + 29) 48.25% Combined Maximum = (19.25 + 29) 48.25% Combined Provincial Surtaxes Provincial Surtaxes Alberta Has Flat Tax @ 10% Alberta Has Flat Tax @ 10%

10. © 2009, 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 2009). In general, minimum rate applied to a base (15 percent for 2009). Some have income threshold. Some have income threshold. Provinces have similar credits. Provinces have similar credits.

11. © 2009, Clarence Byrd Inc.10 2009 Personal Tax Credits 2009 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%)($10,320)] = $1,548 [(15%)($10,320)] = $1,548

12. © 2009, Clarence Byrd Inc.11 2009 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%)($10,320 – Net Income Of Spouse) (15%)($10,320 – Net Income Of Spouse) Maximum = $1,548 Maximum = $1,548

13. © 2009, Clarence Byrd Inc.12 2009 Personal Tax Credits 2009 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 Same amount as spouse or common-law partner

14. © 2009, 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 individual living with the individual 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 Amount For Eligible Dependant Amount For Eligible Dependant

15. © 2009, Clarence Byrd Inc.14 2009 Personal Tax Credits Child Tax Credit – ITA 118(1)(b.1) Child Tax Credit – ITA 118(1)(b.1) [(15%)($2,089)] = $313 [(15%)($2,089)] = $313 For each child under 18 at end of year For each child under 18 at end of year No income threshold No income threshold Can take eligible dependant and this credit for the same child. Can take eligible dependant and this credit for the same child.

16. © 2009, Clarence Byrd Inc.15 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) Not Available If Eligible Dependant Credit Available Not Available If Eligible Dependant Credit Available

17. © 2009, Clarence Byrd Inc.16 Caregiver Value Value $630 [(15%)($4,198)] $630 [(15%)($4,198)] Reduced By 15% Of Dependant’s Income In Excess Of $14,336 Reduced By 15% Of Dependant’s Income In Excess Of $14,336

18. © 2009, Clarence Byrd Inc.17 Infirm Dependant Over 17 – ITA 118(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)]

19. © 2009, Clarence Byrd Inc.18 Infirm Dependant Over 17 - ITA 118(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%][$4,198 - (Income > $5,956)] = Maximum Of $630 [15%][$4,198 - (Income > $5,956)] = Maximum Of $630 Not Available If Eligible Dependant Or Caregiver Credits Available. Not Available If Eligible Dependant Or Caregiver Credits Available.

20. © 2009, Clarence Byrd Inc.19 Age - ITA 118(2) Reach 65 In The Year Reach 65 In The Year $961 = [(15%)($6,408)] $961 = [(15%)($6,408)] Reduction Reduction 15% Of Income > $32,312 15% Of Income > $32,312 $75,032 - $32,312 = $42,720 $75,032 - $32,312 = $42,720 $42,720 (15%) = $6,408 $42,720 (15%) = $6,408

21. © 2009, Clarence Byrd Inc.20 Pension Income – ITA 118(3) Amount = 15% Of 1st $2,000 = $300 Amount = 15% Of 1st $2,000 = $300

22. © 2009, Clarence Byrd Inc.21 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)

23. © 2009, Clarence Byrd Inc.22 Canada Employment – ITA 118(10) 15 percent of the lesser of $1,044 or employment income. 15 percent of the lesser of $1,044 or employment income. Maximum = $157 Maximum = $157

24. © 2009, Clarence Byrd Inc.23 Adoption Expenses – ITA 118.01 Up to $1,636 [(15%)($10,909)] Up to $1,636 [(15%)($10,909)]

25. © 2009, Clarence Byrd Inc.24 Adoption Expenses – ITA 118.01 Eligible Child Eligible Child Has not attained age 18 Has not attained age 18 Issued adoption order Issued adoption order Eligible Expenses Eligible Expenses Fees to agency Fees to agency Court and legal fees Court and legal fees Other reasonable expenses Other reasonable expenses

26. © 2009, Clarence Byrd Inc.25 Public Transit Pass – ITA 118.02 15% of cost 15% of cost Individual Individual Spouse and children under 19 Spouse and children under 19 Qualifying pass Qualifying pass Unlimited travel for 28 days Unlimited travel for 28 days 5 day passes if they cover 20 out of 28 days 5 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.

27. © 2009, Clarence Byrd Inc.26 Child Fitness – ITA 118.03 15% of up to $500 of costs 15% of up to $500 of costs Maximum $75 Maximum $75 Child under 16 Child under 16 Eligible expenses Eligible expenses Does not include Does not include travel, food, or lodging travel, food, or lodging child care costs child care costs

28. Home Renovations Tax Credit Maximum of $1,350 [(15%)($10,000 - $1,000) Maximum of $1,350 [(15%)($10,000 - $1,000) Family based Family based Must be on principal residence Must be on principal residence © 2009, Clarence Byrd Inc.27

29. First Time Home Buyer’s Tax Credit $750 [(15%)($5,000)] $750 [(15%)($5,000)] Can be claimed by individual or spouse Can be claimed by individual or spouse No home purchase in preceding four years No home purchase in preceding four years © 2009, Clarence Byrd Inc.28

30. © 2009, Clarence Byrd Inc.29 Charitable Donations – ITA 118.1 General Rules General Rules 15%(1st $200) + 29% Of Excess 15%(1st $200) + 29% Of Excess

31. © 2009, Clarence Byrd Inc.30 Charitable Donations – ITA 118.1 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 of capital property (See Chapter 10) Plus 25 percent of capital gains on gifts of capital property (See Chapter 10) Plus 25 percent of recapture on gifts of capital property (See Chapter 10) Plus 25 percent of recapture on gifts of capital property (See Chapter 10)

32. © 2009, Clarence Byrd Inc.31 Charitable Donations – ITA 118.1 General Rules General Rules Carry Forward: 5 Years Carry Forward: 5 Years Subject to the same limitations Subject to the same limitations

33. © 2009, Clarence Byrd Inc.32 Medical Expenses – ITA 118.2 General Rules General Rules 15% of eligible costs 15% of eligible costs Reduced by the lesser of Reduced by the lesser of 3% of Net Income 3% of Net Income $2,011 (3%)($67,033) $2,011 (3%)($67,033) Any 12 month period ending in the year Any 12 month period ending in the year

34. © 2009, Clarence Byrd Inc.33 Medical Expenses – ITA 118.2 Spouse And Minor Dependants Spouse And Minor Dependants No Additional Reduction No Additional Reduction Dependants Over 17 Years Of Age Dependants Over 17 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: $2,011 $2,011 3% Of Dependant’s Net Income 3% Of Dependant’s Net Income

35. © 2009, Clarence Byrd Inc.34 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( 2,011) Subtotal $ 489 Dependant Expenses - The Lesser Of: $10,000 – (3%)($9,000) = $9,730 Absolute Maximum = $10,000 9,730 Allowable Amount Of Medical Expenses$10,219 Credit (15%)$ 1,533

36. © 2009, Clarence Byrd Inc.35 Refundable Medical Expense Supplement – ITA 122.51 Qualifying Qualifying Age 18 or over Age 18 or over Earned income > $3,116 Earned income > $3,116

37. © 2009, Clarence Byrd Inc.36 Refundable Medical Expense Supplement – ITA 122.51 Refundable Supplement Refundable Supplement Lesser of: Lesser of: $1,067 $1,067 25/15 Of The Medical Expenses Tax Credit 25/15 Of The Medical Expenses Tax Credit Then Reduced By 5% Of Family Income > $23,633

38. © 2009, Clarence Byrd Inc.37 Refundable Medical Expense Supplement – ITA 122.51 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)] Medical Expense Credit = $426 [(15%)($3,500 - $660)] [(25/15)($426)] = $710 [(25/15)($426)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $23,633)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $23,633)] = $710

39. © 2009, Clarence Byrd Inc.38 Disability Amount – ITA 118.3 Must Be Severe And Prolonged Must Be Severe And Prolonged Significantly Restricts Basic Living Activities Significantly 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

40. © 2009, Clarence Byrd Inc.39 Disability Amount – ITA 118.3 15% Of $7,196 = $1,079, No Income Test 15% Of $7,196 = $1,079, No Income Test No Claim If: No Claim If: More Than $10,000 For Full Time Attendant Care Or More Than $10,000 For Full Time Attendant Care Or Costs Of Nursing Home Are Claimed Costs Of Nursing Home Are Claimed Can Be Transferred To Individual Making Claim Under ITA 118(b), (c.1) Or (d) Can Be Transferred To Individual Making Claim Under ITA 118(b), (c.1) Or (d)

41. © 2009, Clarence Byrd Inc.40 Disability Supplement If Under 18 at end of year: If Under 18 at end of year: 15%($4,198) = $630 15%($4,198) = $630 Combined Provides $1,709 [(15%)($7,196 + $4,198)] Combined Provides $1,709 [(15%)($7,196 + $4,198)] The $4,198 is reduced by child and attendant care costs in excess of $2,459 The $4,198 is reduced by child and attendant care costs in excess of $2,459

42. © 2009, Clarence Byrd Inc.41 Tuition Credit - ITA 118.5 Tuition Tuition 15% Of Actual 15% Of Actual Post-Secondary Post-Secondary Cost > $100 Cost > $100 No Upper Limit No Upper Limit

43. © 2009, Clarence Byrd Inc.42 Tuition Credit - ITA 118.5 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 by student Unlimited carry forward by student

44. © 2009, Clarence Byrd Inc.43 Education Credit – 118.6(2) Education Education 15% of $400 per month of Full Time attendance ($60) 15% of $400 per month of Full Time attendance ($60) 15% of $120 per month of Part Time attendance ($18) 15% of $120 per month of Part Time attendance ($18) Unlimited carry forward by student Unlimited carry forward by student

45. © 2009, Clarence Byrd Inc.44 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)] Full time attendance = $10 [(15%)($65)] Part time attendance = $3 [(15%)($20)]

46. © 2009, Clarence Byrd Inc.45 Interest on Student Loans Interest On Student Loans Interest On Student Loans 15% Of Amounts Paid 15% 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

47. © 2009, Clarence Byrd Inc.46 CPP And EI - ITA 118.7 15% Of Actual Payments 15% Of Actual Payments Maximums For 2009 Maximums For 2009 CPP = [(4.95%)($46,300 - $3,500)] = $2,119 CPP = [(4.95%)($46,300 - $3,500)] = $2,119 15% of $2,119 = $318 EI = [(1.73%)($42,300)] = $732 EI = [(1.73%)($42,300)] = $732 15% of $732 = $110 15% of $732 = $110

48. © 2009, Clarence Byrd Inc.47 Transfer Of Credits Tuition/Education/Textbook - ITA 118.9 Tuition/Education/Textbook - ITA 118.9 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%($5,000) = $750 Max = 15%($5,000) = $750 Carry Forward By Student If Unused Carry Forward By Student If Unused Spouse - ITA 118.8 Spouse - ITA 118.8 Eligible Eligible Age Age Pension Pension Disability Disability Current year tuition, education, and textbook Current year tuition, education, and textbook After Personal, CPP, And EI Used After Personal, CPP, And EI Used

49. © 2009, Clarence Byrd Inc.48 Working Income Tax Benefit The problem The problem At minimum wage may be better off not working At minimum wage may be better off not working

50. © 2009, Clarence Byrd Inc.49 Working Income Tax Benefit Benefit For Individuals Benefit For Individuals 20% of income between $3,000 and $5,610 20% of income between $3,000 and $5,610 Max = $522 Max = $522 Reduced by 15 percent of income in excess of $9,923 Reduced by 15 percent of income in excess of $9,923 Gone At $13,403 Gone At $13,403

51. © 2009, Clarence Byrd Inc.50 Working Income Tax Benefit Benefit For Couples Benefit For Couples 20% of income between $3,000 and $8,220 20% of income between $3,000 and $8,220 Max = $1,044 Max = $1,044 Reduced by 15 percent of income in excess of $15,145 Reduced by 15 percent of income in excess of $15,145 Gone At $22,105 Gone At $22,105

52. © 2009, Clarence Byrd Inc.51 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 Not Allowed For Corporations And Partnerships Not Allowed For Corporations And Partnerships

53. © 2009, Clarence Byrd Inc.52 Political Contributions Federal Accountability Act Federal Accountability Act Individuals limited to $1,100 for Individuals limited to $1,100 for registered party registered party candidate or leadership contestant candidate or leadership contestant nomination contestant nomination contestant Corporations And Partnerships Corporations And Partnerships Totally banned Totally banned

54. © 2009, Clarence Byrd Inc.53 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

55. © 2009, Clarence Byrd Inc.54 Refundable GST Credit $248 $248 Individual Qualified Relation Eligible Dependant $130 $130 Qualified Dependant Less: Less: 5% Of Family Income > $32,312

56. © 2009, Clarence Byrd Inc.55 Child Tax Benefit System Basic Basic $1,340/Year For Each Qualified Dependant $1,340/Year For Each Qualified Dependant +$93/Year For Each Dependant Over Two +$93/Year For Each Dependant Over Two Eroded when family income exceeds $38,832 Eroded when family income exceeds $38,832 Supplement Supplement $2,076/Year for 1 st child $2,076/Year for 1 st child $1,837/Year for 2 nd $1,837/Year for 2 nd $1,747/Year for 3 rd and subsequent $1,747/Year for 3 rd and subsequent Eroded when family income exceeds $21,816 Eroded when family income exceeds $21,816

57. © 2009, Clarence Byrd Inc.56 Clawback of EI Applicable if EI recipient’s net income exceeds $52,875 Applicable if EI recipient’s net income exceeds $52,875 30 percent of the lesser of: 30 percent of the lesser of: EI benefits received EI benefits received Excess of net income over $52,875 Excess of net income over $52,875

58. © 2009, Clarence Byrd Inc.57 Clawback Of OAS Lesser Of Lesser Of Payments Received Payments Received 15% Of Income In Excess Of $66,335 15% Of Income In Excess Of $66,335 Disappears At $107,695 Disappears At $107,695 OAS Not Paid If Income Is High In Previous Two Years OAS Not Paid If Income Is High In Previous Two Years

59. © 2009, Clarence Byrd Inc.58