© 2007, Clarence Byrd Inc. 1 Chapter 6 Taxable Income And Tax Payable For Individuals

© 2007, Clarence Byrd Inc.2 From Net To Taxable Income Taxable Income Division C Deductions Employment Income Business And Property Income Net Taxable Capital Gains Other Sources Of Income Other Deductions From Income

© 2007, Clarence Byrd Inc.3 Available Deductions Employee Stock Options (Chapter 5) Employee Stock Options (Chapter 5) Deductions For Payments Deductions For Payments Home Relocation Loan Home Relocation Loan Lifetime Capital Gains (Chapter 14) Lifetime Capital Gains (Chapter 14) Residing In Prescribed Zone Residing In Prescribed Zone Losses (Chapter 14) Losses (Chapter 14)

© 2007, Clarence Byrd Inc.4 Deduction For Payments Tax convention exemptions Tax convention exemptions Workman’s compensation Workman’s compensation Social Assistance Payments Social Assistance Payments No Intention To Tax

© 2007, Clarence Byrd Inc.5 Home Relocation Loan Deduction Example: An employee receives a $100,000 loan from his employer on July 1, 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)(1/2)]$1, (1)(j) Deduction [($25,000)(5%)(1/2)]( 625) Net Benefit$ 375 Available for 5 years only Can use rate at inception or go quarter to quarter

© 2007, Clarence Byrd Inc.6 Tax Payable - The Basic System 1st 15.5% 1st 15.5% $37,178 to 22% $37,178 to 22% $74,357 to 26% $74,357 to 26% Over 29% Over 29% Full Indexing Full Indexing

© 2007, Clarence Byrd Inc.7 The Basic System Example An individual has Taxable Income of $120,887 and only his basic personal tax credit of $1,384 [ (15.5%)($8,929)]. Example An individual has Taxable Income of $120,887 and only his basic personal tax credit of $1,384 [ (15.5%)($8,929)]. 15.5% of $37,178$ 5,763 22% of ($74,357 - $37,178) 8,179 26% of ($120,887 - $74,357) 12,098 Total Before Credit$ 26,040 After credit After credit ($26,040 - $1,384)$ 24,696

© 2007, Clarence Byrd Inc.8 Provincial Tax Payable All Provinces Except Alberta Apply Progressive Rates To Taxable Income All Provinces Except Alberta Apply Progressive Rates To Taxable Income Minimum = ( ) 21.55% Combined Minimum = ( ) 21.55% Combined Maximum = ( ) 53% Combined Maximum = ( ) 53% Combined Provincial Surtaxes Provincial Surtaxes Alberta Has Flat 10% Alberta Has Flat 10%

© 2007, Clarence Byrd Inc.9 Tax Credit System Refundable Vs. Non-Refundable. Refundable Vs. Non-Refundable. In general, minimum rate applied to a base (15.5 percent for 2007). In general, minimum rate applied to a base (15.5 percent for 2007). Some have income threshold. Some have income threshold. Provinces have similar credits Provinces have similar credits

© 2007, Clarence Byrd Inc Personal Tax Credits 2007 Personal Tax Credits Individuals Individuals ITA 118(1)(a): If Married ITA 118(1)(a): If Married ITA 118(1)(c): If Single ITA 118(1)(c): If Single [(15.5%)($8,929)] = $1,384 [(15.5%)($8,929)] = $1,384

© 2007, Clarence Byrd Inc Personal Tax Credits Spouse Or Common-Law Partner – ITA 118(1)(a) Spouse Or Common-Law Partner – ITA 118(1)(a) Includes common-law and same sex Includes common-law and same sex (15.5%)($8,929) – Net Income Of Spouse (15.5%)($8,929) – Net Income Of Spouse Maximum = $1,384 Maximum = $1,384

© 2007, Clarence Byrd Inc Personal Tax Credits 2007 Personal Tax Credits Amount For Eligible Dependant ITA 118(1)(b) Amount For Eligible Dependant ITA 118(1)(b) Same amount as spouse or common-law partner Same amount as spouse or common-law partner

© 2007, Clarence Byrd Inc.13 Amount For Eligible Dependant Amount For Eligible Dependant Conditions: you are single, divorced, separated, or widowed and you supported a dependant: Conditions: you are single, divorced, separated, or widowed and you supported a dependant: who is under 18 (unless parent, grandparent, or infirm) who is under 18 (unless parent, grandparent, or infirm) related by blood, marriage, or adoption related by blood, marriage, or adoption resident of Canada (except child) resident of Canada (except child) dependent on individual for support dependent on individual for support 2007 Personal Tax Credits 2007 Personal Tax Credits

© 2007, Clarence Byrd Inc Personal Tax Credits Child Tax Credit – ITA 118(1)(b.1) Child Tax Credit – ITA 118(1)(b.1) [(15.5%)($2,000)] = $310 [(15.5%)($2,000)] = $310 For each child under 18 at end of year For each child under 18 at end of year No income threshold No income threshold Can take eligible dependant and this credit for the same child. Can take eligible dependant and this credit for the same child.

© 2007, Clarence Byrd Inc.15 Caregiver Conditions Conditions Maintain Household With Dependant Over 17 Maintain Household With Dependant Over 17 Resident Of Canada (Unless Parent Or Grandparent) Resident Of Canada (Unless Parent Or Grandparent) Infirm (Unless Parent Or Grandparent 65 Or Older) Infirm (Unless Parent Or Grandparent 65 Or Older) Not Available If Eligible Dependant Credit Available Not Available If Eligible Dependant Credit Available

© 2007, Clarence Byrd Inc.16 Caregiver Value Value $623 [(15.5%)($4,019)] $623 [(15.5%)($4,019)] Reduced By 15.5% Of Dependant’s Income In Excess Of $13,726 Reduced By 15.5% Of Dependant’s Income In Excess Of $13,726

© 2007, Clarence Byrd Inc.17 Infirm Dependant Over (1)(d) Dependants: Child, Grandchild, Parent, Grandparent, Brother, Sister, Aunt, Uncle, Niece, Nephew [ITA 118(6)] Dependants: Child, Grandchild, Parent, Grandparent, Brother, Sister, Aunt, Uncle, Niece, Nephew [ITA 118(6)]

© 2007, Clarence Byrd Inc.18 Infirm Dependant Over (1)(d) Conditions Conditions Reach 18 Before End Of Year Reach 18 Before End Of Year Mentally Or Physically Infirm Mentally Or Physically Infirm [(15.5%)($4,019) - (Income > $5,702)] = Maximum Of $623 [(15.5%)($4,019) - (Income > $5,702)] = Maximum Of $623 Not Available If Eligible Dependant Or Caregiver Credits Available. Not Available If Eligible Dependant Or Caregiver Credits Available.

© 2007, Clarence Byrd Inc.19 Age - ITA 118(2) Reach 65 In The Year Reach 65 In The Year [(15.5%)($5,177)] = $802 [(15.5%)($5,177)] = $802 Reduction Reduction 15% Of Income > $30,936 15% Of Income > $30,936 $65,449 - $30,936 = $34,513 $65,449 - $30,936 = $34,513 $34,513 (15%) = $5,177 $34,513 (15%) = $5,177

© 2007, Clarence Byrd Inc.20 Pension Income – ITA 118(3) Amount = 15.5% Of 1st $2,000 = $310 Amount = 15.5% Of 1st $2,000 = $310

© 2007, Clarence Byrd Inc.21 Pension Income – ITA 118(3) Qualifying Amounts Qualifying Amounts Age 65 At End Of Year Age 65 At End Of Year Most Non-Government Most Non-Government < Age 65 At End Of Year < Age 65 At End Of Year Life Annuities Life Annuities Amounts Resulting From Death Of Spouse Amounts Resulting From Death Of Spouse No CPP, OAS, Or Provincial (QPP) No CPP, OAS, Or Provincial (QPP)

© 2007, Clarence Byrd Inc.22 Canada Employment – ITA 118(10) 15.5 percent of the lesser of $1,000 or employment income percent of the lesser of $1,000 or employment income. Maximum = $155 Maximum = $155

© 2007, Clarence Byrd Inc.23 Adoption Expenses – ITA Up to $1,619 [(15.5%)($10,445)] Up to $1,619 [(15.5%)($10,445)]

© 2007, Clarence Byrd Inc.24 Adoption Expenses – ITA Eligible Child Eligible Child Has not attained age 18 Has not attained age 18 Issued adoption order Issued adoption order Eligible Expense Eligible Expense Fees to agency Fees to agency Court and legal fees Court and legal fees Other reasonable expenses Other reasonable expenses

© 2007, Clarence Byrd Inc.25 Public Transit Pass – ITA % of cost 15.5% of cost Individual Individual Spouse and children under 19 Spouse and children under 19 Qualifying pass Qualifying pass Unlimited travel for 28 days Unlimited travel for 28 days Weekly if four consecutive Weekly if four consecutive Electronic cards with at least 32 one-way trips. Electronic cards with at least 32 one-way trips.

© 2007, Clarence Byrd Inc.26 Child Fitness – ITA % of up to $500 of costs 15.5% of up to $500 of costs Maximum $78 Maximum $78 Child under 18 Child under 18 Eligible expenses Eligible expenses Does not include Does not include travel, food, or lodging travel, food, or lodging child care costs child care costs

© 2007, Clarence Byrd Inc.27 Charitable Donations – ITA General Rules General Rules 15.5%(1st $200) + 29% Of Excess 15.5%(1st $200) + 29% Of Excess

© 2007, Clarence Byrd Inc.28 Charitable Donations – ITA General Rules General Rules Limit: 75% Of Net Income Limit: 75% Of Net Income 100% in individual’s year of death and preceding year 100% in individual’s year of death and preceding year Plus 25 percent of capital gains on gifts Plus 25 percent of capital gains on gifts Plus 25 percent of recapture on gifts Plus 25 percent of recapture on gifts

© 2007, Clarence Byrd Inc.29 Charitable Donations – ITA General Rules General Rules Carry Over: 5 Years Carry Over: 5 Years Subject to the same limitations Subject to the same limitations

© 2007, Clarence Byrd Inc.30 Medical Expenses – ITA General Rules General Rules 15.5% of eligible costs 15.5% of eligible costs Reduced by the lesser of Reduced by the lesser of 3% of Net Income 3% of Net Income $1,926 (3%)($62,800) $1,926 (3%)($62,800) Any 12 month period ending in the year Any 12 month period ending in the year

© 2007, Clarence Byrd Inc.31 Medical Expenses – ITA Spouse And Minor Dependants Spouse And Minor Dependants No Additional Reduction No Additional Reduction Dependants Over 18 Years Of Age Dependants Over 18 Years Of Age Calculated For Each Dependant Calculated For Each Dependant Maximum Of $10,000 Per Dependant Maximum Of $10,000 Per Dependant Each Dependant’s Medical Expenses, Reduced By The Lesser Of Each Dependant’s Medical Expenses, Reduced By The Lesser Of $1,926 $1,926 3% Of Dependant’s Net Income 3% Of Dependant’s Net Income

© 2007, Clarence Byrd Inc.32 Medical Expenses – ITA 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( 1,926) Subtotal $ 574 Dependant Expenses - The Lesser Of: $10,000 – (3%)($9,000) = $9,730 Absolute Maximum = $10,000$ 9,730 Allowable Amount Of Medical Expenses$10,304 Credit (15.5%)$ 1,597

© 2007, Clarence Byrd Inc.33 Refundable Medical Expense Supplement – ITA Qualifying Qualifying Age 18 or over Age 18 or over Earned income > $2,984 Earned income > $2,984

© 2007, Clarence Byrd Inc.34 Refundable Medical Expense Supplement – ITA Refundable Supplement Refundable Supplement Lesser of: Lesser of: $1,022 $1,022 25/15.5 Of The Medical Expenses Tax Credit 25/15.5 Of The Medical Expenses Tax Credit Then Reduced By 5% Of Family Income > $22,627

© 2007, Clarence Byrd Inc.35 Refundable Medical Expense Supplement – ITA Refundable Supplement Example – Ms. Forbes has medical expenses of $3,500 and income of $22,000. Refundable Supplement Example – Ms. Forbes has medical expenses of $3,500 and income of $22,000. Medical Expense Credit = $440 [(15.5%)($3,500 - $660)] Medical Expense Credit = $440 [(15.5%)($3,500 - $660)] [(25/15.5)($440)] = $710 [(25/15.5)($440)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $22,627)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $22,627)] = $710

© 2007, Clarence Byrd Inc.36 Disability Amount – ITA Must Be Severe And Prolonged Must Be Severe And Prolonged Restricts Basic Living Activities Restricts Basic Living Activities A Continuous Period Of At Least 12 Months A Continuous Period Of At Least 12 Months Requires Form T2201 Requires Form T2201

© 2007, Clarence Byrd Inc.37 Disability Amount – ITA % Of $6,890 = $1,068, No Income Test 15.5% Of $6,890 = $1,068, No Income Test No Claim If More Than $10,000 For Full Time Attendant Care Or Costs Of Nursing Home Are Claimed 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) Can Be Transferred To Individual Making Claim Under ITA 118(b) Or (d)

© 2007, Clarence Byrd Inc.38 Tuition Fees - ITA Tuition Tuition 15.5% Of Actual 15.5% Of Actual Post-Secondary Post-Secondary Cost > $100 Cost > $100 No Upper Limit No Upper Limit

© 2007, Clarence Byrd Inc.39 Tuition Fees - ITA Tuition Tuition Includes all ancillary if mandatory Includes all ancillary if mandatory Includes $250 of ancillary fees if not mandatory Includes $250 of ancillary fees if not mandatory Unlimited Carry Forward Unlimited Carry Forward

© 2007, Clarence Byrd Inc.40 Education Deduction – 118.6(2) Education Education 15.5% Of $400 Per Month Of Full Time Attendance ($62) 15.5% Of $400 Per Month Of Full Time Attendance ($62) 15.5% Of $120 Per Month Of Part Time Attendance ($19) 15.5% Of $120 Per Month Of Part Time Attendance ($19) Unlimited Carry Forward By Student Unlimited Carry Forward By Student

© 2007, Clarence Byrd Inc.41 Textbook $10 [(15.5%)($65)] $10 [(15.5%)($65)] For each month of education credit eligibility For each month of education credit eligibility

© 2007, Clarence Byrd Inc.42 Interest on Student Loans Interest On Student Loans Interest On Student Loans 15.5% Of Amounts Paid 15.5% Of Amounts Paid Loans Under The Canada Student Loans Act, the Canada Student Financial Assistance Act, Or A Provincial Statute Loans Under The Canada Student Loans Act, the Canada Student Financial Assistance Act, Or A Provincial Statute

© 2007, Clarence Byrd Inc.43 CPP And EI - ITA % Of Actual Payments 15.5% Of Actual Payments Maximums For 2007 Maximums For 2007 CPP = [(4.95%)($43,700 - $3,500)] = $1,990 CPP = [(4.95%)($43,700 - $3,500)] = $1, % of $1,990 = $308 EI = [(1.8%)($40,000)] = $720 EI = [(1.8%)($40,000)] = $ % of $720 = $ % of $720 = $112

© 2007, Clarence Byrd Inc.44 Transfer Of Credits Tuition/Education - ITA Tuition/Education - ITA N/A If Student’s Spouse Claims Credit N/A If Student’s Spouse Claims Credit Unused Amount After CPP, EI, And Disability Unused Amount After CPP, EI, And Disability To Parent Or Grandparent To Parent Or Grandparent Max = 15.5%($5,000) = $775 Max = 15.5%($5,000) = $775 Carry Forward By Student If Unused Carry Forward By Student If Unused Spouse - ITA Spouse - ITA Eligible Eligible Age Age Pension Pension Disability Disability Tuition Tuition Education Education Textbook Textbook After Personal, CPP, And EI Used After Personal, CPP, And EI Used

© 2007, Clarence Byrd Inc.45 Political Contributions 3/4 First $400 3/4 First $400 1/2 Next $350 1/2 Next $350 1/3 Next $525 1/3 Next $525 Max = $650 For $1,275 Max = $650 For $1,275 Not Allowed For Corporations Not Allowed For Corporations

© 2007, Clarence Byrd Inc.46 Political Contributions Federal Accountability Act Federal Accountability Act Individuals limited to $1,100 for Individuals limited to $1,100 for registered party registered party candidate or leadership contestant candidate or leadership contestant nomination contestant nomination contestant Corporations Corporations Totally banned Totally banned

© 2007, Clarence Byrd Inc.47 Labour Sponsored Funds 15 Percent Of Cost 15 Percent Of Cost First Registered Holder First Registered Holder Maximum Of $5,000, Or Credit Of $750 Maximum Of $5,000, Or Credit Of $750

© 2007, Clarence Byrd Inc.48 Refundable GST Credit $237 $237 Individual Qualified Relation Eligible Dependant $125 $125 Qualified Dependant Less: Less: 5% Of Family Income > $30,936

© 2007, Clarence Byrd Inc.49 Child Tax Benefit System $1,283/Year For Each Qualified Dependant $1,283/Year For Each Qualified Dependant +$90/Year For Each Dependant Over Two +$90/Year For Each Dependant Over Two Supplement Supplement $1,988/Year for 1 st child $1,988/Year for 1 st child $1,758/Year for 2 nd $1,758/Year for 2 nd $1,673/Year for 3 rd and subsequent $1,673/Year for 3 rd and subsequent Supplement Reduction Supplement Reduction Applies when family income exceeds $20,883 Applies when family income exceeds $20,883

© 2007, Clarence Byrd Inc.50 Working Income Benefit The “Welfare Wall” The “Welfare Wall” Minimum wage work at $7 per hour Minimum wage work at $7 per hour Offset by reductions in social assistance Offset by reductions in social assistance

© 2007, Clarence Byrd Inc.51 Working Income Benefit Regular Regular 20 percent of earned income in excess of $3, percent of earned income in excess of $3,000 Maximum $500 Maximum $500 Disabled supplement Disabled supplement 20 percent of earned income between $1,750 and $3, percent of earned income between $1,750 and $3,000 Refundable Refundable

© 2007, Clarence Byrd Inc.52 Clawback of EI Applicable if EI recipient’s net income exceeds $50,000 Applicable if EI recipient’s net income exceeds $50, percent of the lesser of: 30 percent of the lesser of: EI benefits received EI benefits received Excess of net income over $50,000 Excess of net income over $50,000

© 2007, Clarence Byrd Inc.53 Clawback Of OAS Lesser Of Lesser Of Payments Received Payments Received 15% Of Income In Excess Of $63,511 15% Of Income In Excess Of $63,511 Disappears At $102,864 Disappears At $102,864 Not Paid If Income Is High In Previous Years Not Paid If Income Is High In Previous Years