11%20-%20Taxable%20Income%20and%20Tax%20Payable%20for%20Individuals%20Revisted

11%20-%20Taxable%20Income%20and%20Tax%20Payable%20for%20Individuals%20Revisted

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Chapter 11 – Taxable Income and Tax Payable for Individuals Revisited
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Taxable Income • The calculation of taxable income starts with NIFTP and then the following items are deducted: – The stock option deduction (Chapter 3) – Social assistance payments (Chapter 4) – Home relocation loan deduction (Chapter 4) – Lump-sum payments (this Chapter) – Life time capital gains deduction (this Chapter) – Northern residents deduction (Chapter 4) – Losses (this Chapter)
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Lump Sum Payments Retroactive payments of salary, pensions and spousal support can create a tax problem for the recipient, since these items are taxed on a cash basis When a lump sum is received, because of the progressive tax rates we have, it can be taxed at a higher rate than would normally be the case if the same amount was spread over a few years For certain types of payments, relief is available Qualifying amounts: – Spousal and child support, pension benefits, EI, salaries in certain situations Process: – Spread the amount received over earlier years at the marginal rate effective each year – Interest is charged from May 1 of the year following each year that additional tax is owing
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Treatment of Losses • You already know that losses that cannot be deducted in the year of loss can be carried back and forward • Losses must be used first in the year they are incurred. – This may not be possible however if: • Other sources of income are less than the loss amount, or • Other income sources are not of the right type (eg, capital losses cannot be deducted against business income)
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Treatment of Losses • Unused losses can be carried back 3 years, if: – There is income from other sources that can be reduced by the loss, and the income is of the correct type to apply the loss against. – Certain losses can only be applied against same type of income, these are: • Listed personal property losses • Net capital losses • Restricted farm losses • Note that Limited Partnership losses cannot be carried back • Losses that are carried back will generate a tax refund for a previous year
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Treatment of Losses If the loss can’t be used by carry back provisions, then it can be carried forward as follows: – 7 years : Non-capital losses incurred before March 23, 2004 Listed Personal Property Losses – 10 years Non-capital losses incurred since March 22, 2004 Farm losses incurred before 2006 Allowable business investment losses as a non-capital loss, then becomes part of net capital loss balance – 20 years Non-capital losses and farm losses incurred in taxation years ending after 2005 – Indefinite Net capital losses (cumulative excess of ACL over TCG, not adjusted for inclusion rate) – if unused at time of death, can be applied against any income in the final return.
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• Separate balances for carry back and forward must be tracked by type: – Non capital losses (employment, business, property losses)
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This note was uploaded on 01/31/2011 for the course MOS 4462 taught by Professor Ann during the Fall '10 term at UWO.

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11%20-%20Taxable%20Income%20and%20Tax%20Payable%20for%20Individuals%20Revisted

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