Chapter 6

Taxable Income And Tax

Payable For Individuals

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 From Net To Taxable Income

Employment
Income

Business And
Property Income
Division C
Net Taxable Taxable Income
Deductions
Capital Gains

Other Sources
Of Income

Other Deductions
From Income

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 Available Deductions

 Employee Stock Options (Chapter 5)

 Deductions For Payments
 Home Relocation Loan
 Lifetime Capital Gains (Chapter 14)
 Residing In Prescribed Zone
 Losses (Chapter 14)

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 Deduction For Payments
 Tax convention exemptions
 Workman’s compensation
 Social Assistance Payments

No Intention To Tax

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 Home Relocation Loan
Deduction
Example: An employee receives a $100,000 loan from his employer on July
1, 2007. 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)] $1,000

110(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

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 Tax Payable - The Basic
System
1st $37,178 @ 15.5%
$37,178 to $74,357 @ 22%
$74,357 to $120,887 @ 26%
Over $120,887 @ 29%
Full Indexing

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 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)].
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
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($26,040 - $1,384) $ 24,696
 Provincial Tax Payable
 All Provinces Except Alberta Apply
Progressive Rates To Taxable Income
Minimum = (6.05 + 15.5) 21.55%
Combined
Maximum = (24 + 29) 53% Combined
Provincial Surtaxes
Alberta Has Flat Tax @ 10%

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

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 2007 Personal Tax Credits

 Individuals
 ITA 118(1)(a): If
Married
 ITA 118(1)(c): If
Single
 [(15.5%)($8,929)] =
$1,384
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 2007 Personal Tax Credits
 Spouse Or Common-Law Partner –
ITA 118(1)(a)
Includescommon-law and same sex
(15.5%)($8,929) – Net Income Of Spouse
Maximum = $1,384

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 2007 Personal Tax Credits
 Amount For Eligible Dependant
ITA 118(1)(b)
Same amount as spouse or common-law
partner

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 2007 Personal Tax Credits
 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)
related by blood, marriage, or adoption
resident of Canada (except child)
dependent on individual for support

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

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 Caregiver
 Value
 $623
[(15.5%)($4,019)]
 Reduced By 15.5%
Of Dependant’s
Income In Excess Of
$13,726

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 Infirm Dependant Over 17 -
118(1)(d)
 Dependants: Child, Grandchild,
Parent, Grandparent, Brother, Sister,
Aunt, Uncle, Niece, Nephew [ITA
118(6)]

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 Infirm Dependant Over 17 -
118(1)(d)
 Conditions
 Reach 18 Before End Of Year
 Mentally Or Physically Infirm
 [(15.5%)($4,019) - (Income > $5,702)] =
Maximum Of $623
 Not Available If Eligible Dependant Or
Caregiver Credits Available.

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

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 Pension Income – ITA 118(3)
 Amount = 15.5% Of 1st $2,000 =
$310

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 Pension Income – ITA 118(3)
 Qualifying Amounts
Age 65 At End Of Year
Most Non-Government
< Age 65 At End Of Year
Life
Annuities
Amounts Resulting From Death Of Spouse

No CPP, OAS, Or Provincial (QPP)

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 Canada Employment – ITA
118(10)
 15.5 percent of the
lesser of $1,000 or
employment
income.

 Maximum = $155

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 Adoption Expenses – ITA
118.01
 Up to $1,619 [(15.5%)($10,445)]

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 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

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 Public Transit Pass – ITA
118.02
 15.5% of cost
 Individual
 Spouse and children under
19
 Qualifying pass
 Unlimited travel for 28 days
 Weekly if four consecutive
 Electronic cards with at least
32 one-way trips.

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 Child Fitness – ITA 118.03
 15.5% of up to $500 of
costs
 Maximum $78
 Child under 18
 Eligible expenses
 Does not include
 travel,food, or lodging
 child care costs

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 Charitable Donations – ITA
118.1
 General Rules
15.5%(1st $200) + 29% Of Excess

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 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
Plus 25 percent of recapture on gifts

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 Charitable Donations – ITA
118.1
 General Rules
CarryOver: 5 Years
Subject to the same limitations

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Medical Expenses – ITA 118.2
 General Rules
 15.5% of eligible costs
 Reduced by the lesser
of
 3% of Net Income
 $1,926 (3%)($62,800)

 Any12 month period

ending in the year

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Medical Expenses – ITA 118.2

 Spouse And Minor Dependants

 No Additional Reduction
 Dependants Over 18 Years Of Age
 CalculatedFor Each Dependant
 Maximum Of $10,000 Per Dependant
 Each Dependant’s Medical Expenses, Reduced
By The Lesser Of
$1,926
3% Of Dependant’s Net Income

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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 ( 1,926)

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

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 Refundable Medical Expense
Supplement – ITA 122.51
 Qualifying
Age 18 or over
Earned income > $2,984

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 Refundable Medical Expense
Supplement – ITA 122.51
 Refundable Supplement
Lesser of:
$1,022
25/15.5 Of The Medical Expenses Tax Credit

Then Reduced By 5% Of Family Income >

$22,627

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 Refundable Medical Expense
Supplement – ITA 122.51
 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)]
 [(25/15.5)($440)] = $710
 Refundable amount = $710, less Nil
[(5%)($22,000 - $22,627)] = $710

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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

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Disability Amount – ITA 118.3
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
Can Be Transferred To Individual Making
Claim Under ITA 118(b) Or (d)

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 Tuition Fees - ITA 118.5

 Tuition
 15.5% Of Actual
 Post-Secondary
 Cost > $100
 No Upper Limit

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 Tuition Fees - ITA 118.5

 Tuition
 Includes all ancillary if
mandatory
 Includes $250 of
ancillary fees if not
mandatory
 Unlimited Carry Forward

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 Education Deduction –
118.6(2)
 Education
 15.5% Of $400 Per
Month Of Full Time
Attendance ($62)
 15.5% Of $120 Per
Month Of Part Time
Attendance ($19)
 Unlimited Carry
Forward By Student

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 Textbook
 $10 [(15.5%)($65)]
 For each month of education credit
eligibility

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 Interest on Student Loans
 Interest On Student
Loans
 15.5% Of Amounts
Paid
 Loans Under The
Canada Student
Loans Act, the
Canada Student
Financial Assistance
Act, Or A Provincial
Statute

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 CPP And EI - ITA 118.7
 15.5%Of Actual Payments
 Maximums For 2007
CPP = [(4.95%)($43,700 - $3,500)] =
$1,990
15.5% of $1,990 = $308
EI = [(1.8%)($40,000)] = $720

15.5% of $720 = $112

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 Transfer Of Credits
 Spouse - ITA 118.8  Tuition/Education - ITA
 Eligible 118.9
 Age  N/A If Student’s
 Pension Spouse Claims Credit
 Disability  Unused Amount After
 Tuition CPP, EI, And
 Education Disability
 Textbook  To Parent Or

 After Personal, Grandparent

 Max =
CPP, And EI Used
15.5%($5,000) =
$775
 Carry Forward By
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 Political Contributions
 3/4 First $400
 1/2 Next $350
 1/3 Next $525

 Max = $650 For $1,275

 Not Allowed
For Corporations

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 Political Contributions
 Federal Accountability
Act
Individuals limited to
$1,100 for
registered party
candidate or leadership
contestant
nomination contestant

Corporations
Totally banned

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 Labour Sponsored Funds
 15 Percent Of Cost
 First Registered
Holder
 Maximum Of
$5,000, Or Credit
Of $750

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 Refundable GST Credit
 $237 Individual
 $237 Qualified
Relation
 $237 Eligible
Dependant
 $125 Qualified
Dependant
 Less: 5% Of Family
Income > $30,936

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

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 Working Income Benefit
 The “Welfare Wall”
 Minimum wage work
at $7 per hour

 Offsetby reductions
in social assistance

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 Working Income Benefit
 Regular
 20 percent of earned
income in excess of
$3,000
 Maximum $500

 Disabled
supplement
 20percent of earned
income between
$1,750 and $3,000
 Refundable
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 Clawback of EI
 Applicable if EI
recipient’s net income
exceeds $50,000
 30 percent of the lesser
of:
EIbenefits received
Excess of net income
over $50,000

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 Clawback Of OAS
 Lesser Of
 Payments Received
 15% Of Income In
Excess Of $63,511
 Disappears At
$102,864
 Not Paid If Income
Is High In Previous
Years

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