Chapter 4 Taxable Income And Tax Payable For Individuals

© 2011, 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

© 2011, Clarence Byrd Inc.3 Available Deductions Employee Stock Options (Chapter 3) Employee Stock Options (Chapter 3) Deductions For Payments Deductions For Payments Home Relocation Loan Home Relocation Loan Lump Sum Payments Lump Sum Payments Lifetime Capital Gains (Chapter 11) Lifetime Capital Gains (Chapter 11) Northern Residents Deductions Northern Residents Deductions Loss Carry Overs (Chapter 11) Loss Carry Overs (Chapter 11)

© 2011, Clarence Byrd Inc.4 Deduction For Payments Tax treaty exemptions Tax treaty exemptions Worker’s compensation Worker’s compensation Social assistance payments Social assistance payments No Intention To Tax

© 2011, Clarence Byrd Inc.5 Home Relocation Loan Deduction Example: An employee receives a $100,000, interest free loan from his employer on July 1, During the remainder of the year, assume the relevant prescribed rate is 2 percent. ITA 80.4 Benefit [(2% - Nil)($100,000)(6/12)]$1,000 ITA 110(1)(j) Deduction [($25,000)(2%)(6/12)]( 250) Net Benefit$ 750 Available for 5 years only Can use rate at inception or go quarter to quarter

© 2011, Clarence Byrd Inc.6 Tax Payable - The Basic System 2011 Rates 2011 Rates 1st 15% 1st 15% $41,545 to 22% $41,545 to 22% $83,089 to 26% $83,089 to 26% Over 29% Over 29% Full Indexing Each Year Full Indexing Each Year

© 2011, Clarence Byrd Inc.7 The Basic System Example For 2011, an individual has Taxable Income of $128,800 and only his basic personal tax credit of $1,579 [(15%)($10,527)]. Example For 2011, an individual has Taxable Income of $128,800 and only his basic personal tax credit of $1,579 [(15%)($10,527)]. 15% of $41,544$ 6,232 22% of ($83,088 - $41,544) 9,139 26% of ($128,800 - $83,088) 11,885 Total Before Credit$ 27,256 After credit After credit ($27,256 - $1,579)$ 25,677

© 2011, 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 = ( ) 20.05% Combined Minimum = ( ) 20.05% Combined Maximum = ( ) 50.0% Combined Maximum = ( ) 50.0% Combined Provincial Surtaxes Provincial Surtaxes Alberta Has Flat 10% Alberta Has Flat 10%

© 2011, Clarence Byrd Inc.9 Tax Credit System Refundable Vs. Non-Refundable. Refundable Vs. Non-Refundable. In general, minimum rate applied to a base (15 percent for 2011). In general, minimum rate applied to a base (15 percent for 2011). Some have income threshold. Some have income threshold. Provinces have similar credits. Provinces have similar credits.

© 2011, Clarence Byrd Inc Personal Tax Credits 2011 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%)($10,527)] = $1,579 [(15%)($10,527)] = $1,579

© 2011, 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%)($10,527 – Net Income Of Spouse) (15%)($10,527 – Net Income Of Spouse) Maximum = $1,579 Maximum = $1,579

© 2011, Clarence Byrd Inc Personal Tax Credits 2011 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

© 2011, Clarence Byrd Inc.13 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) living with the individual living with the individual 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 Amount For Eligible Dependant Amount For Eligible Dependant

© 2011, Clarence Byrd Inc Personal Tax Credits Child Tax Credit – ITA 118(1)(b.1) Child Tax Credit – ITA 118(1)(b.1) [(15%)($2,131)] = $320 [(15%)($2,131)] = $320 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.

© 2011, Clarence Byrd Inc.15 Caregiver Conditions Conditions Maintain Household With Dependant Over 17 Maintain Household With Dependant Over 17 Resident Of Canada (Unless Child Or Grandchild) Resident Of Canada (Unless Child Or Grandchild) 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

© 2011, Clarence Byrd Inc.16 Caregiver Value Value $642 [(15%)($4,282)] $642 [(15%)($4,282)] Reduced By 15% Of Dependant’s Income In Excess Of $14,624 Reduced By 15% Of Dependant’s Income In Excess Of $14,624

© 2011, Clarence Byrd Inc.17 Infirm Dependant Over 17 – ITA 118(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)]

© 2011, Clarence Byrd Inc.18 Infirm Dependant Over 17 - ITA 118(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%][$4,282 - (Income > $6,076)] = Maximum Of $642 [15%][$4,282 - (Income > $6,076)] = Maximum Of $642 Not Available If Eligible Dependant Or Caregiver Credits Available. Not Available If Eligible Dependant Or Caregiver Credits Available.

© 2011, Clarence Byrd Inc.19 Age - ITA 118(2) Reach 65 In The Year Reach 65 In The Year $981 = [(15%)($6,537)] $981 = [(15%)($6,537)] Reduction Reduction 15% Of Income > $32,961 15% Of Income > $32,961 $76,541 - $32,961 = $43,580 $76,541 - $32,961 = $43,580 $43,580 (15%) = $6,537 $43,580 (15%) = $6,537

© 2011, Clarence Byrd Inc.20 Pension Income – ITA 118(3) Amount = 15% Of 1st $2,000 = $300 Amount = 15% Of 1st $2,000 = $300

© 2011, 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)

© 2011, Clarence Byrd Inc.22 Canada Employment – ITA 118(10) 15 percent of the lesser of $1,065 or employment income. 15 percent of the lesser of $1,065 or employment income. Maximum = $160 Maximum = $160

© 2011, Clarence Byrd Inc.23 Adoption Expenses – ITA Up to $1,669 [(15%)($11,128)] Up to $1,669 [(15%)($11,128)]

© 2011, 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 Expenses Eligible Expenses Fees to agency Fees to agency Court and legal fees Court and legal fees Other reasonable expenses Other reasonable expenses

© 2011, Clarence Byrd Inc.25 Public Transit Pass – ITA % of cost 15% 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 5 day passes if they cover 20 out of 28 days 5 day passes if they cover 20 out of 28 days Electronic cards with at least 32 one- way trips. Electronic cards with at least 32 one- way trips.

© 2011, Clarence Byrd Inc.26 Child Fitness – ITA % of up to $500 of costs 15% of up to $500 of costs Maximum $75 Maximum $75 Child under 16 Child under 16 Eligible expenses Eligible expenses Does not include Does not include travel, food, or lodging travel, food, or lodging child care costs child care costs

Children’s Arts - Proposed 15% of the lesser of: 15% of the lesser of: $500 $500 Fees paid Fees paid Proposed in 2011 Budget Proposed in 2011 Budget © 2011, Clarence Byrd Inc.27

First Time Home Buyer’s Tax Credit $750 [(15%)($5,000)] $750 [(15%)($5,000)] Can be claimed by individual or spouse Can be claimed by individual or spouse No home purchase in preceding four years No home purchase in preceding four years © 2011, Clarence Byrd Inc.28

Volunteer Firefighter’s - Proposed 15% of $3,000 15% of $3,000 Requires 200 hour of volunteer firefighting Requires 200 hour of volunteer firefighting Cannot claim if paid for services by same department Cannot claim if paid for services by same department Proposed in 2011 Budget Proposed in 2011 Budget © 2011, Clarence Byrd Inc.29

© 2011, Clarence Byrd Inc.30 Charitable Donations – ITA General Rules General Rules 15% (1st $200) + 29% Of Excess 15% (1st $200) + 29% Of Excess

© 2011, Clarence Byrd Inc.31 Charitable Donations – ITA General Rules General Rules Limit: 75% Of Net Income (100% in individual’s year of death and preceding year), plus Limit: 75% Of Net Income (100% in individual’s year of death and preceding year), plus 25% of taxable capital gains on gifts of capital property (See Chapter 11), plus 25% of taxable capital gains on gifts of capital property (See Chapter 11), plus 25% of recapture on gifts of capital property (See Chapter 11) 25% of recapture on gifts of capital property (See Chapter 11)

© 2011, Clarence Byrd Inc.32 Charitable Donations – ITA General Rules General Rules Carry Forward: 5 Years Carry Forward: 5 Years Subject to the same limitations Subject to the same limitations

© 2011, Clarence Byrd Inc.33 Medical Expenses – ITA General Rules General Rules 15% of eligible costs 15% of eligible costs Reduced by the lesser of Reduced by the lesser of 3% of Net Income 3% of Net Income $2,052 (3%)($68,400) $2,052 (3%)($68,400) Any 12 month period ending in the year Any 12 month period ending in the year

© 2011, Clarence Byrd Inc.34 Medical Expenses – ITA Spouse And Minor Dependants Spouse And Minor Dependants No Additional Reduction No Additional Reduction Dependants Over 17 Years Of Age Dependants Over 17 Years Of Age Calculated For Each Dependant Calculated For Each Dependant Each Dependant’s Medical Expenses, Reduced By The Lesser Of: Each Dependant’s Medical Expenses, Reduced By The Lesser Of: $ 2,052 $ 2,052 3% Of dependant’s Net Income 3% Of dependant’s Net Income Prior to 2011, a limit of $10,000 applied Prior to 2011, a limit of $10,000 applied

© 2011, Clarence Byrd Inc.35 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( 2,052) Subtotal $ 448 Dependant Expenses - $10,000 Reduced By Lesser Of: (3%)($9,000) = $270 (3%)($9,000) = $270 $2,052 9,730 Allowable Amount Of Medical Expenses$10,178 Credit (15%)$ 1,527

© 2011, Clarence Byrd Inc.36 Refundable Medical Expense Supplement – ITA Qualifying Qualifying Age 18 or over Age 18 or over Earned income > $3,179 Earned income > $3,179

© 2011, Clarence Byrd Inc.37 Refundable Medical Expense Supplement – ITA Refundable Supplement Refundable Supplement Lesser of: Lesser of: $1,089 $1,089 25/15 Of The Medical Expense Tax Credit 25/15 Of The Medical Expense Tax Credit Then Reduced By 5% Of Family Income > $24,108

© 2011, Clarence Byrd Inc.38 Refundable Medical Expense Supplement – ITA Refundable Supplement Example Ms. Forbes has medical expenses of $3,500 and earned income of $22,000. 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)] Medical Expense Credit = $426 [(15%)($3,500 - $660)] [(25/15)($426)] = $710 [(25/15)($426)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $24,108)] = $710 Refundable amount = $710, less Nil [(5%)($22,000 - $24,108)] = $710

© 2011, Clarence Byrd Inc.39 Disability Amount – ITA Must Be Severe And Prolonged Must Be Severe And Prolonged Significantly Restricts Basic Living Activities Significantly 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

© 2011, Clarence Byrd Inc.40 Disability Amount – ITA % Of $7,341 = $1,101, No Income Test 15% Of $7,341 = $1,101, No Income Test No Claim If: No Claim If: More Than $10,000 For Full Time Attendant Care Or More Than $10,000 For Full Time Attendant Care Or Costs Of Nursing Home Are Claimed Costs Of Nursing Home Are Claimed Can Be Transferred To Individual Making Claim Under ITA 118(b), (c.1) Or (d) Can Be Transferred To Individual Making Claim Under ITA 118(b), (c.1) Or (d)

© 2011, Clarence Byrd Inc.41 Disability Supplement If Under 18 at end of year: If Under 18 at end of year: 15% Of $4,282 = $642 15% Of $4,282 = $642 Combined Provides $1,743 [(15%)($7,341 + $4,282)] Combined Provides $1,743 [(15%)($7,341 + $4,282)] The $4,282 is reduced by child and attendant care costs in excess of $2,508 The $4,282 is reduced by child and attendant care costs in excess of $2,508

© 2011, Clarence Byrd Inc.42 Tuition Credit - ITA Tuition Tuition 15% Of Actual 15% Of Actual Post-Secondary Post-Secondary Cost > $100 Cost > $100 No Upper Limit No Upper Limit

© 2011, Clarence Byrd Inc.43 Tuition Credit - 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 Includes examination fees (proposed in 2011 budget) Includes examination fees (proposed in 2011 budget) Unlimited carry forward by student Unlimited carry forward by student

© 2011, Clarence Byrd Inc.44 Education Credit – 118.6(2) Education Education 15% of $400 per month of Full Time attendance ($60) 15% of $400 per month of Full Time attendance ($60) 15% of $120 per month of Part Time attendance ($18) 15% of $120 per month of Part Time attendance ($18) Unlimited carry forward by student Unlimited carry forward by student

© 2011, Clarence Byrd Inc.45 Textbook Credit Available for each month of education credit eligibility: Available for each month of education credit eligibility: Full time attendance = $10 [(15%)($65)] Full time attendance = $10 [(15%)($65)] Part time attendance = $3 [(15%)($20)] Part time attendance = $3 [(15%)($20)]

© 2011, Clarence Byrd Inc.46 Interest on Student Loans Interest On Student Loans Interest On Student Loans 15% Of Amounts Paid 15% 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

© 2011, Clarence Byrd Inc.47 CPP And EI - ITA % Of Actual Payments 15% Of Actual Payments Maximums For 2011 Maximums For 2011 EI = [(1.78%)($44,200)] = $787 EI = [(1.78%)($44,200)] = $787 15% of $787 = $118 15% of $787 = $118 CPP = [(4.95%)($48,300 - $3,500)] = $2,218 CPP = [(4.95%)($48,300 - $3,500)] = $2,218 15% of $2,218 = $333

© 2011, Clarence Byrd Inc.48 Transfer Of Credits Spouse - ITA Spouse - ITA Eligible Eligible Child tax credit Child tax credit Age Age Pension Pension Disability Disability Current year tuition, education, and textbook Current year tuition, education, and textbook After Personal, CPP, And EI Used After Personal, CPP, And EI Used

Transfer Of Credits Tuition/Education/Textbook - ITA Tuition/Education/Textbook - ITA N/A If Student’s Spouse Claims Credit N/A If Student’s Spouse Claims Credit Unused Amount After Personal, CPP, EI, And Disability Unused Amount After Personal, CPP, EI, And Disability To Parent Or Grandparent To Parent Or Grandparent Max = 15%($5,000) = $750 Max = 15%($5,000) = $750 Carry Forward By Student If Unused Carry Forward By Student If Unused © 2011, Clarence Byrd Inc.49

© 2011, Clarence Byrd Inc.50 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

© 2011, Clarence Byrd Inc.51 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

© 2011, Clarence Byrd Inc.52 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

© 2011, Clarence Byrd Inc.53 Refundable GST Credit $253 $253 Individual Qualified Relation Eligible Dependant $133 $133 Qualified Dependant Less: Less: 5% Of Family Income > $32,961

© 2011, Clarence Byrd Inc.54 Working Income Tax Benefit The problem: At minimum wage, an individual may be better off not working The problem: At minimum wage, an individual may be better off not working Reductions in social assistance Reductions in social assistance Loss of subsidized housing Loss of subsidized housing Other low income benefits Other low income benefits

© 2011, Clarence Byrd Inc.55 Working Income Tax Benefit Benefit for single individual – Lesser of: Benefit for single individual – Lesser of: 25% of working income in excess of $3,000 25% of working income in excess of $3,000 Max = $931 Max = $931 Reduced by 15 percent of income in excess of $10,563 Reduced by 15 percent of income in excess of $10,563

© 2011, Clarence Byrd Inc.56 Working Income Tax Benefit Benefit for couples – lesser of: Benefit for couples – lesser of: 25% of family working income in excess of $3,000 25% of family working income in excess of $3,000 Max = $1,690 Max = $1,690 Reduced by 15 percent of family working income in excess of $14,587 Reduced by 15 percent of family working income in excess of $14,587

© 2011, Clarence Byrd Inc.57 Child Tax Benefit System Basic Basic $1,367/Year For Each Qualified Dependant $1,367/Year For Each Qualified Dependant +$95/Year For Each Dependant Over Two +$95/Year For Each Dependant Over Two Eroded when family income exceeds $41,544 Eroded when family income exceeds $41,544 Supplement Supplement $2,118/Year for 1 st child $2,118/Year for 1 st child $1,873/Year for 2 nd $1,873/Year for 2 nd $1,782/Year for 3 rd and subsequent $1,782/Year for 3 rd and subsequent Eroded when family income exceeds $24,183 Eroded when family income exceeds $24,183

© 2011, Clarence Byrd Inc.58 Clawback of EI Applicable if EI recipient’s net income exceeds $55,250 Applicable if EI recipient’s net income exceeds $55, percent of the lesser of: 30 percent of the lesser of: EI benefits received EI benefits received Excess of net income over $55,250 Excess of net income over $55,250

© 2011, Clarence Byrd Inc.59 Clawback Of OAS Lesser Of Lesser Of Payments Received Payments Received 15% Of Income In Excess Of $67,668 15% Of Income In Excess Of $67,668 Disappears At $109,816 Disappears At $109,816 OAS Not Paid If Income Is High In Previous Two Years OAS Not Paid If Income Is High In Previous Two Years

© 2011, Clarence Byrd Inc.60