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

© 2007, Clarence Byrd Inc.© 2007, Clarence Byrd Inc. 11

Chapter 6Chapter 6

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


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 5)Employee Stock Options (Chapter 5)Deductions For PaymentsDeductions For PaymentsHome Relocation LoanHome Relocation LoanLifetime Capital Gains (Chapter 14)Lifetime Capital Gains (Chapter 14)Residing In Prescribed ZoneResiding In Prescribed ZoneLosses (Chapter 14)Losses (Chapter 14)


Deduction For PaymentsDeduction For Payments

Tax convention exemptionsTax convention exemptionsWorkman’s compensationWorkman’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, 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 onlyCan use rate at inception or go quarter to quarter


Tax Payable - The Basic Tax Payable - The Basic SystemSystem

1st $37,178 @ 15.5%1st $37,178 @ 15.5%$37,178 to $74,357 @ 22%$37,178 to $74,357 @ 22%$74,357 to $120,887 @ 26%$74,357 to $120,887 @ 26%Over $120,887 @ 29%Over $120,887 @ 29%Full IndexingFull Indexing


The Basic SystemThe Basic System

ExampleExample An individual has Taxable An individual has Taxable Income of $120,887 and only his basic Income of $120,887 and only his basic personal tax credit of personal tax credit of $1,384 $1,384 [[(15.5%)(15.5%)($8,929)].($8,929)].15.5% of $37,17815.5% of $37,178 $ 5,763$ 5,763

22% of ($74,357 - $37,178)22% of ($74,357 - $37,178) 8,179 8,179

26% of ($120,887 - $74,357)26% of ($120,887 - $74,357) 12,098 12,098

Total Before CreditTotal Before Credit $ 26,040$ 26,040 After creditAfter credit

($26,040 - $1,384)($26,040 - $1,384) $ 24,696$ 24,696


Provincial Tax PayableProvincial Tax Payable

All Provinces Except Alberta Apply All Provinces Except Alberta Apply Progressive Rates To Taxable IncomeProgressive Rates To Taxable IncomeMinimum = (6.05 + 15.5) 21.55% Minimum = (6.05 + 15.5) 21.55%

CombinedCombinedMaximum = (24 + 29) 53% CombinedMaximum = (24 + 29) 53% CombinedProvincial 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 (15.5 percent for 2007).a base (15.5 percent for 2007).Some have income threshold.Some have income threshold.Provinces have similar creditsProvinces have similar credits


2007 Personal Tax Credits2007 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[(15.5%)($8,929)] = [(15.5%)($8,929)] =

$1,384$1,384



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(15.5%)($8,929) – Net Income Of Spouse(15.5%)($8,929) – Net Income Of SpouseMaximum = $1,384Maximum = $1,384



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


Amount For Eligible DependantAmount For Eligible DependantConditions: you are single, divorced, Conditions: you are single, divorced,

separated, or widowed and you separated, or widowed and you supported a dependant:supported a dependant:who is under 18 (unless parent, who is under 18 (unless parent,

grandparent, or infirm)grandparent, or infirm)related 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




Child Tax Credit – Child Tax Credit – ITA 118(1)(b.1)ITA 118(1)(b.1) [(15.5%)($2,000)] = [(15.5%)($2,000)] =

$310$310 For each child under For each child under

18 at end of year18 at end of year No income thresholdNo income threshold Can take eligible Can take eligible

dependant and this dependant and this credit for the same credit for the same child.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 $623 [(15.5%)$623 [(15.5%)

($4,019)]($4,019)] Reduced By 15.5% Reduced By 15.5%

Of Dependant’s Of Dependant’s Income In Excess Of Income In Excess Of $13,726$13,726


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

ConditionsConditions Reach 18 Before End Of YearReach 18 Before End Of Year Mentally Or Physically Infirm Mentally Or Physically Infirm [(15.5%)($4,019) - (Income > $5,702)] = [(15.5%)($4,019) - (Income > $5,702)] =

Maximum Of $623Maximum Of $623 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[(15.5%)($5,177)] = $802[(15.5%)($5,177)] = $802ReductionReduction

15% Of Income > $30,93615% 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


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

Amount = 15.5% Of 1st $2,000 = Amount = 15.5% Of 1st $2,000 = $310$310


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)

15.5 percent of the 15.5 percent of the lesser of $1,000 or lesser of $1,000 or employment employment income.income.

Maximum = $155Maximum = $155


Adoption Expenses – ITA Adoption Expenses – ITA 118.01118.01

Up to $1,619 [(15.5%)($10,445)]Up to $1,619 [(15.5%)($10,445)]


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 ExpenseEligible ExpenseFees 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

15.5% of cost15.5% of cost IndividualIndividual Spouse and children under Spouse and children under

1919 Qualifying passQualifying pass

Unlimited travel for 28 daysUnlimited travel for 28 days Weekly if four consecutiveWeekly if four consecutive Electronic cards with at least Electronic cards with at least

32 one-way trips.32 one-way trips.


Child Fitness – ITA 118.03Child Fitness – ITA 118.03 15.5% of up to $500 of 15.5% of up to $500 of

costscosts Maximum $78Maximum $78 Child under 18Child under 18 Eligible expensesEligible expenses Does not includeDoes not include

travel, food, or lodgingtravel, food, or lodgingchild care costschild care costs


Charitable Donations – ITA Charitable Donations – ITA 118.1118.1

General RulesGeneral Rules15.5%(1st $200) + 29% Of Excess15.5%(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 giftsPlus 25 percent of capital gains on giftsPlus 25 percent of recapture on giftsPlus 25 percent of recapture on gifts



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


Medical Expenses – ITA 118.2Medical Expenses – ITA 118.2

General RulesGeneral Rules 15.5% of eligible costs15.5% of eligible costs Reduced by the lesser Reduced by the lesser

ofof3% of Net Income3% of Net Income$1,926 (3%)($62,800)$1,926 (3%)($62,800)

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 18 Years Of AgeDependants Over 18 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, Reduced Each Dependant’s Medical Expenses, Reduced

By The Lesser OfBy The Lesser Of$1,926$1,9263% 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 ( 1,926)( 1,926)

SubtotalSubtotal $ 574 $ 574 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 $10,304$10,304

Credit (15.5%)Credit (15.5%) $ 1,597$ 1,597


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

QualifyingQualifyingAge 18 or overAge 18 or overEarned income > $2,984Earned income > $2,984



Refundable SupplementRefundable SupplementLesser of:Lesser of:

$1,022$1,02225/15.5 Of The Medical Expenses Tax Credit25/15.5 Of The Medical Expenses Tax Credit

Then Reduced By 5% Of Family Income > Then Reduced By 5% Of Family Income > $22,627$22,627



Refundable Supplement Example – Refundable Supplement Example – Ms. Forbes has medical expenses of Ms. Forbes has medical expenses of $3,500 and income of $22,000.$3,500 and income of $22,000. Medical Expense Credit = $440 [(15.5%)Medical Expense Credit = $440 [(15.5%)

($3,500 - $660)]($3,500 - $660)]

[(25/15.5)($440)] = $710[(25/15.5)($440)] = $710

Refundable amount = $710, less Nil [(5%)Refundable amount = $710, less Nil [(5%)

($22,000 - $22,627)] = $710($22,000 - $22,627)] = $710


Disability Amount – ITA 118.3Disability Amount – ITA 118.3

Must Be Severe And ProlongedMust Be Severe And ProlongedRestricts Basic Living ActivitiesRestricts 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

15.5% Of $6,890 = $1,068, No Income 15.5% Of $6,890 = $1,068, No Income TestTest

No Claim If More Than $10,000 For Full No Claim If More Than $10,000 For Full Time Attendant Care Or Costs Of Time Attendant Care Or Costs Of Nursing Home Are ClaimedNursing Home Are Claimed

Can Be Transferred To Individual Making Can Be Transferred To Individual Making Claim Under ITA 118(b) Or (d)Claim Under ITA 118(b) Or (d)


Tuition Fees - ITA 118.5Tuition Fees - ITA 118.5

TuitionTuition 15.5% Of Actual15.5% Of Actual Post-SecondaryPost-Secondary Cost > $100Cost > $100 No Upper LimitNo Upper Limit


Tuition Fees - ITA 118.5Tuition Fees - 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 ForwardUnlimited Carry Forward


Education Deduction – Education Deduction – 118.6(2)118.6(2)

EducationEducation 15.5% Of $400 Per 15.5% Of $400 Per

Month Of Full Time Month Of Full Time Attendance ($62)Attendance ($62)

15.5% Of $120 Per 15.5% Of $120 Per Month Of Part Time Month Of Part Time Attendance ($19)Attendance ($19)

Unlimited Carry Unlimited Carry Forward By StudentForward By Student


TextbookTextbook

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

eligibilityeligibility


Interest on Student LoansInterest on Student Loans

Interest On Student Interest On Student LoansLoans 15.5% Of Amounts 15.5% 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

15.5% Of Actual Payments15.5% Of Actual PaymentsMaximums For 2007Maximums For 2007

CPP = [(4.95%)($43,700 - $3,500)] = CPP = [(4.95%)($43,700 - $3,500)] = $1,990$1,990

15.5% of $1,990 = $308 15.5% of $1,990 = $308 EI = [(1.8%)($40,000)] = $720EI = [(1.8%)($40,000)] = $720

15.5% of $720 = $11215.5% of $720 = $112


Transfer Of CreditsTransfer Of Credits Tuition/Education - ITA Tuition/Education - ITA

118.9118.9 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%($5,000) Max = 15.5%($5,000)

= $775= $775 Carry Forward By Carry Forward By

Student If UnusedStudent If Unused

SpouseSpouse - ITA 118.8- ITA 118.8 EligibleEligible

AgeAgePensionPensionDisabilityDisabilityTuitionTuitionEducationEducationTextbookTextbook

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


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 Not Allowed For CorporationsFor Corporations


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

CorporationsCorporationsTotally 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

$237 Individual$237 Individual $237 Qualified $237 Qualified

RelationRelation $237 Eligible $237 Eligible

DependantDependant $125 Qualified $125 Qualified

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

Income > $30,936Income > $30,936


Child Tax Benefit SystemChild Tax Benefit System $1,283/Year For Each Qualified $1,283/Year For Each Qualified

DependantDependant +$90/Year For Each Dependant +$90/Year For Each Dependant

Over TwoOver Two SupplementSupplement

$1,988/Year for 1$1,988/Year for 1stst child child $1,758/Year for 2$1,758/Year for 2ndnd

$1,673/Year for 3$1,673/Year for 3rdrd and subsequent and subsequent

Supplement ReductionSupplement Reduction Applies when family income exceeds Applies when family income exceeds

$20,883$20,883


Working Income BenefitWorking Income Benefit

The “Welfare Wall”The “Welfare Wall” Minimum wage work Minimum wage work

at $7 per hourat $7 per hour

Offset by reductions Offset by reductions in social assistancein social assistance


Working Income BenefitWorking Income Benefit

RegularRegular 20 percent of earned 20 percent of earned

income in excess of income in excess of $3,000$3,000

Maximum $500Maximum $500 Disabled supplementDisabled supplement

20 percent of earned 20 percent of earned income between income between $1,750 and $3,000$1,750 and $3,000

RefundableRefundable


Clawback of EIClawback of EI

Applicable if EI Applicable if EI recipient’s net income recipient’s net income exceeds $50,000exceeds $50,000

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 $50,000over $50,000


Clawback Of OASClawback Of OAS

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

Excess Of $63,511Excess Of $63,511 Disappears At Disappears At

$102,864$102,864 Not Paid If Income Not Paid If Income

Is High In Previous Is High In Previous YearsYears

Documents

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