CTP_(08)_Chapter_03 - Chapter 3 Taxable Income And Tax...

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Unformatted text preview: Chapter 3 Taxable Income And Tax Payable For Individuals © 2008, Clarence Byrd Inc. 1 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 © 2008, Clarence Byrd Inc. 2 Available Deductions Employee Stock Options (Chapter 2) Deductions For Payments Home Relocation Loan Lump Sum Payments Lifetime Capital Gains (Chapter 10) Residing In Prescribed Zone Loss Carry Overs (Chapter 10) © 2008, Clarence Byrd Inc. 3 Deduction For Payments Tax convention exemptions Workman’s compensation Social Assistance Payments No Intention To Tax © 2008, Clarence Byrd Inc. 4 Home Relocation Loan Deduction Example: An employee receives a $100,000 loan from his employer on July 1, 2008. The rate on the loan is 3 percent and, during the remainder of the year, assume the relevant prescribed rate is 5 percent. ITA 80.4 Benefit [(5% - 3%)($100,000)(6/12)] ITA 110(1)(j) Deduction [($25,000)(5%)(6/12)] Net Benefit $1,000 ( 625) $ 375 Available for 5 years only Can use rate at inception or go quarter to quarter © 2008, Clarence Byrd Inc. 5 Tax Payable ­ The Basic System 2008 Rates 1st $37,885 @ 15% $37,886 to $75,769 @ 22% $75,770 to $123,184 @ 26% Over $123,184 @ 29% Full Indexing Each Year © 2008, Clarence Byrd Inc. 6 The Basic System Example An individual has Taxable Income of $123,184 and only his basic personal tax credit of $1,440 [(15%) ($9,600)]. 15% of $37,885 22% of ($75,769 ­ $37,885) 26% of ($123,184 ­ $75,770) Total Before Credit After credit ($26,345 ­ $1,440) © 2008, Clarence Byrd Inc. $ 5,683 8,334 12,328 $ 26,345 $ 24,905 7 Provincial Tax Payable All Provinces Except Alberta Apply Progressive Rates To Taxable Income Minimum = (6.05 + 15) 21.05% Combined Maximum = (19.25 + 29) 48.25% Combined Provincial Surtaxes Alberta Has Flat Tax @ 10% © 2008, Clarence Byrd Inc. 8 Tax Credit System Refundable Vs. Non­Refundable. In general, minimum rate applied to a base (15 percent for 2008). Some have income threshold. Provinces have similar credits © 2008, Clarence Byrd Inc. 9 2008 Personal Tax Credits Individuals ITA 118(1)(a): If Married ITA 118(1)(c): If Single [(15%)($9,600)] = $1,440 © 2008, Clarence Byrd Inc. 10 2008 Personal Tax Credits Spouse Or Common­Law Partner – ITA 118(1)(a) Includes common­law and same sex (15%)($9,600 – Net Income Of Spouse) Maximum = $1,440 © 2008, Clarence Byrd Inc. 11 2008 Personal Tax Credits Amount For Eligible Dependant ITA 118(1)(b) Same amount as spouse or common­law partner © 2008, Clarence Byrd Inc. 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 © 2008, Clarence Byrd Inc. 13 2008 Personal Tax Credits Child Tax Credit – ITA 118(1)(b.1) [(15%)($2,038)] = $306 For each child under 18 at end of year No income threshold Can take eligible dependant and this credit for the same child. © 2008, Clarence Byrd Inc. 14 Caregiver Conditions Maintain Household With Dependant Over 17 Resident Of Canada (Unless Parent Or Grandparent) Infirm (Unless Parent Or Grandparent 65 Or Older) Not Available If Eligible Dependant Credit Available © 2008, Clarence Byrd Inc. 15 Caregiver Value $614 [(15%)($4,095)] Reduced By 15% Of Dependant’s Income In Excess Of $13,986 © 2008, Clarence Byrd Inc. 16 Infirm Dependant Over 17 – ITA 118(1)(d) Dependants: Child, Grandchild, Parent, Grandparent, Brother, Sister, Aunt, Uncle, Niece, Nephew [ITA 118(6)] © 2008, Clarence Byrd Inc. 17 Infirm Dependant Over 17 ­ ITA 118(1)(d) Conditions Reach 18 Before End Of Year Mentally Or Physically Infirm [15%][$4,095 ­ (Income > $5,811)] = Maximum Of $614 Not Available If Eligible Dependant Or Caregiver Credits Available. © 2008, Clarence Byrd Inc. 18 Age ­ ITA 118(2) Reach 65 In The Year $791 = [(15%)($5,276)] Reduction 15% Of Income > $31,524 $66,697 ­ $31,524 = $35,173 $35,173 (15%) = $5,276 © 2008, Clarence Byrd Inc. 19 Pension Income – ITA 118(3) Amount = 15% Of 1st $2,000 = $300 © 2008, Clarence Byrd Inc. 20 Pension Income – ITA 118(3) Qualifying Amounts Age 65 At End Of Year Most Non­Government < Age 65 At End Of Year Life Annuities Amounts Resulting From Death Of Spouse No CPP, OAS, Or Provincial (QPP) © 2008, Clarence Byrd Inc. 21 Canada Employment – ITA 118(10) 15 percent of the lesser of $1,019 or employment income. Maximum = $153 © 2008, Clarence Byrd Inc. 22 Adoption Expenses – ITA 118.01 Up to $1,596 [(15%)($10,643)] © 2008, Clarence Byrd Inc. 23 Adoption Expenses – ITA 118.01 Eligible Child Has not attained age 18 Issued adoption order Eligible Expense Fees to agency Court and legal fees Other reasonable expenses © 2008, Clarence Byrd Inc. 24 Public Transit Pass – 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. © 2008, Clarence Byrd Inc. 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 © 2008, Clarence Byrd Inc. 26 Charitable Donations – ITA 118.1 General Rules 15%(1st $200) + 29% Of Excess © 2008, Clarence Byrd Inc. 27 Charitable Donations – ITA 118.1 General Rules Limit: 75% Of Net Income 100% in individual’s year of death and preceding year Plus 25 percent of capital gains on gifts of capital property (See Chapter 10) Plus 25 percent of recapture on gifts of capital property (See Chapter 10) © 2008, Clarence Byrd Inc. 28 Charitable Donations – ITA 118.1 General Rules Carry Forward: 5 Years Subject to the same limitations © 2008, Clarence Byrd Inc. 29 Medical Expenses – ITA 118.2 General Rules 15% of eligible costs Reduced by the lesser of 3% of Net Income $1,962 (3%)($65,400) Any 12 month period ending in the year © 2008, Clarence Byrd Inc. 30 Medical Expenses – ITA 118.2 Spouse And Minor Dependants No Additional Reduction Dependants Over 17 Years Of Age Calculated For Each Dependant Maximum Of $10,000 Per Dependant Each Dependant’s Medical Expenses, Reduced By The Lesser Of: $1,962 3% Of Dependant’s Net Income © 2008, Clarence Byrd Inc. 31 Medical Expenses – ITA 118.2 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. Taxpayer’s Expenses $ 2,500 Threshold ( 1,962) Subtotal Dependant Expenses ­ The Lesser Of: $10,000 – (3%)($9,000) = $9,730 Absolute Maximum = $10,000 Allowable Amount Of Medical Expenses Credit (15%) © 2008, Clarence Byrd Inc. $ 538 9,730 $10,268 $ 1,540 32 Refundable Medical Expense Supplement – ITA 122.51 Qualifying Age 18 or over Earned income > $3,040 © 2008, Clarence Byrd Inc. 33 Refundable Medical Expense Supplement – ITA 122.51 Refundable Supplement Lesser of: $1,041 25/15 Of The Medical Expenses Tax Credit Then Reduced By 5% Of Family Income > $23,057 © 2008, Clarence Byrd Inc. 34 Refundable Medical Expense Supplement – ITA 122.51 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 ­ $23,057)] = $710 © 2008, Clarence Byrd Inc. 35 Disability Amount – ITA 118.3 Must Be Severe And Prolonged Restricts Basic Living Activities A Continuous Period Of At Least 12 Months Requires Form T2201 © 2008, Clarence Byrd Inc. 36 Disability Amount – ITA 118.3 15% Of $7,021 = $1,053, 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) Or (d) © 2008, Clarence Byrd Inc. 37 Disability Supplement If Under 18 at end of year: 15%($4,095) = $614 Combined Provides $1,667 [(15%)($7,021 + $4,095)] The $4,095 is reduced by child and attendant care costs in excess of $2,399 © 2008, Clarence Byrd Inc. 38 Tuition Credit ­ ITA 118.5 Tuition 15% Of Actual Post­Secondary Cost > $100 No Upper Limit © 2008, Clarence Byrd Inc. 39 Tuition Credit ­ ITA 118.5 Tuition Includes all ancillary if mandatory Includes $250 of ancillary fees if not mandatory Unlimited carry forward by student © 2008, Clarence Byrd Inc. 40 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 © 2008, Clarence Byrd Inc. 41 Textbook Credit Full time attendance = $10 [(15%)($65)] Part time attendance = $3 [(15%)($20)] For each month of education credit eligibility © 2008, Clarence Byrd Inc. 42 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 © 2008, Clarence Byrd Inc. 43 CPP And EI ­ ITA 118.7 15% Of Actual Payments Maximums For 2008 CPP = [(4.95%)($44,900 ­ $3,500)] = $2,049 15% of $2,049 = $307 EI = [(1.73%)($41,100)] = $711 15% of $711 = $107 © 2008, Clarence Byrd Inc. 44 Transfer Of Credits Spouse ­ ITA 118.8 Eligible Age Pension Disability Current year tuition, education, and textbook After Personal, CPP, And EI Used © 2008, Clarence Byrd Inc. Tuition/Education ­ ITA 118.9 N/A If Student’s Spouse Claims Credit Unused Amount After CPP, EI, And Disability To Parent Or Grandparent Max = 15%($5,000) = $750 Carry Forward By Student If Unused 45 Working Income Tax Benefit The problem At minimum wage May be better off not working © 2008, Clarence Byrd Inc. 46 Working Income Tax Benefit Benefit For Individuals 20% of income between $3,000 and $5,550 Max = $500 Reduced by 15 percent of income in excess of $9,500 © 2008, Clarence Byrd Inc. 47 Working Income Tax Benefit Benefit For Couples 20% of income between $3,000 and $8,000 Max = $1,000 Reduced by 15 percent of income in excess of $14,500 © 2008, Clarence Byrd Inc. 48 Political Contributions 3/4 First $400 1/2 Next $350 1/3 Next $525 Max = $650 For $1,275 Not Allowed For Corporations © 2008, Clarence Byrd Inc. 49 Political Contributions Federal Accountability Act Individuals limited to $1,100 for registered party candidate or leadership contestant nomination contestant Corporations Totally banned © 2008, Clarence Byrd Inc. 50 Labour Sponsored Funds 15 Percent Of Cost First Registered Holder Maximum Of $5,000, Or Credit Of $750 © 2008, Clarence Byrd Inc. 51 Refundable GST Credit $242 Individual $242 Qualified Relation $242 Eligible Dependant $127 Qualified Dependant Less: 5% Of Family Income > $31,524 © 2008, Clarence Byrd Inc. 52 Child Tax Benefit System Basic +$91/Year For Each Dependant Over Two $1,307/Year For Each Qualified Dependant Eroded when family income exceeds $37,885 Supplement $1,792/Year for 2nd $1,704/Year for 3rd and subsequent © 2008, Clarence Byrd Inc. $2,025/Year for 1st child Eroded when family income exceeds $21,287 53 Clawback of EI Applicable if EI recipient’s net income exceeds $51,375 30 percent of the lesser of: EI benefits received Excess of net income over $51,375 © 2008, Clarence Byrd Inc. 54 Clawback Of OAS Lesser Of Payments Received 15% Of Income In Excess Of $64,718 Disappears At $104,905 OAS Not Paid If Income Is High In Previous Years © 2008, Clarence Byrd Inc. 55 © 2008, Clarence Byrd Inc. 56 ...
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This note was uploaded on 07/24/2011 for the course ACCT 3335 taught by Professor Chong during the Spring '11 term at Kwantlen Polytechnic University.

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