chapter 3 taxable income and tax payable for individuals

Chapter 3Chapter 3

Taxable Income And Tax Taxable Income And Tax Payable For IndividualsPayable For Individuals

© 2009, Clarence Byrd Inc.© 2009, Clarence Byrd Inc. 22

From Net To Taxable IncomeFrom Net To Taxable Income

Taxable IncomeDivision C Deductions

EmploymentIncome

Business AndProperty Income

Net TaxableCapital Gains

Other SourcesOf Income

Other DeductionsFrom Income


Available DeductionsAvailable Deductions

Employee Stock Options (Chapter 2)Employee Stock Options (Chapter 2)Deductions For PaymentsDeductions For PaymentsHome Relocation LoanHome Relocation LoanLump Sum PaymentsLump Sum PaymentsLifetime Capital Gains (Chapter 10)Lifetime Capital Gains (Chapter 10)Northern Residents DeductionsNorthern Residents DeductionsLoss Carry Overs (Chapter 10)Loss Carry Overs (Chapter 10)


Deduction For PaymentsDeduction For Payments

Tax treaty exemptionsTax treaty exemptionsWorker’s compensationWorker’s compensationSocial assistance paymentsSocial assistance payments

No Intention To Tax


Home Relocation Loan Home Relocation Loan DeductionDeduction

Example: An employee receives a $100,000 loan from his employer on July 1, 2009. 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)] $1,000 ITA 110(1)(j) Deduction [($25,000)(5%)(6/12)] ( 625)

Net Benefit $ 375

Available for 5 years onlyCan use rate at inception or go quarter to quarter


Tax Payable - The Basic Tax Payable - The Basic SystemSystem

2009 Rates2009 Rates1st $40,726 @ 15%1st $40,726 @ 15%$40,727 to $81,452 @ 22%$40,727 to $81,452 @ 22%$81,453 to $126,264 @ 26%$81,453 to $126,264 @ 26%Over $126,264 @ 29%Over $126,264 @ 29%Full Indexing Each YearFull Indexing Each Year


The Basic SystemThe Basic System

ExampleExample For 2009, an individual has Taxable Income For 2009, an individual has Taxable Income of $126,264 and only his basic personal tax credit of of $126,264 and only his basic personal tax credit of $1,548 [(15%)($10,320)].$1,548 [(15%)($10,320)].

15% of $40,72615% of $40,726 $ 6,109$ 6,109

22% of ($81,452 - $40,726)22% of ($81,452 - $40,726) 8,960 8,960

26% of ($126,264 - $81,452)26% of ($126,264 - $81,452) 11,651 11,651

Total Before CreditTotal Before Credit $ 26,720$ 26,720 After creditAfter credit

($26,720 - $1,548)($26,720 - $1,548) $ 25,172$ 25,172


Provincial Tax PayableProvincial Tax Payable

All Provinces Except Alberta Apply All Provinces Except Alberta Apply Progressive Rates To Taxable IncomeProgressive Rates To Taxable IncomeMinimum = (5.06 + 15) 20.06% Minimum = (5.06 + 15) 20.06%

CombinedCombinedMaximum = (19.25 + 29) 48.25% Maximum = (19.25 + 29) 48.25%

CombinedCombinedProvincial SurtaxesProvincial SurtaxesAlberta Has Flat Tax @ 10%Alberta Has Flat Tax @ 10%


Tax Credit SystemTax Credit System

Refundable Vs. Non-Refundable.Refundable Vs. Non-Refundable.

In general, minimum rate applied to In general, minimum rate applied to a base (15 percent for 2009).a base (15 percent for 2009).

Some have income threshold.Some have income threshold.

Provinces have similar credits.Provinces have similar credits.


2009 Personal Tax Credits2009 Personal Tax Credits

Individuals Individuals ITA 118(1)(a): If ITA 118(1)(a): If

MarriedMarried ITA 118(1)(c): If ITA 118(1)(c): If

SingleSingle[(15%)($10,320)] = [(15%)($10,320)] =

$1,548$1,548



Spouse Or Common-Law Partner – Spouse Or Common-Law Partner – ITA 118(1)(a)ITA 118(1)(a)Includes common-law and same sexIncludes common-law and same sex(15%)($10,320 – Net Income Of Spouse)(15%)($10,320 – Net Income Of Spouse)Maximum = $1,548Maximum = $1,548



Amount For Eligible DependantAmount For Eligible DependantITA 118(1)(b)ITA 118(1)(b)Same amount as spouse or common-law Same amount as spouse or common-law

partnerpartner


Conditions: you are single, divorced, Conditions: you are single, divorced, separated, or widowed and you supported separated, or widowed and you supported a dependant:a dependant:

who is under 18 (unless parent, who is under 18 (unless parent, grandparent, or infirm)grandparent, or infirm)

living with the individualliving with the individualrelated by blood, marriage, or adoptionrelated by blood, marriage, or adoptionresident of Canada (except child)resident of Canada (except child)dependent on individual for supportdependent on individual for support

Amount For Eligible Amount For Eligible DependantDependant



Child Tax Credit Child Tax Credit – ITA 118(1)(b.1)– ITA 118(1)(b.1) [(15%)($2,089)] = $313[(15%)($2,089)] = $313 For each child under 18 at For each child under 18 at

end of yearend of year No income thresholdNo income threshold Can take eligible Can take eligible

dependant and this credit dependant and this credit for the same child.for the same child.


CaregiverCaregiver

ConditionsConditions Maintain Household With Dependant Over 17Maintain Household With Dependant Over 17 Resident Of Canada (Unless Parent Or Resident Of Canada (Unless Parent Or

Grandparent)Grandparent) Infirm (Unless Parent Or Grandparent 65 Or Infirm (Unless Parent Or Grandparent 65 Or

Older)Older) Not Available If Eligible Dependant Credit Not Available If Eligible Dependant Credit

AvailableAvailable


CaregiverCaregiver

ValueValue $630 [(15%)$630 [(15%)

($4,198)]($4,198)] Reduced By 15% Of Reduced By 15% Of

Dependant’s Dependant’s Income In Excess Of Income In Excess Of $14,336$14,336


Infirm Dependant Over 17 Infirm Dependant Over 17 – ITA 118(1)(d)– ITA 118(1)(d)

Dependants: Child, Grandchild, Dependants: Child, Grandchild, Parent, Grandparent, Brother, Sister, Parent, Grandparent, Brother, Sister, Aunt, Uncle, Niece, Nephew [ITA Aunt, Uncle, Niece, Nephew [ITA 118(6)]118(6)]


Infirm Dependant Over 17 Infirm Dependant Over 17 - ITA 118(1)(d)- ITA 118(1)(d)

ConditionsConditions Reach 18 Before End Of YearReach 18 Before End Of Year Mentally Or Physically Infirm Mentally Or Physically Infirm [15%][$4,198 - (Income > $5,956)] = [15%][$4,198 - (Income > $5,956)] =

Maximum Of $630Maximum Of $630 Not Available If Eligible Dependant Or Not Available If Eligible Dependant Or

Caregiver Credits Available.Caregiver Credits Available.


Age - ITA 118(2)Age - ITA 118(2)

Reach 65 In The YearReach 65 In The Year$961 = [(15%)($6,408)]$961 = [(15%)($6,408)]ReductionReduction

15% Of Income > $32,31215% Of Income > $32,312$75,032 - $32,312 = $42,720$75,032 - $32,312 = $42,720$42,720 (15%) = $6,408$42,720 (15%) = $6,408


Pension Income – ITA 118(3)Pension Income – ITA 118(3)

Amount = 15% Of 1st $2,000 = $300Amount = 15% Of 1st $2,000 = $300


Pension Income – ITA 118(3)Pension Income – ITA 118(3)

Qualifying AmountsQualifying AmountsAge 65 At End Of YearAge 65 At End Of Year

Most Non-GovernmentMost Non-Government< Age 65 At End Of Year< Age 65 At End Of Year

Life AnnuitiesLife AnnuitiesAmounts Resulting From Death Of SpouseAmounts Resulting From Death Of Spouse

No CPP, OAS, Or Provincial (QPP)No CPP, OAS, Or Provincial (QPP)


Canada Employment – ITA Canada Employment – ITA 118(10)118(10)

15 percent of the 15 percent of the lesser of $1,044 or lesser of $1,044 or employment employment income.income.

Maximum = $157Maximum = $157


Adoption Expenses – ITA Adoption Expenses – ITA 118.01118.01

Up to $1,636 [(15%)($10,909)]Up to $1,636 [(15%)($10,909)]


Adoption Expenses – ITA Adoption Expenses – ITA 118.01118.01

Eligible ChildEligible ChildHas not attained age 18Has not attained age 18Issued adoption orderIssued adoption order

Eligible ExpensesEligible ExpensesFees to agencyFees to agencyCourt and legal feesCourt and legal feesOther reasonable expensesOther reasonable expenses


Public Transit Pass – ITA Public Transit Pass – ITA 118.02118.02

15% of cost15% of cost IndividualIndividual Spouse and children under 19Spouse and children under 19 Qualifying passQualifying pass

Unlimited travel for 28 daysUnlimited travel for 28 days 5 day passes if they cover 20 out 5 day passes if they cover 20 out

of 28 daysof 28 days Electronic cards with at least 32 Electronic cards with at least 32

one-way trips.one-way trips.


Child Fitness – ITA 118.03Child Fitness – ITA 118.03 15% of up to $500 of 15% of up to $500 of

costscosts Maximum $75Maximum $75

Child under 16Child under 16

Eligible expensesEligible expenses

Does not includeDoes not include travel, food, or lodgingtravel, food, or lodgingchild care costschild care costs

Home Renovations Tax CreditHome Renovations Tax Credit

Maximum of $1,350 Maximum of $1,350 [(15%)($10,000 - $1,000)[(15%)($10,000 - $1,000)

Family basedFamily based

Must be on principal Must be on principal residenceresidence


First Time Home Buyer’s Tax First Time Home Buyer’s Tax CreditCredit

$750 [(15%)($5,000)]$750 [(15%)($5,000)]

Can be claimed by Can be claimed by individual or spouseindividual or spouse

No home purchase in No home purchase in preceding four yearspreceding four years



Charitable Donations – ITA Charitable Donations – ITA 118.1118.1

General RulesGeneral Rules15%(1st $200) + 29% Of Excess15%(1st $200) + 29% Of Excess



General RulesGeneral RulesLimit: 75% Of Net IncomeLimit: 75% Of Net Income

100% in individual’s year of death and 100% in individual’s year of death and preceding yearpreceding year

Plus 25 percent of capital gains on gifts of Plus 25 percent of capital gains on gifts of capital property (See Chapter 10)capital property (See Chapter 10)

Plus 25 percent of recapture on gifts of Plus 25 percent of recapture on gifts of capital property (See Chapter 10)capital property (See Chapter 10)



General RulesGeneral RulesCarry Forward: 5 YearsCarry Forward: 5 YearsSubject to the same limitationsSubject to the same limitations


Medical Expenses – ITA 118.2Medical Expenses – ITA 118.2

General RulesGeneral Rules 15% of eligible costs15% of eligible costs Reduced by the lesser Reduced by the lesser

ofof3% of Net Income3% of Net Income$2,011 (3%)($67,033)$2,011 (3%)($67,033)

Any 12 month period Any 12 month period ending in the yearending in the year



Spouse And Minor DependantsSpouse And Minor Dependants No Additional ReductionNo Additional Reduction

Dependants Over 17 Years Of AgeDependants Over 17 Years Of Age Calculated For Each DependantCalculated For Each Dependant Maximum Of $10,000 Per DependantMaximum Of $10,000 Per Dependant Each Dependant’s Medical Expenses, Each Dependant’s Medical Expenses,

Reduced By The Lesser Of:Reduced By The Lesser Of:$2,011$2,0113% Of Dependant’s Net Income3% Of Dependant’s Net Income



Example: An individual with income > Example: An individual with income > $100,000 and medical expenses of $2,500. $100,000 and medical expenses of $2,500. His 20 year old child has medical expenses His 20 year old child has medical expenses of $10,000 and net income of $9,000.of $10,000 and net income of $9,000.

Taxpayer’s ExpensesTaxpayer’s Expenses $ 2,500$ 2,500

ThresholdThreshold ( 2,011)( 2,011)

SubtotalSubtotal $ 489 $ 489 Dependant Expenses - The Lesser Of:Dependant Expenses - The Lesser Of:

$10,000 – (3%)($9,000) = $9,730$10,000 – (3%)($9,000) = $9,730Absolute Maximum = $10,000Absolute Maximum = $10,000 9,730 9,730

Allowable Amount Of Medical ExpensesAllowable Amount Of Medical Expenses $10,219$10,219

Credit (15%)Credit (15%) $ 1,533$ 1,533


Refundable Medical Expense Refundable Medical Expense Supplement – ITA 122.51Supplement – ITA 122.51

QualifyingQualifyingAge 18 or overAge 18 or overEarned income > $3,116Earned income > $3,116



Refundable SupplementRefundable SupplementLesser of:Lesser of:

$1,067$1,06725/15 Of The Medical Expenses Tax Credit25/15 Of The Medical Expenses Tax Credit

Then Reduced By 5% Of Family Income > Then Reduced By 5% Of Family Income > $23,633$23,633



Refundable Supplement ExampleRefundable Supplement ExampleMs. Forbes has medical expenses of $3,500 and Ms. Forbes has medical expenses of $3,500 and earned income of $22,000.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 - Refundable amount = $710, less Nil [(5%)($22,000 -

$23,633)] = $710$23,633)] = $710


Disability Amount – ITA 118.3Disability Amount – ITA 118.3

Must Be Severe And ProlongedMust Be Severe And ProlongedSignificantly Restricts Basic Living ActivitiesSignificantly Restricts Basic Living ActivitiesA Continuous Period Of At Least 12 MonthsA Continuous Period Of At Least 12 Months

Requires Form T2201Requires Form T2201


Disability Amount – ITA 118.3Disability Amount – ITA 118.3

15% Of $7,196 = $1,079, No Income Test15% Of $7,196 = $1,079, 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 ClaimedCosts Of Nursing Home Are Claimed

Can Be Transferred To Individual Making Claim Can Be Transferred To Individual Making Claim Under ITA 118(b), (c.1) Or (d)Under ITA 118(b), (c.1) Or (d)


Disability SupplementDisability Supplement

If Under 18 at end of year:If Under 18 at end of year: 15%($4,198) = $63015%($4,198) = $630

Combined Provides $1,709 [(15%)($7,196 + Combined Provides $1,709 [(15%)($7,196 + $4,198)]$4,198)]

The $4,198 is reduced by child and attendant The $4,198 is reduced by child and attendant care costs in excess of $2,459care costs in excess of $2,459


Tuition Credit - ITA 118.5Tuition Credit - ITA 118.5

TuitionTuition 15% Of Actual15% Of Actual Post-SecondaryPost-Secondary Cost > $100Cost > $100 No Upper LimitNo Upper Limit


Tuition Credit - ITA 118.5Tuition Credit - ITA 118.5

TuitionTuition Includes all ancillary if Includes all ancillary if

mandatorymandatory Includes $250 of Includes $250 of

ancillary fees if not ancillary fees if not mandatorymandatory

Unlimited carry forward Unlimited carry forward by studentby student


Education Credit – 118.6(2)Education Credit – 118.6(2)

EducationEducation 15% of $400 per 15% of $400 per

month of Full Time month of Full Time attendance ($60)attendance ($60)

15% of $120 per 15% of $120 per month of Part Time month of Part Time attendance ($18)attendance ($18)

Unlimited carry Unlimited carry forward by studentforward by student


Textbook CreditTextbook Credit

Available for each month of Available for each month of education credit eligibility:education credit eligibility:

Full time attendance = $10 [(15%)Full time attendance = $10 [(15%)($65)]($65)]Part time attendance = $3 [(15%)Part time attendance = $3 [(15%)($20)]($20)]


Interest on Student LoansInterest on Student Loans

Interest On Student Interest On Student LoansLoans 15% Of Amounts 15% Of Amounts

PaidPaid Loans Under The Loans Under The

Canada Student Canada Student Loans ActLoans Act, the , the Canada Student Canada Student Financial Assistance Financial Assistance ActAct, Or A Provincial , Or A Provincial StatuteStatute


CPP And EI - ITA 118.7CPP And EI - ITA 118.7

15% Of Actual Payments15% Of Actual PaymentsMaximums For 2009Maximums For 2009

CPP = [(4.95%)($46,300 - $3,500)] = CPP = [(4.95%)($46,300 - $3,500)] = $2,119$2,119

15% of $2,119 = $318 15% of $2,119 = $318 EI = [(1.73%)($42,300)] = $732EI = [(1.73%)($42,300)] = $732

15% of $732 = $11015% of $732 = $110


Transfer Of CreditsTransfer Of Credits Tuition/Education/Tuition/Education/

Textbook - ITA 118.9Textbook - ITA 118.9 N/A If Student’s N/A If Student’s

Spouse Claims CreditSpouse Claims Credit Unused Amount After Unused Amount After

CPP, EI, And DisabilityCPP, EI, And Disability To Parent Or To Parent Or

GrandparentGrandparent Max = 15%($5,000) Max = 15%($5,000)

= $750= $750 Carry Forward By Carry Forward By

Student If UnusedStudent If Unused

SpouseSpouse - ITA 118.8- ITA 118.8 EligibleEligible

AgeAgePensionPensionDisabilityDisabilityCurrent year Current year

tuition, education, tuition, education, and textbook and textbook

After Personal, After Personal, CPP, And EI UsedCPP, And EI Used


Working Income Tax BenefitWorking Income Tax Benefit

The problemThe problemAt minimum wage may be At minimum wage may be

better off not workingbetter off not working



Benefit For IndividualsBenefit For Individuals20% of income between 20% of income between

$3,000 and $5,610$3,000 and $5,610

Max = $522Max = $522

Reduced by 15 percent of Reduced by 15 percent of income in excess of $9,923income in excess of $9,923

Gone At $13,403Gone At $13,403



Benefit For CouplesBenefit For Couples20% of income between 20% of income between

$3,000 and $8,220$3,000 and $8,220

Max = $1,044Max = $1,044

Reduced by 15 percent of Reduced by 15 percent of income in excess of income in excess of $15,145$15,145

Gone At $22,105Gone At $22,105


Political ContributionsPolitical Contributions

3/4 First $4003/4 First $4001/2 Next $3501/2 Next $3501/3 Next $5251/3 Next $525

Max = $650 For $1,275Max = $650 For $1,275

Not Allowed For Not Allowed For Corporations And PartnershipsCorporations And Partnerships


Political ContributionsPolitical ContributionsFederal Accountability Federal Accountability

ActActIndividuals limited to Individuals limited to

$1,100 for$1,100 forregistered partyregistered partycandidate or leadership candidate or leadership

contestantcontestantnomination contestantnomination contestant

Corporations And Corporations And PartnershipsPartnershipsTotally bannedTotally banned


Labour Sponsored FundsLabour Sponsored Funds

15 Percent Of Cost15 Percent Of Cost First Registered First Registered

HolderHolder Maximum Of Maximum Of

$5,000, Or Credit $5,000, Or Credit Of $750Of $750


Refundable GST CreditRefundable GST Credit

$248 Individual$248 Individual $248 Qualified $248 Qualified

RelationRelation $248 Eligible $248 Eligible

DependantDependant $130 Qualified $130 Qualified

DependantDependant Less: 5% Of Family Less: 5% Of Family

Income > $32,312Income > $32,312


Child Tax Benefit SystemChild Tax Benefit System BasicBasic

$1,340/Year For Each Qualified Dependant$1,340/Year For Each Qualified Dependant

+$93/Year For Each Dependant Over Two+$93/Year For Each Dependant Over Two

Eroded when family income exceeds Eroded when family income exceeds $38,832$38,832

SupplementSupplement $2,076/Year for 1$2,076/Year for 1stst child child

$1,837/Year for 2$1,837/Year for 2ndnd

$1,747/Year for 3$1,747/Year for 3rdrd and subsequent and subsequent

Eroded when family income exceeds Eroded when family income exceeds $21,816$21,816


Clawback of EIClawback of EI

Applicable if EI Applicable if EI recipient’s net income recipient’s net income exceeds $52,875exceeds $52,875

30 percent of the lesser 30 percent of the lesser of:of:EI benefits receivedEI benefits receivedExcess of net income Excess of net income

over $52,875over $52,875


Clawback Of OASClawback Of OAS

Lesser OfLesser Of Payments ReceivedPayments Received 15% Of Income In 15% Of Income In

Excess Of $66,335Excess Of $66,335

Disappears At Disappears At $107,695$107,695

OAS Not Paid If OAS Not Paid If Income Is High In Income Is High In Previous Two YearsPrevious Two Years

chapter 3 taxable income and tax payable for individuals

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