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3520-6- updated 2009-jfth

3520-6- updated 2009-jfth - 3520-6 Last updated on 1-11 1...

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3520-6: Last updated on 10/21/09 1-11 1 Lecture 6: Taxable Income and Tax for Individuals 1.1 Coverage Exercises 3-1 to 3-9, 3-11, 3-12, 3-14 to 3-21 Self-Study Problem 3-1 Self-Study Problem 3-2 Ignore the standby charge and the operating cost benefit Self-Study Problem 10-3 and 10-4 2 Overview of Computation of Taxable Income and Tax for Individuals The basic calculation of taxable income and tax for individuals is as follows: Division B Net Income - Division C Deductions = Taxable Income x Tax Rates = Tax owing (before tax credits) - Tax Credits = Federal Tax + Provincial Income Tax Total Income Tax 3 Division C Deductions [CTP 3-6 to 3-15] 3.1 ITA 110(1)(d), (d.1) Stock option deduction deduction for 50% of ITA section 7 stock option benefit (see lecture 2 notes) 3.2 ITA 110(1)(f) Deduction for social assistance and other similar payments Payments covered are: welfare; workers compensation, guaranteed income supplement (GIS) These payments are included in net income under other income [ITA 56(1)(a),(u) & (v)] but are not included in taxable income Therefore they are not taxed but are taken into consideration in the computation of net income (which can affect various tax credits and benefits) 3.3 ITA 110(1)(j) Home relocation loan deduction for dwelling at least 40 km closer to the new work location [ITA 248(1)], equal to lesser of the employment income benefit, calculated by applying the prescribed interest rate that is applicable to each quarter that the loan is outstanding [ITA 80.4(1)(a)]. Note: when computing the prescribed interest benefit for a home relocation loan you can use the
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3520-6: Last updated on 10/21/09 2-11 prescribed interest rate in effect when the loan was granted (for the entire year) if it results in a lower amount [ITA 80.4(4)]. The amount of the benefit is reduced by any payments made by the employee during the year or within 30 days of the end of the year [ITA 80.4(1)(c)]; and the interest benefit on a $25,000 of housing loan – using the lesser of the prescribed rate and the rate in effect at the time the loan is made Note: the 110(1)(j) deduction is only available in the first 5 years of a loan read 3-11 to 3-14 carefully 3.4 ITA 110.6 Capital Gains Exemption this is a lifetime deduction of $750,000 available for each individual for capital gains realized from the sale of shares of qualified small business corporations (incorporated small businesses) and qualified farming and fishing properties. Discussed further in ADMS 4562. 3.5 ITA 111 Loss carryovers from other years Loss carryovers are losses from another taxation year “carried over” as a deduction in computing the taxable income of the current taxation year There are two main types of loss carryovers: Non-capital losses losses from a source other than allowable capital losses they can be carried back 3 years, forward 20 years if losses incurred in taxation years ending after 2005, 10 years if losses incurred in taxation years ending after March 22,
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