© 2006, C. Byrd Inc. 1 Chapter 6 Taxable Income And Tax Payable For Individuals.

© 2006, C. Byrd Inc.© 2006, C. 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 LoanResiding In Prescribed ZoneResiding In Prescribed ZoneLifetime Capital Gains (Chapter 14)Lifetime Capital Gains (Chapter 14)Losses (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, 2006. The rate on the loan is 1 percent and, during the remainder of the year, assume the prescribed rate is 3 percent.

ITA 80.4 Benefit [(3% - 1%)($100,000)(1/2)] $1,000 110(1)(j) Deduction [($25,000)(3%)(1/2)] ( 375)

Net Benefit $ 625

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


Tax Payable - The Basic Tax Payable - The Basic SystemSystem

1st $36,378 @ 15.25%1st $36,378 @ 15.25%$36,378 to $72,756 @ 22%$36,378 to $72,756 @ 22%$72,756 to $118,285 @ 26%$72,756 to $118,285 @ 26%Over $118,285 @ 29%Over $118,285 @ 29%Full IndexingFull Indexing


The Basic SystemThe Basic System

ExampleExample An individual has Taxable An individual has Taxable Income of $118,285 and only his basic Income of $118,285 and only his basic personal tax credit.personal tax credit.

15.25% of $36,37815.25% of $36,378 $ 5,548$ 5,548

22% of ($72,756 - $36,378)22% of ($72,756 - $36,378) 8,003 8,003

26% of ($118,285 - $72,756)26% of ($118,285 - $72,756) 11,838 11,838

Total Before CreditTotal Before Credit $ 25,389$ 25,389 After creditAfter credit

($25,389 - $1,348)($25,389 - $1,348) $ 24,041$ 24,041


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 + 15.25) 21.30% Minimum = (6.05 + 15.25) 21.30%

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 (15.25 percent for 2006).a base (15.25 percent for 2006).Some have income threshold.Some have income threshold.


2006 Personal Tax Credits2006 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[(15.25%)($8,839)] = [(15.25%)($8,839)] =

$1,348$1,348



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[(15.25%)($7,505) - (Income > $751)][(15.25%)($7,505) - (Income > $751)]Maximum = $1,145Maximum = $1,145



Amount For Eligible DependantAmount For Eligible DependantSame 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



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)


CaregiverCaregiver

ValueValue $600 [(15.25%)($3,933)]$600 [(15.25%)($3,933)] Reduced By 15.25% Of Dependant’s Income In Reduced By 15.25% Of Dependant’s Income In

Excess Of $13,430Excess Of $13,430 Not Available If Eligible Dependant Or Infirm Not Available If Eligible Dependant Or Infirm

Dependant Over 17 AvailableDependant Over 17 Available


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)

ConditionsConditionsReach 18 Before End Of YearReach 18 Before End Of YearMentally Or Physically Infirm Mentally Or Physically Infirm [(15.25%)($3,933) - (Income > $5,580)] [(15.25%)($3,933) - (Income > $5,580)]

= Maximum Of $600= Maximum Of $600


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

Reach 65 In The YearReach 65 In The Year[(15.25%)($4,066)] = $620[(15.25%)($4,066)] = $620ReductionReduction

15% Of Income > $30,27015% Of Income > $30,270$57,377 - $30,279 = $27,107$57,377 - $30,279 = $27,107$27,107 (15%) = $4,066$27,107 (15%) = $4,066


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

Amount = 15.25% Of 1st $2,000 = Amount = 15.25% Of 1st $2,000 = $305$305


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)


Adoption Expense – ITA Adoption Expense – ITA 118.01118.01

Up to $1,525 [(15.25%)($10,000)]Up to $1,525 [(15.25%)($10,000)]


Adoption Expense – ITA Adoption Expense – 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


Charitable Donations – ITA Charitable Donations – ITA 118.1118.1

General RulesGeneral Rules15.25%(1st $200) + 29% Of Excess15.25%(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 15.25% of eligible costs15.25% of eligible costs Reduced by the lesser Reduced by the lesser

ofof3% of Net Income3% of Net Income$1,884 (3%)($62,800)$1,884 (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$1,884$1,8843% 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 $2,000. $100,000 and medical expenses of $2,000. 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 $2,000$2,000

ThresholdThreshold (1,884)(1,884)

SubtotalSubtotal $ 116 $ 116 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 $9,846$9,846

Credit (15.25%)Credit (15.25%) $1,501$1,501


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

QualifyingQualifyingAge 18 or overAge 18 or overEarned income > $2,919Earned income > $2,919



Refundable SupplementRefundable SupplementLesser of:Lesser of:

$1,000$1,00025/15.25 Of The Medical Expenses Tax 25/15.25 Of The Medical Expenses Tax

CreditCredit

Then Reduced By 5% Of Family Income > Then Reduced By 5% Of Family Income > $22,140$22,140



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 = $433 [(15.25%)Medical Expense Credit = $433 [(15.25%)

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

[(25/15.25)($433)] = $710[(25/15.25)($433)] = $710

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

($22,000 - $22,140)] = $710($22,000 - $22,140)] = $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

15.25% Of $6,741 = $1,028, No Income 15.25% Of $6,741 = $1,028, 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 15.25% Of Actual15.25% 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 15.25% Of $400 Per 15.25% Of $400 Per

Month Of Full Time Month Of Full Time AttendanceAttendance

15.25% Of $120 Per 15.25% Of $120 Per Month Of Part Time Month Of Part Time AttendanceAttendance

Unlimited Carry Unlimited Carry Forward By StudentForward By Student


Textbook (2006 Budget)Textbook (2006 Budget)

$10 [(15.25%)($65)]$10 [(15.25%)($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 15.25% Of Amounts 15.25% 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

15.25% Of Actual Payments15.25% Of Actual PaymentsMaximums For 2006Maximums For 2006

CPP = [(4.95%)($42,100 - $3,500)] = CPP = [(4.95%)($42,100 - $3,500)] = $1,911$1,911

15.25% of $1,911 = $291 15.25% of $1,911 = $291 EI = [(1.87%)($39,000)] = $729EI = [(1.87%)($39,000)] = $729

15.25% of $729 = $11115.25% of $729 = $111


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 = 15.25%Max = 15.25%

($5,000) = $763($5,000) = $763 Carry Forward By Carry Forward By

Student If UnusedStudent If Unused

SpouseSpouse - ITA 118.8- ITA 118.8 EligibleEligible

AgeAgePensionPensionDisabilityDisabilityTuitionTuitionEducationEducation

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

Same For CorporationsSame For Corporations


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


Canada Employment CreditCanada Employment Credit

New for 2006!New for 2006!15.25 percent of the lesser of $250 15.25 percent of the lesser of $250

or employment income.or employment income.Maximum = $38Maximum = $38Base to $1,000 in 2007Base to $1,000 in 2007


Public Transit Passes CreditPublic Transit Passes Credit

New For 2006 (as of July 1)New For 2006 (as of July 1)15.25 percent of cost of monthly or 15.25 percent of cost of monthly or

longer transit passes.longer transit passes. Individual, spouse, dependent Individual, spouse, dependent

children under 19.children under 19.


Child Fitness CreditChild Fitness Credit

New for 2007New for 2007For enrollment of a For enrollment of a

child under 16 in an child under 16 in an eligible program of eligible program of physical activityphysical activity

15.25 percent the 15.25 percent the lesser of fees or $500lesser of fees or $500

Maximum = $76Maximum = $76


Apprenticeship Job Creation Apprenticeship Job Creation CreditCredit

New for 2006!New for 2006!Available to a Available to a

businessbusiness10 percent of 10 percent of

salaries and wagessalaries and wagesMaximum = $200 Maximum = $200

[(10%)($2,000)][(10%)($2,000)]


Refundable GST CreditRefundable GST Credit

$232 Individual$232 Individual $232 Qualified $232 Qualified

RelationRelation $232 Eligible $232 Eligible

DependantDependant $122 Qualified $122 Qualified

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

Income > $30,270Income > $30,270


Child Tax Benefit SystemChild Tax Benefit System

$104.58/Month For Each $104.58/Month For Each Qualified DependantQualified Dependant

+$7.33/Month For Each +$7.33/Month For Each Dependant Over TwoDependant Over Two

+$20.75/Month For Each +$20.75/Month For Each Dependant Under SevenDependant Under Seven

Working Income SupplementWorking Income Supplement Less, 2% Of Family Income In Less, 2% Of Family Income In

Excess Of $36,378 (One Child)Excess Of $36,378 (One Child) Less, 4% Of Family Income in Less, 4% Of Family Income in

Excess Of $36,378 (2+ Excess Of $36,378 (2+ Children)Children)


Clawback of EIClawback of EI

Applicable if EI Applicable if EI recipient’s net income recipient’s net income exceeds $48,750exceeds $48,750

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 $48,750over $48,750


Clawback Of OASClawback Of OAS

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

Excess Of $62,144Excess Of $62,144 Disappears At Disappears At

$100,917$100,917 Not Paid If Income Not Paid If Income

Is High In Previous Is High In Previous YearsYears

© 2006, C. Byrd Inc. 1 Chapter 6 Taxable Income And Tax Payable For Individuals.

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Transcript of © 2006, C. Byrd Inc. 1 Chapter 6 Taxable Income And Tax Payable For Individuals.