Taxable Income and Tax Payable For Individuals

Canadian Tax Principles
Chapter 4
Taxable Income and Tax Payable

For Individuals
Copyright 2013, Clarence Byrd Inc.
From Net To Taxable Income

Employment
Income
Business And
Property Income
Net Taxable
Capital Gains
Division C
Deductions
Taxable Income
Other Sources
Of Income
Other Deductions
From Income
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)
Deduction For Payments
Tax treaty exemptions

Workers compensation
Social assistance payments
No Intention To Tax
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)]
ITA 110(1)(j) Deduction
[($1,000)($25,000/$100,000)]
Net Benefit
$1,000
(
250)
$ 750
Available for 5 years only

Can use rate at inception or go quarter to quarter
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
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
22% of ($85,414 - $42,708)
26% of ($132,406 - $85,415)
Total Before Credit
$ 6,406
9,395
12,219
$ 28,020
After credit
($28,020 - $1,623)
$ 26,397
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%
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.
2012 Personal Tax Credits
Individuals
ITA 118(1)(a): If Married
ITA 118(1)(c): If Single
[(15%)($10,822)] = $1,623
10
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)
11
Amount For Eligible Dependant

ITA 118(1)(b)
Same amount as spouse or common-law partner
12
Amount For Eligible Dependant
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
13
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.
14
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
15
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 Dependants Income In Excess Of

$15,033
16
Infirm Dependant Over 17

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

- ITA 118(1)(d)
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
18
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
19
Pension Income ITA 118(3)
Amount = 15% Of 1st $2,000 = $300
20
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)
21
Canada Employment ITA 118(10)
15 percent of the lesser of $1,095 or employment income.
Maximum = $164
22
Adoption Expenses ITA 118.01
Up to $1,716 [(15%)($11,440)]
23
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
24
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.
25
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
26
Childrens 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
27
First Time Home Buyers Tax Credit
$750 [(15%)($5,000)]
Can be claimed by individual or spouse
No home purchase in preceding four years
28
Volunteer Firefighters ITA 118.06
15% of $3,000
Requires 200 hour of volunteer firefighting
Cannot claim if paid for services by same department
29
Charitable Donations ITA 118.1
General Rules
15% (1st $200) + 29% Of Excess
30
General Rules
Limit: 75% Of Net Income
(100% in individuals 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)
31
General Rules
Carry Forward: 5 Years
Subject to the same limitations
32
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
33
Spouse And Minor Dependants

No Additional Reduction
Dependants Over 17 Years Of Age
Calculated For Each Dependant
Each Dependants Medical Expenses, Reduced By The Lesser
Of:
$2,109
3% Of dependants Net Income
34

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.
Taxpayers Expenses
Threshold
Subtotal
Dependant Expenses - $10,000 Reduced By Lesser Of:
(3%)($9,000) = $270
$2,109
Allowable Amount Of Medical Expenses
$ 2,500
( 2,109)
$ 391
Credit (15%)
$ 1,518
9,730
$ 10,121
35
Refundable Medical Expense

Supplement ITA 122.51
Qualifying
Age 18 or over
Earned income > $3,268
36

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

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
38
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
39
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)
40
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
41
Tuition Credit - ITA 118.5

Tuition
15% Of Actual
Post-Secondary
Cost > $100
No Upper Limit
42
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
43
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
44
Textbook Credit
Available for each month of education credit eligibility:

Full time attendance = $10 [(15%)($65)]
Part time attendance = $3 [(15%)($20)]
45
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
46
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
47
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
48
Transfer Of Credits
Tuition/Education/Textbook - ITA 118.9

N/A If Students 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
49
Political Contributions
3/4 First $400

1/2 Next $350
1/3 Next $525
Max = $650 For $1,275
Not Allowed For Corporations
50
Political Contributions
Federal Accountability Act
Individuals limited to $1,100 for
registered party
candidate or leadership contestant
nomination contestant
Corporations
Totally banned
51
Labour Sponsored Funds
15 Percent Of Cost
First Registered Holder
Maximum Of $5,000, Or Credit Of $750
52
Refundable GST Credit
$260 Individual
$260 Qualified Relation
$260 Eligible Dependant
$137 Qualified Dependant
Less: 5% Of Family Income > $33,884
53
Working Income Tax Benefit
The problem: At minimum wage, an individual may be better off

not working
Reductions in social assistance
Loss of subsidized housing
Other low income benefits
54
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 $11,011
55
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 $15,205
56
Child Tax Benefit System

Basic
$1,405/Year For Each Qualified Dependant
+$98/Year For Each Dependant Over Two
Eroded when family income exceeds $42,707
Supplement
$2,177/Year for 1st child
$1,926/Year for 2nd
$1,832/Year for 3rd and subsequent
Eroded when family income exceeds $24,863
57
Clawback of EI
Applicable if EI recipients net income

exceeds $57,375
30 percent of the lesser of:
EI benefits received
Excess of net income over $57,375
58
Clawback of OAS
Lesser Of
Payments Received
15% Of Income In Excess Of $69,562
Disappears At $112,772
OAS Not Paid If Income Is High In Previous Two Years
59
60

Taxable Income and Tax Payable For Individuals

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Taxable Income and Tax Payable For Individuals

Uploaded by

Copyright:

Available Formats

Canadian Tax Principles