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Unformatted text preview: 3520-2: Last updated on 9/17/20081-111Lecture 2: Residency and Employment incomeSelected parts of Chapters 1, 2 and 20Web links are included to provide more information to those who are interested to learn more about particular topicsRecommended exercises and self-study problems in chapter 2: Exercises 1-3, 7-8, 10-11, 13-16, 18Self-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 2Residency [ch. 1 and ch. 20]2.1ITA 2 is the charging provision [1-73 to 1-76]It defines who the taxpayer is and what the base is = who is liable for tax on what taxable incomeFor residents of Canada for tax purposesThe base is worldwide taxable income in Division C of the ActFor non-residents of Canada for tax purposesThe base is certain Canadian source taxable income in Division D of the Act if they wereemployed 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 yearRead ITA 2(1), 2(2), 2(3)2.2Definitions [1-74]Person = individuals, corporations, and trustsResident – unless an individual severs all significant residential ties with Canada upon leaving CanadaSee also http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html2.3Computation of Income [1-95 to 1-100]2.3.1Division B of Part I of the Act- Computation of Net Income for Tax PurposesTaxable 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) 2.3.2Computation of Income ITA 3 [1-95 to 100] See Fig 1-3ITA 3 brings together all the different sources of income to form Net Income for Tax PurposesTaxable capital gain (TCG) = 1/2 of a capital gainJason Fleming [[email protected]]3520-2: Last updated on 9/17/20082-11Allowable capital loss (ACL) = 1/2 of a capital loss 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 incomeSee Example 1-1203Income or Loss from Employment [ch. 2]3.1General Rules [2-1 to 2-7]ITA calculates income by source...
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- Spring '11
- Expenses, Employee Benefit, employment income, ITA, Jason Fleming