ACC 742 Lecture 9 Other Sources of Income and Deductions Fall 2010

ACC 742 Lecture 9 Other Sources of Income and Deductions Fall 2010

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Chapter 9 Deductions 
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Computation of Income Division B – Computation of Income Subdivision d- Other sources of income [56-59.1] Subdivision e- Deductions in computing income [60-66.8] Subdivision g – Amounts not included in income [81] Division G-Deferred and Other special Income Arrangements [144-148.1]
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Other Sources of Income Section 56 1(a)(i)- include pensions, OAS, CPP 1(a)(ii) – include retiring allowances and other payments on termination of employment Part of these payments may be transferred tax-free to an RRSP or an RPP (see 60(j.1)) 1(a)(iii) – include death benefits – 1st $10,000 is tax free and is not considered a death benefit (defined in s.248(1)) 1(a)(iv) – Employment Insurance (EI)
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Income Splitting 118(3) – effective for 2007 resident individuals can allocate up to one-half of their eligible pension income to spouse or common law partner Eligible pension will include RPP, RRSP, RRIF or deferred profit sharing plans if > age 65 or RPP annuity and certain payments due to death if < age 65 Both parties must agree to split
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Support Receipts and Payments 56(1)(b) – spousal support is taxable 60(b) – spousal payments are deductible Child support is tax free if agreement made or changed after April 30, 1997; if agreement prior to that date and not changed then child support taxable to recipient and deductible to payor
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Support Payments Five Tests must be met: Payment made is an allowance paid on periodic basis (e.g. monthly) Payment is discretionary (i.e. recipient determines use) Payments are for maintenance of recipient Payer and recipient living apart Paid pursuant to order of competent tribunal or written agreement
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Support Payments Lump-sum payments are not deductible and not taxable Payments to third parties covered under 56.1 and 60.1 Examples of these types of payments are tuition, rent, medical bills or mortgage payments Not considered allowances because no discretion and paid to third person Will be deemed to be allowance if meet three criteria
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3 rd  Party Support Payments Three criteria for 3 rd party payments to be deductible: Paid under order of competent tribunal or written agreement Expense incurred for maintenance of former spouse Court order alludes to 56.1(2) and 60.1(2) Excludes acquisition of tangible property except for expenditure on medical or educational expenses and for acquisition, improvement or maintenance of self-contained domestic establishment However, interest and principal payments limited
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Prior Payments If payments made before court order or written agreement then to be deductible: Payments must be mentioned in agreement 56.1(3), 60.1(3) Order or agreement must be made before the end of the year following receipt/payment (i.e. only one year back)
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Amounts paid for children not taxable and not
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ACC 742 Lecture 9 Other Sources of Income and Deductions Fall 2010

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