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3520-2- updated 2009-jfth

3520-2- updated 2009-jfth - 3520-2 Last updated on 1-12 1...

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3520-2: Last updated on 8/18/2009 1-12 1 Lecture 2: Residency and Employment income Selected parts of Chapters 1, 2 and 20 Web links are included to provide more information to those who are interested to learn more about particular topics Recommended exercises and self-study problems in chapter 2: Exercises 1-3, 7-8, 10-11, 13-16, 18 Self-Study Problem 2-7: As you are not responsible for the standby charge and the operating cost benefit, you can assume that the total of the automobile benefits (standby charge plus operating cost benefit) is $9,671 2 Residency [ch. 1 and ch. 20] 2.1 ITA 2 is the charging provision [1-75 to 1-78] It defines who the taxpayer is and what the base is = who is liable for tax on what taxable income For residents of Canada for tax purposes The base is worldwide taxable income in Division C of the Act For non-residents of Canada for tax purposes The base is certain Canadian source taxable income in Division D of the Act if they were employed in Canada, carried on a business in Canada, or disposed of a taxable Canadian property (e.g., Canadian real estate) at any time in the year or a previous year Read ITA 2(1), 2(2), 2(3) 2.2 Definitions [1-76] Person = individuals, corporations, and trusts Resident – unless an individual severs all significant residential ties with Canada upon leaving Canada See also http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html 2.3 Computation of Income [1-97 to 1-102] 2.3.1 Division B of Part I of the Act- Computation of Net Income for Tax Purposes Taxable income = Net income for tax purposes minus Division C deductions Division B has subdivisions for each source of income a = employment b = business or property c = taxable capital gains/allowable capital losses d = other income (e.g. spousal support received and pension income) e = other deductions (e.g. RRSP contributions, moving expenses, spousal support paid, child care expenses) 2.3.2 Computation of Income ITA 3 See Fig 1-3 ITA 3 brings together all the different sources of income to form Net Income for Tax Purposes Taxable capital gain (TCG) = 1/2 of a capital gain Allowable capital loss (ACL) = 1/2 of a capital loss
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3520-2: Last updated on 8/18/2009 2-12 One key point in ITA 3 is that if allowable capital losses are greater than taxable capital gains, they cannot be deducted in computing net income (i.e., they are set equal to 0 for the year) Excess ACLs are available for deduction in other years (“carried over"). They can be carried back to the preceding three years and deducted against TCGs in those years (if any) and/or carried forward indefinitely and deducted against future TCGs. If not deducted before death, they can be deducted in the year of death (and the immediately preceding year) against any type income See Example 1-122 3 Income or Loss from Employment [ch. 2] 3.1 General Rules [2-1 to 2-7] ITA calculates income by source For example, employment income is computed separately from business and property income and separately from capital gains/capital losses [ITA section 4].
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