Personal income tax in canada

Personal Income Tax in Canada

Shahnam [email protected]

Feb.2017

mailto:[email protected]

05/02/2023 Shahnam Taheri : [email protected] 2

Self – Assessment System• Taxpayers must file their returns, and voluntarily report all incomes

and expenses , and calculate any amount of tax owing.• Method of Filing :Individuals can file their tax return by paper

returns :mail or electronically (NETFILE,EFILE)• Canada Revenue Agency (CRA) is the government agency responsible

for administering income taxes in Canada.


Purposes of Canada’s Income Tax System• To raise revenue to finance government spending• Redistribution of income• Promoting economic and social policies such as: 1. Home ownership2. Retirement Saving3. Post – secondary education4. Investment and entrepreneurship5. Environmental protection


Sources of Income• All your worldwide income• Employment Income• Business Income• Property income• Capital gain and other investment income


Taxable Income1. Calculate all your income in Canada and worldwide income earned

in a calendar year (Total Income)2. Claim any deductions you are entitled to, To find Net Income3. Taxable income : Net income – tax credits

Note : Net Income is important for calculating GST/HST credit, Child Tax benefits , credits for charitable donations , medical expense, and social benefits.


Note for deductionsWhen you have many deductions to claim , you won’t need them all to reduce your taxable income to the point where no taxes are owing.*** To optimise your tax situation, you don’t want to waste tax deductions since you can carry forward those for future years.****


Effective Tax Rate• Effective Tax rate = Tax Liability / Taxable Income• Marginal tax rate = Your after –tax rate of return• Tax evasion is illegal.• Tax planning is a continuous process according to ever changing economy

and tax legislations. The goal is minimize your tax payment.• Non –residents of Canada are only subject to Canada tax on income from

employment in Canada, taxable capital gains, dividend , and interest and royalties income in Canada• Deemed resident : A person who is not a resident of Canada but visits

Canada for a total of 183 days or more in a year.


Tax Returns Schedules, Forms, and Other Supporting Documentsa. T1 returns are filled electronically, attachments such as information

slips and receipts are not submitted with the return.(Keep on file for 6 years)

b. Information slips: T3 –T4-T4A(OAS) ,T4A(P),T4A-

RCA,T4E,T4PS,T5,T101,T5003,T5006,T5013,T5013A,T4RSP,T4RIFRRSP CONTRIBUTION RECEIPTSCHARITABLE DONATION RECEIPTSMEDICAL EXPENSE RECEIPTS


FEDERAL SCHEDULES• SCHEDULE 1: Federal Tax• SCHEDULE1.A : Family Tax Cut• SCHEDULE 2- FEDERAL AMOUNTS

TRANSFERRED FROM YOUR SPOUSE OR COMMON-LAW PARTNER

• SCHEDULE3 – CAPITAL GAINS (OR LOSSES)

• SCHEDULE 4- STATEMENT OF INVESTMENT INCOME

• SCHEDULE 5 – AMOUNTS FOR SPOUSE OR COMMON –LAW PARTNER AND DEPENDANTS

• SCHEDULE6 – WORKING INCOME TAX BENEFITS• SCHEDULE7 – RRSPAND PRPP,TRANSFERS AND

HBP ,LLP• SCHEDULE 8 –CPP• SCHEDULE 9- DONATIONS OR GIFTS• SCHEDULE11- TUTION,EDUCATIOM, AND

TEXTBOOKS AMOUNTS• SCHEDULEA: STATEMENT OF WORLD INCOME• SCHEDULE B: ALLOWABLE AMOUNT OF NON-

REFUNDABLE TAX CREDITS• SCHEDULEC – ELECTING UNDER SECTION 217 OF

ITA• SCHEDULE D: NFORMATION ABOUT YOUR

RESIDENCY STATUS


Federal and Provincial Income TaxesCanada’s constitution gives income taxing power to both federal and the provincial / territorial governments .Individuals need only to deal with one tax collector – the CRA.The CRA administers the tax system for the federal government and all of the rest of Canada except Quebec. When you file your tax return , you fill out federal tax forms and

provincial / territorial tax forms. The rules are similar but not identical for both.


Federal Income Tax Brackets: 2016• 15% on the first $45,916 of taxable income, +• 20.5% on the next $45,915 of taxable income (on the portion of taxable

income over $45,916 up to $91,831), +• 26% on the next $50,522 of taxable income (on the portion of taxable

income over $91,831 up to $142,353), +• 29% on the next $60,447 of taxable income (on the portion of taxable

income over $142,353 up to $202,800), +• 33% of taxable income over $202,800.Source: http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html#previousyears


Claiming GST / HST Credits• Low or no earned income individuals are entitled for GST / HST

credits.• Even if you have no income, you need to file a tax return to apply for

the GST / HST credits.• You are entitled to GST / HST credit when you turn 19 years old.


Child Benefits If you are responsible for the care of a child who is under 18 , you

might eligible to claim Canada Child Tax Benefit(CCTB)To apply for CCTB, the first step is to complete Form RC66 :CCTB

application form.CCTB amount is depend on family income.Even if your income is nil, file an income tax return to not miss this

benefit.


Due Dates for Filing Tax Returns• Due Date for regular person: April 30• Due Date for self – employed individuals: June 15• Due Date for deceased person: If the death occurred between Jan.1st and

Oct 31, the return due date will be April 30. If the death happen between Nov1 to Dec.31 the due date is extended to six months later after the death.• Note: If you have a balance on your taxes and don’t file on time, you will be

charged an automatic 5 percent late filing penalty based on the amount owing . A further 1 percent of the unpaid tax will be added for each full month the return is late to a maximum of 12 months. For the second time late within 3 years , the penalty is increased up to 40%.


Direct Deposit of your Tax Refund• Complete form T1DD• If you close your bank account, inform CRA and complete new form

T1DD


Reducing your tax : Donations• Make donations to registered charities• Charitable donations could be either money or kind of assets or merchandise• You must have an official receipt for claim• Two tier of tax saving (for Federal Income Tax)a) 15% on the first $200b) 29% on the reminder***** Donations are reported on schedule 9 of tax return and the federal tax saving is calculated on schedule 1 of your return ********* You can claim charitable donations up to the limit of 75% of your net income reported on line 236 the excess amount can be carried forward for potential claim in the subsequent five years. ******Combine your donation with your spouse/ common law partner to maximize the amount of claim Asset value for claim donation credit will be for the full market value (deemed disposition) of the asset

while capital gain is reduced to zero.


Registered Pension Plan• RPPs are setup by employers or union to assist employers in saving for

retirement; they’re designed to minimize taxes now to provide for maximum amounts available during retirement.• In Canada almost 1/3 of employees are covered by RRP’s.• The contributions you make on RRP are tax deductible and the

income you earn on the money you invest accumulates tax free.• Two types of RRPs : Defined benefit plans , Money purchase plans


RRSP• Retirement saving plan (RRSP) is your own pension plan that has been approved

by CRA.• An RRSP is an arrangement that allows you to save for your retirement on a tax-

friendly basis. You control when contribution are made to your plan , the investment made in your plan, and when withdrawals are made.• With an RRSP , no tax is payable until you make a withdrawal from your plan.

This will occur when you are in a lower income bracket during your retirement.• The amount of RRSP is 18% of your prior year’s earned income to a dollar limit

maximum set by Department of Finance ($25,370 in 2016)• Look at your Notice of Assessment• Using a Spousal RRSP for More Tax Saving


CREDIT TIPS FOR EMPLOYEES• Get a refund for overpayment CPP premiums• Get a refund for overpayment EI premiums• Deduct Union or professional Dues• Get Credit for Public Transit Expenses : 15% of eligible amount you

spent


Available Tax Credits for You and Your family• Non –Refundable tax credits directly reduce the amount of income tax

you owe. If they exceeds your tax you don’t get a refund of the excess. They differ from tax deductions, which are subtracted in computing taxable income.• For all but one of the non-refundable tax credits(the donation credit)

the federal tax saving is 15% of non-refundable tax credit.


Real Estate Rentals• Most types of Rental income are considered to be “Income from

property” and therefore are reported on line 126.• On the line for rental income on your tax return you will see a line for

gross income (line 160) and a line for net income (line 126).• Gross income is the full amount of rental income you received in the

year before taking into account expenses you incurred to earn that income.• Net income is the amount left over after expenses. • List all deductible expenses of form T776.


Most common Expenses deduction property income• Mortgage interest • fees paid to find tenants• Property tax • Advertising• Maintenance and repairs • Management and administration

fees• Heat, hydro, water • Salaries or wages paid to take care

of property

• Accounting fee• Condo fees• Landscaping• Office supplies Legal fees to collect rent

or prepare rental documents• Lease cancellation fee• Mortgage application, appraisal,

processing and insurance fees• Mortgage broker and finder fees• Legal fees related to mortgage financing


Available Tax Credits for You and Your Family• Basic Personal tax credit for you and your spouse and children 0.15 X $11 ,474 =$ 1721.10• Child tax credit amount : The child tax credit $2,000 for each child (0.15x $2,000

=$300)• Credit amount for an eligible dependant is at least $10,000.Eligible dependents are :

parent , grandparent, child, grandchild, brother, sister under 18 and living with you in a home you maintain• Claim for an eligible dependant ( name, age, income) on schedule 5 of your tax return.• Children’s fitness tax credit amount : A credit of up to $500 is available to parents who

pay to register a child in certain physical activity programs. The child must be under age 16 at the end of the year to qualify.


Income Splitting • Transfer some income from high income member to low income

member.


Child’s Education Tax - Effectively• Using RESPs are one of the most popular and effective ways for Canadians to

save for a child’s education.• Although no tax deduction for RESP contribution applies , funds within the

plan can grow tax-sheltered .Government provides an extra bonus to help pump the savings.• There is no annual limit for contributions but the lifetime limit is $50,000 per

child.• The federal government kicks an additional 20% to the amount contributed to

an RESP , to a maximum $500 per year per child.• The extra 20% is called the Canada Education Saving Grant (CESG). You will get

the maximum grant each year if you contribute $2,500 per child.


The Universal Child Care Benefit ; Disability

• Starting in July 2006, the government began paying families $100 per month for each child under the age of 6 in a household.

• You must include the payment you received on your income tax on line 117.• You must apply to receive UCCB by completing form RC66.• If you have a disabled child, the child might be eligible for a disability tax credit and

disability supplement to help reduce taxes payable.• Disability tax credit. Individuals suffering from a severe and prolonged mental or

physical impairment can claim a federal disability amount of $8,001 for 2016. If the person with a disability is a child under 18, there's an additional supplement of $4,667 for 2016, for a total disability amount of $12,668.

• 15% x $8,001 = $1200.15 tax credit for federal tax plus provincial income tax saving


Claim Credit for Tuition and Textbooks

• 15% non-refundable federal tac credit for eligible tuition, education, and textbook costs• Amount carried forward are shown on your Notice of Assessment• Enter the details of your tuition and education amounts on schedule 11 of your

return• If you missed claiming tuition you paid in previous years you will need to file a T1

Adjustment• You get the form T2202 for education and form T2202A for textbook from your

educational institution• To claim tuition fees paid to an educational outside Canada , you must receive a

completed form TL11A


Continue ….• You can currently claim $400 for each month as a full time or $120 for

each time as a part time program• The credit amount for textbooks :$65 per month for full time and $20

each month for part time study• Carry forward: If you don’t need all the tuition ,education, and

textbook tax credit amounts to reduce your tax to zero, you can transfer (maximum $5,000) to your spouse, spouse’s parent or grand parent who would claim it on line 324 or carry forward for 7 years• You are eligible for a non-refundable tax credit for your student loan

interest. You can carry forward for up to 5 years.


Claim a Tax Credit for Medical Expenses

• You are allowed to claim medical expenses you paid for yourself and for your spouse/ common-law partner• You can claim only the total of eligible medical expenses you have

incurred that exceeds the lesser of 3% of your net income (line 236) and $2,237 (2016)• Eligible Medical Expenses: services of doctors, dentists, surgeons,

chiropractors, acupuncturists, speech language, medicine,lab exam, hospital services., ambulance charge,…


Claim the Disability Tax Credit amount

• You may be able to claim the disability credit amount of $8,001on schedule 1 , resulting in a federal income tax saving $1,200.15• To claim the disability tax credit amount you must have a qualified

practitioner: getting certification needs to be documented on CRA form T2201.