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Canadian Tax Principles, 2024-2025 Edition, 1st edition Volume 1&2 Gary Donell ,Byrd , Chen Ebook

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Byrd & Chen's
Canadian Tax Principles
Volume 1, Volume 2, and Study Guide
2024-2025 Edition
©
Gary Donell
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GARY DONELL
Byrd & Chen’s
Canadian
Tax:
Principles
2024-2025 EDITION
Volume I
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ISBN 978-0-13-829700-8
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iii
The textbook is published in
two volumes:
Chapter
VOLUME 1
1
Introduction to Federal
Taxation in Canada
2
Procedures and Administration
3
Income or Loss from an
Office or Employment
4
Taxable Income and Tax
Payable for Individuals
Volume I = Chapters 1 to 10
Volume II = Chapters 11 to 21
Chapter
VOLUME II
Taxable Income and Tax Payable
for Individuals Revisited
11
Appendix A: First Nations People:
Tax Exemptions (ITA & ETA)
Appendix B: Returns for Deceased
Individuals
12
Capital Cost Allowance
Taxable Income and
Tax Payable for Corporations
Taxation of Corporate Investment
Income
5
Appendix: CCA Rates for Select
Depreciable Property
13
6
Income or Loss from a Business
14
Other Issues in Corporate Taxation
7
Income or Loss from Property
15
Corporate Taxation and
Management Decisions
16
Rollovers under Section 85
17
Other Corporate Rollovers and
Sale of a Corporate Business
18
Partnerships
19
Trusts and Estate Planning
20
International Issues in Taxation
21
GST/HST
8
Capital Gains and Capital Losses
9
Other Income and Deductions,
and Other Issues
10
Retirement Savings and Other
Special Income Arrangements
Detailed contents of Volume I,
Chapters 1 to 10, follows.
Glossary
Appendix: ART and Foreign Tax
Credit Calculations
Located at the end of the
Study Guide.
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iv Table of Contents (Volume 1)
CHAPTER 1
Self-Study Problems (SSPs)............................57
Assignment Problems......................................57
Introduction to Federal
Taxation in Canada
Learning Objectives...........................................1
CHAPTER 2
The Canadian Tax System................................. 2
Procedures and Administration
Introduction.................................................................2
A Word on Basic Concepts........................................ 2
Alternative Tax Bases.................................................4
Taxable Entities in Canada........................................ 7
Federal Taxation and the Provinces/Territories . . .9
Tax Policy Concepts........................................ 11
Taxation and Economic Policy.................................11
Taxation and Income Levels.................................... 12
Tax Incidence........................................................... 15
Tax Expenditures......................................................15
Qualitative Characteristics of Tax Systems .... 16
Income Tax Reference Materials.....................18
Introduction...............................................................18
The Income Tax Act (ITA).........................................18
Other Income Tax Legislation.................................. 23
Other Sources of Income Tax Information .... 26
Liability for Part I Income Tax......................... 28
Residency Overview.................................................28
Part I Liability for Canadian Residents..................... 29
Part I Liability for Non-Residents..............................30
Residence..........................................................32
Importance and Overview........................................ 32
Factual Residence of Individuals............................. 33
Residence of Corporations.......................................42
Residence of Trusts................................................. 44
Alternative Concepts of Income......................45
The Economist’s View.............................................. 45
The Accountant's View............................................. 45
The Income Tax Act (ITA)—The Source Concept . 45
Net Income........................................................ 47
Structure and Components...................................... 47
ITA 3 Net Income—Example #1...............................49
ITA 3 Net Income—Example #2...............................50
ITA 3 Net Income—Example #3...............................50
ITA 3 Net Income—Comprehensive Example . . 51
Principles of Income Tax Planning.................53
Introduction...............................................................53
Tax Avoidance or Reduction.................................... 53
Tax Deferral..............................................................54
Income Splitting........................................................ 54
Abbreviations....................................................55
Learning Objectives......................................... 63
Introduction.......................................................64
Returns and Payments—Individuals .... 65
Requirement to File—ITA 150..................................65
Due Date for Individual Returns............................... 67
Income Tax Withholdings—ITA 153.........................69
Instalment Payments for Individuals—
ITA 156..................................................................... 70
Interest......................................................................75
Penalties...................................................................77
Due Date for Balance Owing—
Living Individuals......................................................78
Deceased Individuals—Balance Due
Day and Final Return............................................... 78
Returns and Payments—Corporations ... 79
Due Date for Corporate Returns—
ITA 150(1 )(a)........................................................... 79
Filing Alternatives for Corporations.......................... 79
Instalment Payments for Corporations—
ITA 157..................................................................... 79
Balance Due Day—ITA 248(1)—Corporations. . . 81
Interest and Penalties for Corporations................... 82
Returns and Payments—Trusts...................... 82
Types of Trusts.........................................................82
Filing Due Date and Payment of Income Tax ... 83
General Requirement to File an Income
Tax Return (T3)........................................................ 83
New Trust Reporting Requirements—
ITA 150(1.1) to 150(1.4) and ITR 204.2................... 83
Bare Trusts and the CRA......................................... 84
Income Tax Information Returns.................... 85
Books and Records and the CRA................... 85
Assessments and the CRA
My Account Service..................................... 86
CRA Website—My Account Service........................ 86
Notice of Assessment............................................. 87
Notice of Reassessment and Statutory
Limitations................................................................ 87
Refunds-ITA 164(1)...........................................88
Interest on Refunds—ITA 164(3)............................. 89
Key Terms......................................................... 56
Adjustments to Income Tax Returns.............. 89
References........................................................ 57
Onus on Taxpayers.......................................... 90
(Continued)
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Table of Contents (Volume 1)
v
Chapter 2 - Continued
Inclusions—GST/HST & PST on
Taxable Benefits.........................................138
Disputes and Appeals......................................91
Inclusions—Automobile Benefits................. 139
Representation by Others........................................91
Notice of Objection—ITA 165.................................. 91
Tax Court of Canada—ITA 169................................93
Federal Court and Supreme Court of Canada ... 95
Tax Evasion,Avoidance, and Planning. ... 95
Tax Evasion..............................................................95
Tax Avoidance and Planning....................................95
General Anti-Avoidance Rule (GAAR)—
ITA 245 ................................................................... 96
The New General Anti-Avoidance Rule
(GAAR) ITA 245 ..................................................... 97
Collection and Enforcement............................ 97
Collections................................................................ 97
Other Penalties.........................................................98
Taxpayer Relief Provisions............................102
Overview and Basic Rules..................................... 102
Voluntary Disclosure Program (VDP).....................103
Key Terms....................................................... 104
References...................................................... 104
Self-Study Problems...................................... 105
Assignment Problems.................................... 106
CHAPTER 3
Income or Loss from an
Office or Employment
Learning Objectives.......................................111
Introduction.....................................................112
Employees and Automobiles..................................139
Benefit When Motor Vehicles
Are Not Automobiles.............................................. 141
Taxable Benefits—Standby Charge
(ITA 6(2)).............................................................. 144
Operating Cost Benefit—Employer-Provided
Automobile.............................................................146
Payments by Employees for Automobile Use. . 148
Example—Employer-Owned Automobile .... 148
Example—Employee-Owned or
Employee-Leased Automobile.............................. 148
Example—Employer-Leased Automobile .... 149
Employer-Provided Automobiles and
Income Tax Planning............................................ 150
Inclusions—Allowances............................... 151
Allowance vs. Reimbursement
and Advances..........................................................151
General Rules.......................................................... 152
Taxable vs. Non-taxable Allowances
and Reasonableness............................................... 153
Reasonable Allowances for Motor Vehicles. . . 153
Employer's Perspective of Allowances....................154
Employee's Perspective of Allowances...................155
Inclusions—Employee Life & Disability
Insurance Benefits..................................... 155
Life Insurance.......................................................... 155
Disability Insurance—Group Sickness
or Accident Insurance Plans.................................... 156
Loans to Employees.......................................157
General Rules..........................................................157
Income Tax Planning for Interest-Free
Loans....................................................................... 160
Inclusions—Stock
Option
Benefits
....
161
Introduction.............................................................117
Employee Perspective........................................... 117
CPP Contributions and El Premiums..................... 118
Employer Perspective............................................121
Making the Distinction............................................ 123
Stock Option Deduction Rules
(ITA 110(0.1 )& 110(1.1) to (1.9))......................... 161
The 2024 Federal Budget..................................... 162
Stock Option Benefits Rules (ITA 7)—
Employees Only..................................................... 163
Overview of the Income Tax Rules........................ 163
CCPCs vs. Public Corporations............................. 165
Rules for Public Corporations................................ 166
Rules for Canadian Controlled Private
Corporations (CCPCs)............................................167
Employee Stock Option Deduction
Restriction (ITA 110(1.3) to (1.9)).......................... 169
Inclusions—Employee Benefits.................... 125
Other Inclusions............................................. 171
Employment Income Defined........................ 113
General Rules.........................................................113
Cash Basis and Planning....................................... 114
Employment Losses—ITA 5(2).............................. 116
Employee versus Self-Employed
(Independent Contractor).......................... 117
Basic Concepts—ITA 6(1 )(a)................................ 125
Inclusions —Non-Salary Benefits................. 127
Introduction.............................................................127
Legislative Guidance.............................................. 128
Tax Planning Considerations..................................137
Payments by Employer to Employee—
ITA 6(3).................................................................. 171
Forgiveness of Employee Loans—ITA 6(15). . . .171
Salary Advances.................................................... 171
Housing Loss Reimbursement—
ITA 6(19) to (22)..................................................... 172
(Continued)
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vi Table of Contents (Volume 1)
Chapter 3 - Continued
Specific Deductions —ITA 8..........................172
Overview................................................................ 172
Employment Expense Essentials ..........................175
Salesperson’s Expenses—ITA 8(1 )(f)................... 176
Travel Expensesand Motor Vehicle Expenses . .177
The Salesperson's Dilemma...................................177
Other Employment Expenses—ITA 8(1 Mi) . . . .178
Automobile and Aircraft Expenses—
ITA 8(1 Mj)............................................................... 179
Work Space in the Home—ITA 8(1)(i)(iii),
8(1)(f), & 8(13)....................................................... .179
Determining the Employment Use of a
Home Office........................................................... 181
Key Terms.......................................................181
References......................................................181
Self-Study Problems...................................... 182
Assignment Problems....................................182
CHAPTER 4
Taxable Income and Tax
Payable for Individuals
Learning Objectives....................................... 193
Introduction.....................................................194
Taxable Income of Individuals.......................195
Available Taxable Income Deductions................... 195
Ordering of Deductions...........................................195
Deductions for Payments—ITA 110(1 )(f) .... 195
Northern Residents Deductions—ITA 110.7 . . 196
Calculation of Gross Income Tax Payable . 196
Gross Federal Income Tax Payable.......................196
Provincial and Territorial Income Tax
Payable before Credits...........................................197
Types of Income..................................................... 199
Income Tax on Income Not Earned in a
Province or Territory ..............................................200
Federal Income Tax Credits...........................200
General Comments................................................ 200
Provincial and Territorial Amounts.........................201
Personal Tax Credits—ITA 118(1).................201
Basic Personal Amount (BPA)—ITA 118(1.1). . . .201
A Spouse or Common-Law Partner....................... 202
Individuals with a Spouse or CommonLaw Partner—ITA 118(1) (a)..................................203
Individuals Supporting a Dependent
Person—ITA 118( 1 )(b)......................................... 205
Canada Caregiver Amount for Child—
ITA 118(1 Mb. 1)................................................... 207
Single Persons (BPA)—ITA 118(1)(c).................. 208
Canada Caregiver Tax Credit—ITA 118(1)(d). . . 208
Other Tax Credits for Individuals....................211
Age Tax Credit—ITA 118(2).....................................211
Pension Income Tax Credit—ITA 118(3)................ 211
Canada Employment Tax Credit—
ITA 118(10)........................................................... 212
Adoption Expenses Tax Credit—
ITA 118.01.............................................................212
Digital News Subscriptions Credit—
ITA 118.02.............................................................214
Home Accessibility Tax Credit—
ITA 118.041...........................................................214
First-Time Home Buyers' Tax Credit—
ITA 118.05.............................................................215
Volunteer Firefighters and Volunteer Search and
Rescue Workers Tax Credits—ITA 118.06
and 118.07..............................................................216
Charitable Donations Tax Credit—ITA 118.1. . . 216
Medical Expense Tax Credit—ITA 118.2...............219
Disability Tax Credit—ITA 118.3............................ 222
Education-Related Tax Credits.............................. 225
Employment Insurance (El) and Canada
Pension Plan (CPP)Tax Credits—ITA 118.7 . . . 228
Overpayment of El Premiums and
CPP Contributions.................................................229
Transfers to a Spouse or CommonLaw Partner—ITA 118.8........................................230
Political Contributions Tax Credits—
ITA 127(3).............................................................. 230
Labour-Sponsored Venture Capital
Corporations Credit—ITA 127.4 ........................ 231
Dividend Tax Credit................................................232
Foreign Tax Credits................................................232
Investment Tax Credits.......................................... 232
Refundable Credits.........................................232
Introduction.............................................................232
GST/HST Credit—ITA 122.5................................. 232
Refundable Medical Expense
Supplement—ITA 122.51 ..................................... 233
Canada Workers Benefit—ITA 122.7 ................... 234
Eligible Educator School Supply Tax Credit—
ITA 122.9 .............................................................. 235
Canada Carbon Rebate Credit/Payment—
ITA 122.8 .............................................................. 236
Canada Training Credit—ITA 118.5(1.2) &
122.91................................................................... 237
Multigenerational Home Renovation
Tax Credit (MGHRTC)—ITA 122.92 .................... 238
Social Benefits Repayment
(OAS and El)............................................... 239
Basic Concepts.......................................................239
Employment Insurance (El) Benefits Clawback. 240
Old Age Security (OAS) Benefits Clawback. . . 240
(Continued)
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Table of Contents (Volume 1) vii
Chapter 4 - Continued
Comprehensive Example...............................241
Basic Data..............................................................241
2024 Net Income and Taxable Income..................241
Federal Income Tax Payable................................. 242
Key Terms....................................................... 243
References...................................................... 243
Self-Study Problems (SSPs).......................... 244
Assignment Problems.................................... 244
Recapture on Dispositions of Class
54 Property (Zero-Emission Passenger
Vehicles (ZEPV))...................................................298
Recapture on Dispositions of Class 10.1
Property (Passenger Vehicles)—ITA 13(2) . . . 299
Dispositions of Class 14.1—Differences
from other Classes................................................. 300
Disposition Summary—Income
Tax Consequences.................................................303
CCA Schedule................................................. 303
CCA Determination —Select
Special Situations...................................... 304
Separate Class Election......................................... 304
Key Terms....................................................... 306
CHAPTER 5
References...................................................... 306
Capital Cost Allowance
Appendix: CCA Rates for Select
Depreciable Property................................. 306
Learning Objectives...................................255
Self-Study Problems (SSPs).......................... 309
Introduction................................................ 256
Assignment Problems....................................309
Understanding Depreciable Property............... 256
Income Tax and Accounting Principles
Compared......................................................... 258
Additions to Capital Cost.......................... 261
Determination of Amounts................................261
CCA—General Restrictions..............................264
Available-for-Use Rules (ITA 13(26) to (32)) . . . 265
Classes of Depreciable Property
(ITR Schedule II)...............................................266
Capital Cost Allowance............................. 268
General Overview............................................. 268
Commonly Used CCA Classes.........................269
The Half-Year Rule (ITR 1100(2)).................... 274
Accelerated Investment Incentive (Accll)....
275
Zero-Emission Vehicles (ZEV, including ZEPV) . 282
Determining CCA—Classes 54, 55, and 56. .
. 284
Short Fiscal Periods (ITR 1100(3)).................. 285
Class 14.1.........................................................286
Tax Planning Considerations for CCA..............287
Immediate Expensing for Individuals,
CCPCs, and Certain Partnerships —ITR
1100(0.1) to (0.3) and ITR 1104(3.1)
to (3.6)........................................................ 288
Extended Limited Immediate Expensing—
2024 Federal Budget............................................. 291
Disposition of Depreciable Property. . . . 292
Overview—Understanding the Basics................... 292
UCC & Dispositions................................................293
Applying the UCC to Dispositions—
Examples Revisited................................................294
CHAPTER 6
Income or Loss from a Business
Learning Objectives....................................... 317
Introduction.....................................................318
The Importance of a Business................................319
Defining a Business................................................320
Business Income and LossGeneral Principles......................................327
Overview.................................................................327
What Is “Profit"?......................................................328
The 9-12-18-20 General Rule.................................329
Business Income—Inclusions.......................330
Amounts Receivable—ITA 12(1 )(b)......................331
Amounts Received in Advance—ITA 12(1 )(a) . . 331
Quality of Income—ITA 9(1), 12(1 )(a),
and 12(1 )(b).....................................................332
Reserves.......................................................... 333
Limitations on Deductions from
Business and Property Income........... 338
Expense Analysis.............................................338
Some Specific Limitations—ITA 18..................338
Foreign Media Advertising—ITA 19 and 19.1 . . 349
Business Income —Specific Deductions . . 349
Inventory—ITA 10............................................ 349
Some Specific Deductions—ITA 20................ 351
(Continued)
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viii Table of Contents (Volume 1)
Chapter 6 - Continued
Other Limitations on Deductions
from Business and Property
Income—Subdivision f............................. 354
Introduction........................................................... 354
Reasonableness—ITA 67 .................................... 354
Meals and Entertainment....................................... 355
"Luxury" Automobile Costs.....................................356
Automobiles Owned by the Taxpayer.................... 357
Automobile Leasing Costs—ITA 673 .................... 358
Leasing Property—Some Accounting
versus Income Tax Issues...................................... 360
Illegal Payments, Fines, and Penalties—
ITA 67.5 and 67.6 ................................................ 361
Reconciliation Schedule................................361
Business Income —Example........................ 363
Example Data.........................................................363
Example Analysis...................................................364
Taxation Year.................................................. 365
General Rules.........................................................365
Non-incorporated Businesses—Fiscal Period. . 366
Special Business Income Situations. . . . 369
Income for Farmers................................................ 369
Professional Income (Work-in-Process [WIP]). . 370
Sale of a Business................................................. 371
Interest Income............................................... 404
General Provision—ITA 12(1 )(c)...........................404
Corporations and Partnerships—Full Accrual
Method—ITA 12(3).................................................405
Individuals—Modified Accrual Method—
ITA 12(4>.............................................................. 405
The Impact of Discounts and Premiums
to Investment Contract Holders.............................407
Accrued Interest on Disposition—ITA 20(14) . . 408
Payments Based on Production or
Use-ITA 12(1)(g)........................................ 408
Rental Income................................................. 409
General Rules.........................................................409
Capital Cost Allowances.........................................410
Rental Income Example........................................ 411
Cash Dividends from Taxable Canadian
Corporations — ITA 12(1 )(j)..................... 413
The Concept of Integration....................................413
Implementing Integration........................................415
The Gross Up and Dividend Tax credit
Mechanism—Eligible Dividends.............................417
The Gross Up and Dividend Tax Credit
Mechanism— Non-Eligible Dividends....................420
Mutual Funds.................................................. 423
Key Terms....................................................... 372
Objective.................................................................423
Organization........................................................... 423
Distributions............................................................424
Adjusted Cost Base (ACB)..................................... 424
References...................................................... 373
Other Types of Dividends.............................. 425
Self-Study Problems (SSPs)..........................373
Capital Dividends—ITA 83(2)................................ 425
Stock Dividends......................................................426
Assignment Problems....................................373
Foreign Source Income..................................427
General Rules.........................................................427
Foreign Non-Business (Property) Income.... 428
Foreign Business Income.......................................428
CHAPTER 7
Income or Loss from Property
Shareholder Benefits —ITA 15(1) & (2). . . 429
Key Terms....................................................... 430
Learning Objectives.................................. 389
References...................................................... 430
Introduction................................................390
Self-Study Problems (SSPs)..........................431
Income from Property: General Concept
Assignment Problems................................... 431
. 391
The Source of Income Analysis....................... 392
Income from Property vs. Business—
The Importance................................................ 394
Interest as a Deduction — ITA 20(1 )(c) . . . 394
The Problem with Interest Expense................. 394
ITA 20(1 )(c) Revisited..................................... 395
What Is Interest?.............................................. 396
Direct or Indirect Use ...................................... 397
The Purpose Test.............................................398
Tracing..............................................................398
Discount and Premium on Debt Obligations . .
403
CHAPTER 8
Capital Gains and Capital Losses
Learning Objectives...................................... 439
Introduction................................................... 440
Capital Gains and Capital Losses—Overview. . 440
(Continued)
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Table of Contents (Volume 1) ix
Chapter 8 - Continued
A Brief Word on the History of Capital
Gains and Capital Losses..................................... 441
The 2024 Federal Budget—Inclusion
Rate Increased to 2/3............................................ 441
Capital Gain/Loss Concepts.......................... 442
Basic Term inology.................................................442
Select Capital Gain and Capital
Loss Topics................................................ 448
Superficial Losses for Individuals—ITA 40(2)(g). 449
Select ACB Considerations—Negative
ACB—ITA4013)...................................................... 450
Select ACB Considerations—GST &
HST—ITA 248(16)................................................. 451
Identical Properties—ITA 47 ................................ 452
Partial Dispositions—ITA 43................................. 453
Warranties on Capital Property—ITA 42............... 454
Capital Gains Reserves—ITA 40(1 >(a)(iii) .... 454
Bad Debts on Sales of Capital Property—
ITA 50(1)................................................................ 457
Loss Restrictions on the Sale of Land
and Building—ITA 13(21.1).................................... 458
Principal Residence—ITA 40(2)(b) The
Principal Residence Exemption............................. 460
Personal-Use Property—ITA 46 & 54 .................. 464
Gains and Losses on Foreign Currency—
ITA 39(1), (1.1), & (2)............................................. 466
Deemed Dispositions—Change in Use—
ITA 13(7) & 45(1)................................................... 469
Special Rules for Principal Residences—
ITA 45(2) & 45(3)................................................... 473
A Word on Changes in Use and Automobiles. . 477
Deemed Dispositions on Becoming a
Non-Resident of Canada—ITA 128.1 .................. 478
Capital Gains Deferral—ITA 44.1.......................... 479
Deferral on Replacement Property—
ITA 13(4) & 44(1).................................................. 481
Combined Application of ITA 13(4) and 44(1) . . 485
Capital Gains and Income Tax Planning. . 489
Key Terms....................................................... 489
References...................................................... 489
Self-Study Problems (SSPs)..........................490
Assignment Problems....................................490
CHAPTER 9
Other Types of Income—Subdivision d . . 504
Pension Benefits—ITA 56(1 )(a)(i)........................504
Retiring Allowances—ITA 56(1 )(a)(ii).................. 504
A Word on the Interaction between
ITA 56 and ITA 60................................................. 505
Death Benefits—
ITA 56(1 )(a)(iii) & 56(1 )(a.1)................................506
Other Income—Deferred Income Plans—
ITA 56(1 )(h), (h.1), (h.2), (i), & (t).........................506
Scholarships, Bursaries, and Research
Grants—ITA 56(1 )(n) & (o).................................. 507
Social Assistance and Workers'
Compensation—ITA 56(1 )(u) & (v)...................... 508
Other Deductions—Subdivision e
Deductions................................................ 509
CPP Contributions on Employment and
Self-Employed Earnings—ITA 60(e) & (e.1) . . . 509
Moving Expenses—ITA 62 .................................. 509
Child Care Expenses—ITA 63.............................. 513
Disability Supports Deduction—ITA 64..................518
Related Income and Deductions................... 520
Introduction.............................................................520
Pension Income Splitting—
ITA 56(1)(a.2), 60(c), & 60.03 .............................. 520
Spousal and Child Support—
ITA 56(1)(b) & 60(b)............................................... 522
Annuity Payments Received—
ITA 56(1)(d) & 60(a)............................................... 525
Registered Savings Plans..............................526
Introduction.............................................................526
Tax-Free Savings Accounts (TFSAs)—
ITA 146.2 .............................................................. 528
Registered Education Savings Plans
(RESPs)—ITA 146.1
529
Registered Disability Savings Plans
(RDSPs)—ITA 146.4 ............................................ 535
Non-Arm's-Length Transactions...................536
Introduction.............................................................536
Inadequate Consideration—ITA 69 ...................... 537
Inter Vivos Dispositions of Capital Property
to a Spouse or Common-Law Partner—
ITA 73(1) & (1.01)................................................. 541
Non-Arm’s-Length Dispositions of
Depreciable Property—ITA 13(7)(e)..................... 543
Inter Vivos Dispositions of Farm or
Fishing Property to a Child.....................................546
Death of an Individual Taxpayer................... 548
Income Attribution..........................................550
Other Income and Deductions,
and Other Issues
Learning Objectives.......................................501
Introduction.....................................................502
Overview.................................................................550
Basic Rules—ITA 74.1(1) & (2)............................. 551
Avoiding Income Attribution....................................553
I ncome Attribution—Non-Arm 's-Lengt h
Loans (ITA 56(4.1))............................................... 555
Tax Planning and Income Attribution..................... 556
Coverage of Chapter 9........................................... 502
(Continued)
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x Table of Contents (Volume 1)
Chapter 9 - Continued
Target Benefit Plans..............................................620
Expanded Canada Pension Plan (CPP)............... 620
Tax on Split Income (TOSI) —ITA 120.4 . . 558
Registered Retirement Income
Funds (RRIF) — ITA 146.3 ....................... 621
Introduction—Income Splitting............................... 558
Applying the TOSI.................................................. 562
Applying the TOSI.................................................. 562
TOSI—Analytical Summary....................................564
TOSI Example........................................................ 565
Calculation of the TOSI Tax................................... 566
Establishment........................................................ 621
RRIF Withdrawals.................................................. 622
Death of the RRIF Annuitant.................................. 623
Evaluation of RRIFs............................................... 624
Key Terms....................................................... 568
Deferred Profit-Sharing Plans (DPSPs) —
ITA 147 ...................................................... 624
References...................................................... 568
General Rules.........................................................624
Income Tax Planning..............................................624
Self-Study Problems (SSPs)..........................569
Assignment Problems....................................569
Employee Profit-Sharing Plans (EPSPs) —
ITA 144 ...................................................... 625
CHAPTER 10
General Rules.........................................................625
Part XI.4 Tax on Excess EPSP
Contributions—ITA 204.9...................................... 625
Retirement Savings and Other
Special Income Arrangements
Transfers between Plans............................... 625
Learning Objectives....................................... 583
Retirement Compensation
Arrangements (RCA)..................................627
Planning for Retirement.................................584
Introduction.............................................................584
Providing Consistency............................................585
Tax-Deferred Savings.............................................586
RPPs—Defined Benefit vs. Money
Purchase Plans...................................................... 588
Registered Retirement Savings Plans
(RRSPs)-ITA 146........................................ 589
Basic Operations.................................................... 589
RRSP Deduction Limit............................................594
Examples of RRSP Deduction Calculations . . . .601
Undeducted RRSP Contributions.......................... 602
RRSP and RRIF Administration Fees....................604
RRSP Withdrawals and Voluntary Annuity
Conversions............................................................605
Involuntary Termination Due to Age Limitation . 606
Spousal RRSP....................................................... 607
Home Buyers' Plan (HBP)—ITA 146.01 .............. 609
Tax-Free First Home Savings Account (FHSA)—
ITA 146.6............................................................... 611
Lifelong Learning Plan I LLP)—ITA 146.02. . . . 613
Ceasing to Be a Resident of Canada.....................614
Death of the RRSP Annuitant................................ 615
Accumulated Benefits.............................................625
Retiring Allowance Transfers—ITA60(j.1). . . . 626
The Problem........................................................... 627
Arrangements Defined............................................628
Part XI.3 Refundable Tax—ITA 207.5 ................. 628
Unfunded Plans...................................................... 629
Salary Deferral Arrangements (SDA). . . . 629
The Problem........................................................... 629
The Solution............................................................629
Individual Pension Plans (IPPs).................... 630
Key Terms.......................................................631
References......................................................631
Self-Study Problems (SSPs).......................... 632
Assignment Problems....................................632
Index.................................................................1-1
Study Guide
Your two volume textbook is accompanied by a sep­
arate Study Guide that is available in print and online.
The chapters of this Study Guide correspond to the
Registered Pension Plans (RPPs)—HA 147.1. .617 chapters of Byrd & Chen's Canadian Tax Principles.
Establishing an RPP...............................................617
Employer Contributions to the RPP....................... 617
Employee Contributions to the RPP.......................618
Options at Retirement.............................................618
Phased Retirement.................................................618
Inadequate Retirement Savings.................... 619
The Problem........................................................... 619
Pooled Registered Pension Plans (PRPPsf—
ITA 147.5................................................................ 619
Each of these Study Guide chapters contains the
following:
• Detailed solutions to the Exercises and SelfStudy Problems in the textbook for the chapter
• A list of learning objectives for the material in
the chapter
• An extensive glossary
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xi
Consistent with the title of this textbook, our objective is to instill a solid understanding of the
basics of income tax and GST/HST through an appreciation of the tax principles, concepts, and
unique vocabulary that make up the framework upon which the Canadian tax system has been
built. This level of understanding is not solely directed at a theoretical or academic level; con­
siderable emphasis is placed on practical, everyday situations in preparation for careers where
an understanding of tax in some form will be helpful at a minimum and essential at best.
The textbook will provide you with the elementary tools necessary to develop an awareness to help
identify, analyze, and apply the tax law to a wide range of subjects ranging from determining the
income tax liability or refund of individuals earning employment income; carrying on a business;
earning investment income, including the implications of selling investments; identifying potential
income tax benefits directed at students; investing in Tax-Free Savings Accounts (TFSAs), First Home
Savings Accounts (FHSAs), and Registered Retirement Savings Plans (RRSPs); and understanding
how the income tax law applies to corporations, trusts, and partnerships to provide you with an
understanding of the circumstances under which these various types of entities should be used.
Our approach breaks down the necessary parts of the legislation, such as the Income Tax Act (ITA)
and the Excise Tax Act (ETA), and employs reference materials and interpretations of the Canada
Revenue Agency (CRA) and long-standing legal and tax principles developed through the courts, all
with the goal of simplifying, to the extent possible, the tax learning environment to achieve success.
We have provided numerous examples and step-by-step analysis together with an abundant supply
of exercises and problem material to facilitate your journey through the world of Canadian tax.
For those pursuing CPA certification, we have ensured that the tax coverage is consistent with that
required of CPA Canada as indicated for core level competencies in the most recent CPA compe­
tency map.
As the leading introductory income tax textbook in Canada, we recognize the importance and
significance of all Canadians and the unique features of the Canadian income tax system appli­
cable to specific groups of Canadians. The ITA, for example, contains a very specific rule in ITA
87(1 )(a) that provides the basis for an exemption from Canadian income tax—be it federal, pro­
vincial, or territorial—for First Nations individuals. This specific rule was not covered in introduc­
tory Canadian income tax textbooks, even though over 1 million First Nations individuals are
potentially impacted. In this regard we are pleased to continue to be the first introductory text­
book on Canadian income tax to devote coverage to the federal taxation issues faced by the First
Nations Peoples of Canada as a result of this income tax rule. Coverage can be found in Appendix A
(introduced in the 2022-2023 edition) of Chapter 11.
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xii Preface
Features
Study Guide__________________________________
The main objective of the Study Guide is to provide students with convenient access to the solu­
tions for the Exercises included in each chapter of the textbook and solutions to the Self-Study
Problems (SSPs), which are available for download from My Lab Accounting. Having these solu­
tions in a separate volume makes it easy for students to simultaneously view the problem while
solving it and then consult its complete and detailed solution.
The Study Guide also provides the following:
• Each chapter’s learning objectives are provided. Students can use these to ensure they
understand the relevant subjects covered in each chapter.
• At the end of each chapter in the textbook there is a list of key terms that were used in
that chapter. All of these terms are alphabetically listed in a glossary at the end of the Study
Guide. This provides an easy way to find the meaning of a word, term, or expression intro­
duced in one chapter, but is being referred to again in a subsequent chapter.
Features
The Canadian Tax Principles package contains a large number of problems, solutions,
features,
software problems and solutions, and examples to help guide you through your course in taxation.
Learning Objectives A detailed list of learning objectives is available at the beginning of
each chapter and in the Study Guide. This allows you to check your understanding of the
relevant subjects covered in each chapter.
Exercises These are short problems that are focused on a single issue. Exercises are
presented throughout the chapters, directly following the relevant material. Solutions
to the Exercises are in your Study Guide. This provides you with immediate feedback as
to whether you have understood the material you have just read.
Self-Study Problems (SSPs) These problems are more complex than the Exercises
and include a number of comprehensive problems often with multiple issues. We have
marked the points within chapters where you should stop and complete each SSP The
SSPs are available on MyLab for download as well as in the Study Plan, and the solutions
are available in your Study Guide.
Tax Software Self-Study Problems (SSPs) These SSPs are designed to be solved
using the ProFile software that is available for users of Canadian Tax Principles.
Starting with this edition, these problems have been placed on MyLab. Now the
problems, solutions, and completed income tax returns are all in one place and
available as one package to download. Tax Software SSPs continue to be available in
PDF or ProFile format. Look for updates on MyLab in the new year, as these will be
updated to reflect the taxation year that has passed. For example, in January 2025
the ProFile software will generally be available with respect to filing the income tax
return for the 2024 taxation year.
Assignment Problems (APs) These problems vary in difficulty and include the most
difficult, comprehensive problems in the textbook. They are found at the end of each chapter.
Solutions to these problems are available to instructors only.
Tax Software Assignment Problems (APs) Starting with this edition, Tax Software
APs have been placed on MyLab, along with other tax software-related material. This
includes Tax Software APs dealing with personal income tax returns (T1) for Chapters 4
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Preface xiii
What's New in this Edition
and 11, and corporate income tax returns (T2) for Chapter 14. Solutions to Tax Software
APs are available to instructors only. Look for updates on MyLab in January 2025, as
these will be updated to reflect the 2024 taxation year that has just passed.
Comprehensive Assignment Problems (APs) These are the most challenging type
of problem material in the textbook. They are cumulative in that they incorporate issues
from previous chapters. There are two Comprehensive APs per chapter in Chapters 6
through 11, found at the end of the chapter. Solutions to these problems are available
to instructors only.
Income Tax Returns Starting with this edition, income tax return examples have been
placed on MyLab, along with other tax software-related material. These provide useful
practice for using the ProFile tax software. The income tax returns and completed files
are downloadable on MyLab, either in PDF or ProFile format.
Glossary At the end of the Study Guide is a comprehensive glossary that defines the
key terms used throughout the textbook. Tied to this important resource, at the end
of each chapter you will find a list of the Key Terms that are used in that chapter. This
provides an additional resource for reviewing the textbook material in that, by reviewing
this list, you can ensure that you are familiar with all of the concepts that are presented
in each chapter.
What’s New in this Edition
In this edition we have endeavoured to continue the process of modifying existing content to pres­
ent facts and circumstances that are both practical and that students are likely to encounter in the
course of their careers. In addition, and in recognition that income tax continues to evolve on an
ongoing basis, we have added new content to address topics that are both relevant and current,
including changes to legislation that often affect federal annual budgets and federal annual eco­
nomic fiscal updates, plus other federal legislation designed to address myriad issues, most often
to close tax loopholes or to override decisions of the courts that the federal government views as
unacceptable. Finally, one of our objectives is to provide educators with material that explains the
changes between each edition to facilitate the annual transition. The following specific additional
features are included with this 2024-2025 edition:
WHAT'S NEW (Chapter by Chapter) We also continue to recognize the contributions of those
many professors, instructors, and educators who have consistently used Canadian Tax Principles at
colleges, universities, and other educational institutions for years. In revising and updating this
edition we have again prepared a list of changes to each chapter that highlight specific and signifi­
cant changes made to each chapter, including exercises and other problem material, to facilitate
the preparation process for the 2024 taxation year. These list of changes is titled "What's New" and
is available for each chapter, providing a bridge between this and previous editions as well as a
roadmap to the application of this edition. The "What's New" documents for all chapters of this
edition can be found on MyLab, under the "Instructor Resources" tab. Some examples of the more
substantial changes made to chapters include (1) a rewrite of the CPP and El coverage in Chapter
3 to provide additional detail to determine the income tax consequences to all persons, whether
employees, employers, or self-employed persons; (2) coverage of the new short-term rental
property restrictions in Chapter 7; (3) coverage of the controversial 2024 federal budget proposal
to increase the capital gains inclusion rate from one-half to two-thirds effective June 25, 2024;
(4) revision of the new AMT rules in Chapter 11 to reflect this new system, which became effec­
tive January 1,2024; (5) expanded discussion of the employee ownership trust rules in Chapter 19,
including the proposed $10 million capital gain exemption; and (6) the addition of a new refer­
ence section for Chapter 21, which lists the relevant sections of the ETA.
LEGISLATIVE CHANGES (Chapter by Chapter) In this 2024-2025 edition, we have again
continued with the creation of a document that is designed to quickly inform instructors of the
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xiv Preface
MyLab
legislative changes since the last edition (2023-2024) that impact the topics in each of the 21
chapters, noting that there were no changes for Chapters 6, 12,13,15,16, 17, and 18. Each men­
tioned change includes a brief description of that change, the legislative source, the specific
paragraph or paragraphs of the 2024-2025 textbook affected, and the implementation date (pro­
posed or otherwise). Details of each change can be found in the new or revised paragraphs
indicated. We would add that it is our intent to only include those legislative changes in the prob­
lem material if they had become law by the date of the 2024 federal budget, which was April 16,
2024, with one exception—the alternative minimum tax (AMT), which will become law in 2024.
This legislative summary is available to instructors on MyLab under the Instructor Resources tab.
OTHER CHANGES In this edition a few additional changes have been made from the
2023-2024 edition:
• Four New Practical Cases: We have developed and added four new cases that cover the
main sources of income; namely, (1) employment income (Chapter 3), (2) business income
(Chapters 5 and 6), (3) property income (Chapter 7), and (4) capital gains and capital losses
(Chapter 8). For each case, the student is presented with that part of an income tax return
that relates to the type of income. The student is required to identify what is correct and
what is incorrect, adding explanations as to why a particular item is correct or incorrect,
including calculations or explanations where necessary. Each case limits content to the
particular chapter. These cases are available on MyLab both as downloadable files under
the Chapter Resources tab and assignable questions in the Study Plan.
• Tax Software-Related Content: The income tax examples, Tax Software SSPs, andTax Soft­
ware APs have been consolidated into one location on MyLab. These can now be easily located
in one place, rather than different parts being in the chapters. Study Guide, and online. Solu­
tions to Tax Software APs continue to be available only to instructors.
MyLab_______________________________________
MyLab is the teaching and learning platform that empowers you to reach every student. By com­
bining trusted author content with digital tools and a flexible platform, MyLab personalizes the
learning experience and improves results for each student. Learn more about MyLab Accounting
at https://mlm.pearson.com/northamerica/myaccountinglab/.
Pearson eTextbook
This eTextbook gives you access to the text whenever and wherever you have access to the inter
net, through various devices. It contains the content of both volumes of the text and the Study
Guide. The eTextbook pages look exactly like the printed text and offer powerful functionality. You
can create notes, highlight text in different colours, create bookmarks, zoom, and search.
Data Analytics Project
In the Data Analytics Project, you will analyze a comprehensive data set and make a series of
accounting decisions. This assignment is designed to prepare you for the data analytics competen­
cies that have been included in recent CPA Competency Maps. You will use Excel-based tools to
assess data for accuracy, then organize and filter large quantities of information to make the data
appropriate for income tax calculations. You will then incorporate income tax concepts, including
the calculation of net income, taxable income, and income tax payable using the outputs of your
data analysis in Excel. This assignment also includes data visualization and incorporates income tax
planning concepts for a business. This is assignable from your instructor on MyLab. Also see the
coverage in this Preface for an introduction to data analytics in taxation and how it applies to
Canadian Tax Principles.
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Preface xv
MyLab
CPA Competency Alignment Map
Originally developed by Ann Bigelow, Western University, and revised for this edition by Victor
Waese, British Columbia Institute of Technology, this downloadable file ties the chapters to the
CPA Competency Map for 2024. Students can use this mapping to understand the level of depth
required for each broad topic area that is covered in taxation at the Entry, Core, or Elective course
levels.
Practice Examinations
A 90-minute practice examination, along with a solution and suggested marking guide, is available
for each of the chapters in MyLab, both as downloadable files under the Chapter Resources tab
and assignable tests in the Study Plan. These examinations contain a variety of problems, including
multiple choice, true/false, essay questions, and longer problems. The goal of Practice Examina­
tions is to allow you to evaluate your ability to write the examinations in your tax course. To get the
maximum benefit, you should write it under examination conditions, within a 90-minute time con­
straint. The materials that you use while writing this Practice Examination should be consistent
with the materials that will be available during the examinations that you will be writing in your tax
course. Download the Practice Examinations and solutions from MyLab.
Supplementary Self-Study Problems
Additional self-study problems, along with solutions, are available for students to continue to prac­
tise concepts as they proceed through the course.
PowerPoint Presentations
Revised by Sandra Pereversoff, Southern Alberta Institute of Technology, these PPTs provide the
basis for a quick review of the material covered in each chapter. They are available on MyLab.
2024 Tax Rates, Credits, and Common CCA Classes
This is available as a PDF file, for reference. This tax information is also available at the front of
Volumes 1 and 2, and CCA classes are available in the Chapter 5 Appendix.
Glossary Flashcards
To assist in this review, Glossary Flashcards are available on MyLab to further help test understand­
ing of key terms in each chapter.
ProFile Tax Return Preparation Software
Access to Intuit Canada's professional tax preparation software, ProFile, is available free of charge
to users of Canadian Tax Principles. Visit https://www.intuit.com/ca/partners/education-program/
registration/student-profile-tax/ to register and for technical support.
Be sure to visit their ProFile Community pages to make use of the webinars, how-to videos, and
tutorials they provide to help you learn to use the ProFile software, at https://profile.mtuit.ca/
support/training/.
Learning Catalytics
Learning Catalytics™ allows students to use any web-enabled device to participate in class.
Instructors can access a library of prebuilt questions or construct questions on their own to
keep students engaged in the lecture. Learning Catalytics can be assigned to students syn­
chronously or asynchronously and used for individual or group work. It can also place students
in discussion groups based on their responses and location, regardless of class size.
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xvi Preface
Acknowledgments
Freehand Grader
Freehand Grader (beta) is the grading technology in MyLab® and Mastering® that creates an
authentic assessment experience for both instructors and students. Freehand Grader, available as
a new assignment type, allows you to quickly grade any kind of handwritten assignment. As you
grade, you indicate the grading criteria and build the rubric question by question. This grade-asyou-go approach lets you add notes to provide students with individual feedback. Students upload
their handwritten solutions, including all the steps that went into their responses. Their work pro­
vides insight into their thought processes, showing what they know, not just a final answer.
Instructor Supplements________________________
Supplements are available for download from the MyLab Accounting Instructor Resources page.
Contact your Pearson representative for access information and instructions if you don't have a
MyLab account.
What's New (Chapter by Chapter) These downloadable files summarize significant changes
made to each chapter, including a concordance of exercises and other problem material, to facili­
tate the preparation process for the upcoming year. These provide a bridge between this and previ­
ous editions as well as a roadmap to the application of this edition.
Legislative Changes Overview In order to simplify the legislation that directly impacts this text­
book for the 2024 taxation year, a legislative changes overview document is available on MyLab.
This summary is broken down by chapter and addresses those changes that have been incorpo­
rated in some manner in each chapter.
Instructor's Solutions Manual (ISM) The ISM contains full solutions to all of the Assignment
Problems, including Comprehensive Assignment Problems, in the chapters. These problems vary
in difficulty and include the most difficult non-comprehensive problems in the text.
Solutions to Tax Software Assignment Problems Solutions to the Tax Software Assignment
Problems in Chapters 4 and 11 (individuals) and 14 (corporations) are available as an instructor
download. This package includes both ProFile and PDF versions. Look for updates on MyLab in the
new year—current calendar year updates take place in the first few months of the following calen­
dar year. This means that the 2024 tax return information will generally be available with prepared
solutions by the end of February 2025.
PowerPoint (PPT) Presentations Revised by Sandra Pereversoff, Southern Alberta Institute of
Technology, these PPTs provide the basis for a quick review of the material covered in the chapter.
They are available on MyLab.
TestGen Test Bank TestGen is a powerful assessment generation program that helps instructors
easily create and print quizzes and exams from a wide range of tax topics. Download TestGen from
MyLab. Also available are print-ready Word versions.
Problem Concordance This downloadable file provides concordance of problem material (now
including Exercises as well) between the 2023-2024 and 2024-2025 editions.
Acknowledgments_____________________________
In the normal course, Canadian Tax Principles requires regular annual updates that incorporate
changes in tax credits, tax rates, and the numerous federal budget and other legislative changes
made annually to both the income tax law and the GST/HST. Court cases and new or changed inter­
pretations by the CRA add to the difficulty of ensuring that each and every edition reflects the current
state of the law in all material respects. While maintaining the technical accuracy and integrity of such
a textbook is a considerable task by itself, it would be impossible without the support of a team of
experienced and dedicated professionals who largely remain offstage and in the background but
whose responsibilities take the textbook to new heights. In this edition I was once again very fortunate
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Preface xvii
About the Author
to have the support of the best team of professionals I have had the pleasure of working with. A very
special thanks go out to Suzanne Simpson Millar (Queen Bee), an editorial guru who again guided me
through the process ensuring that this well-oiled machine remained on track. I would also like to
thank the tireless work of copyeditor and proofreader Leanne Rancourt and the efforts and dedication
of Executive Product Manager Keara Emmett in the Higher Education division of Pearson Canada.
I would also like to send out a special thanks to Michelle Malin, associate professor in the Depart­
ment of Accounting and Finance at MacEwan University in Edmonton, Alberta. Michelle has sig­
nificant teaching experience and has been working with Canadian Tax Principles for many years.
Michelle reviewed a significant part of the textbook and MyLab, including much of the problem
material, providing the benefits of her teaching experience and income tax expertise in ensuring
there were no numerical errors.
I would also like to thank the many teachers and thousands of students who have made valuable
comments and suggestions over the years to help shape the text to where it stands today. I look
forward to continued collaboration in the years ahead. Over the last year the following individuals
pointed out specific errors that they had identified that went into our Errata document and was of
tremendous value in improving the textbook.
•
•
•
•
•
•
•
•
•
•
•
•
Dennis Gee, Professor, JR Shaw School of Business, NAIT
Sandra Pereversoff, Professor, Southern Alberta Institute of Technology
Jay Perry, Professor, Niagara College
Hala Rawji, Professor, British Columbia Institute of Technology
Ruth Ann Strickland, Professor, Western University
Victor Waese, Instructor, British Columbia Institute of Technology
Richard Wong, Professor, UBC Sauder School of Business
Navdeep Bhango, Student, Western University
Maryam Imran, Student, UBC Sauder School of Business
Pawanpreet Kaur, Student, Seneca College
Emily Lai, Student, UBC Sauder School of Business
Yusham Xie, Student, Western University
About the Author______________________________
Gary Donell
I began working with the C.A. firm of Thorne Riddell in Montreal in the early 1980s. A few years later
I made the move to Ottawa to begin my career with Revenue Canada, now the CRA. I spent 30 years
at the CRA, retiring in 2015. In my early years with the CRA I was an income tax auditor and was
anxious to move on toother pursuits within the CRA, of which there were many. In preparation I read
every income tax-related publication and textbook I could get my hands on, including legal books on
statutory interpretation and the transcripts of every income tax court decision. While vacation and
beach goers were reading the latest New York Times bestseller I was reading from the latest tax
conference report and tax journals.
Eventually it all paid off when an opportunity arose to teach introductory income tax to CRA auditors
in the late 1980s. I jumped on the opportunity and taught for a couple of years before applying for
a job with the Income Tax Rulings Directorate of the CRA in Ottawa. The Rulings Directorate is
responsible for income tax interpretations and, at the time, technically reviewing every form, pub­
lication, and tax guide published. I spent 10 years at Rulings and learned a lot, but the teaching and
education bug wouldn't let go of me after all those years. I returned to the training and education
division of the CRA halfway through my career, where I spent the next 15years teaching thousands
of CRA auditors and writing a dozen or so courses on a wide range of income tax topics from an
introductory to advanced level.
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xviii Preface
About the Author
Shortly after retiring from the CRA I went to work as a consultant with Welch LLP in Ottawa where
I spent the next five years dealing with practical, everyday client issues, which was very rewarding
thanks to then tax partner, Don Scott, and the many amazing people I had a chance to work with.
I participated in in-house training and was involved in the writing of the annual CPA income tax
update course, which Welch had been writing for many years. I also spent those same years teach­
ing a dozen or so advanced tax courses for CPA Ontario.
To come full circle, my journey with Clarence Byrd and Ida Chen began in the early 1990s while
working for CRA Rulings. I had just picked up the latest edition of the textbook (the 1991-1992
version, I believe) and had contacted them after finding a few errors. Clarence reached out, and the
rest is history. I acted as the technical consultant for Clarence for the next 28 years.
Today I sit back thinking to myself that I have been indirectly preparing for this lead author role the
better part of my life. I have amassed private sector experience working with accounting firms, CRA
insider experience, course writing experience, and 20 years of teaching experience on top of it all.
This wealth of different experience gives me a unique perspective that has allowed me to shape
introductory income tax education. Income tax is ripe for the picking these days as opportunities
abound both within the CRA and in the private sector. Unfortunately, many students choose to stay
clear of income tax, believing it too difficult a subject. I can attest to the fact that the basic concepts
and principles are not all that difficult to understand when properly and gradually presented. You will
find that income tax is not only interesting but enlightening in terms of just about every aspect of
Canadian life. Armed with a solid understanding of income tax principles you may find yourself join­
ing the ranks of tax specialists one day, but in the meantime this textbook will provide you with a
solid foundation that you can build on should you so choose.
It’s Our Fault
We have made every effort to accurately explain and clarify, with plenty of examples and problems,
the income tax law and the GST/HST topics covered within this textbook. Behind the scenes there
are multiple individuals (including myself) who are part of the process of reviewing every word of the
textbook, including problems and solutions, to ensure accuracy throughout. I learned early on, how­
ever, that perfection is an elusive target. While we endeavour to attain perfection, realistically it is
generally impractical. As a result it is certain that some errors were missed. These errors are our fault
and we take full responsibility, apologizing in advance for any confusion they may cause. Should you
come across any of these errors we encourage you to reach out to https://www.pearson.com/ca/en/
support.html to let us know so that we can further improve future editions.
Gary Donell, May 2024
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Preface xix
Introduction to Data Analytics in Taxation
Introduction to Data Analytics in Taxation_________
Over the last few years there has been an increasing trend toward enhanced computer capabili­
ties, including Al or artificial intelligence platforms, that allow for greater analysis of data over a
wider spectrum and for multiple purposes. The data analysis process can lead to the broad cre­
ation of unique algorithms targeted at increased efficiency in terms of resource allocation, an
overall improvement in current business performance, together with tools to predict behaviour
and trends that significantly impact future success and endeavours. The analysis process, how­
ever, can also be narrowed or streamlined to deal with day-to-day matters that may reveal errors
and potential improvements, as well as service and compliance issues when it comes to ongoing
client interactions and regulatory concerns with respect to tax and other matters. Globally we
refer to these processes as ‘'data analytics," which were recently included within the purview of
CPA Canada's "CPA competencies" that stress the importance of a practical level of comprehen­
sion for those pursuing careers in fields such as business, accounting, and both income tax and
GST/HST
Many of us have already been exposed to the power of data analytics through the efforts of ser­
vice providers such as Netflix and Amazon. These and other providers of goods and services use
data provided through past transactions that is accumulated, measured, and analyzed to provide
custom-made communications that inform us of goods and services that are likely to be of inter­
est to us.
While there are at times privacy issues and concerns that cannot be ignored, the objective of data
analytics is to use data at our disposal for the purposes of enhancing business performance,
improving public relations, and in general identifying problems and their solutions as well as ensur­
ing compliance in the applicable regulatory environments.
The Basics
Successful data analytics requires a reporting system that accumulates accurate and reliable
information in a timely manner. The information should include multiple parameters that provide
an opportunity for increased flexibility in handling information as required. For example, a business
with significant credit sales may want to ensure that the accounts receivable data include informa­
tion related to the credit-worthiness of clients to assist in identifying and reducing potential bad
debt write-offs, including factors that cause a difference between accounting and income tax.
Additional factors may include whether the time of year is influential, whether certain economic
factors and trends should be considered, and stratification of data based on dollar amounts, num­
ber of days accounts are outstanding, and so on. The ultimate objective is that information be
readily accessible within a system to be in a position to cherry-pick necessary information as war­
ranted by specific circumstances. A system that has simply recorded only the basic essentials
limits the capability to perform enhanced data analytics, which may in turn impede the profitability
of the business.
Basic Data Analytics in the Private Sector
Data analytics in the private sector is in the early stages within many Canadian businesses other
than those larger corporations, mostly public, that operate on a global basis in multiple countries.
These larger Canadian companies face concerns as a result of operating in multiple tax jurisdictions
with multiple variations in tax rates, including the value added tax (VAT), the Canadian equivalent of
GST/HST, plus customs duties when products cross international borders.
In recent years the efforts of the Organisation for Economic Co-operation and Development (OECD),
of which Canada is a member, has placed added emphasis on the "Base Erosion and Profit Shar­
ing" (BEPS) initiative, which is designed to address what the OECD views as efforts by the world’s
largest companies to avoid home country taxation by engaging in a variety of cross-border transac­
tions viewed by tax authorities as problematic. As a result, such companies today are subject to
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xx Preface
Introduction to Data Analytics in Taxation
onerous reporting requirements that involve providing considerable data to tax authorities on an
ongoing basis. These corporations use data analytics to determine the optimum efficiencies in
each jurisdiction in which they operate, which includes the level of activity and income and other
taxes and charges paid. The analysis allows them to realign operations, where necessary, in a
timely manner.
Data Analytics and the CRA
Data analytics within the public sector, such as the Canada Revenue Agency (CRA), has been
used extensively for years. The CRA is provided with millions of filed income tax and other
returns each year. This wealth of information has historically been used by the CRA to assist in
allocating audit resources where the need is greatest. While a random selection of Canadians
are chosen for audit annually, the trend has been to use data analytics to develop algorithms
that, often based on audit experience, has assisted in merging certain factors to identify files
with a high probability of identifying taxpayers who have underpaid their income tax and GST/
HST obligations.
The CRA employs data analytic techniques with data from multiple sources, including filed tax
returns, published industry data, data provided by corporate law authorities within Canada, data
from land registry and other property title registries, police and informants, and even other coun­
tries. These data when accumulated represents a treasure trove of information that when manip­
ulated in the development of algorithms is quite successful at proving productive in terms of
areas where compliance is an issue. An algorithmic initiative launched by the CRA in 2015 identi­
fied potential underreported tax obligations with respect to real estate transactions in both Van­
couver and Toronto. For the period April 2015 to March 2020 the CRA audited 52,477 files, which
yielded $1,554 billion in tax revenues, an average of almost $30,000 per file. This is a good
example of the power of data analytics in terms of resource allocation. The CRA has been making
increased expenditures both to hire new auditors and to purchase new technology to further
enhance targeted efforts.
The recent results of the use of data analytics by the CRA is that they have identified rental prop­
erty owners, farmers (particularly cattle ranchers), child day care providers, hardware stores,
accommodation and ride sharing providers, music streaming, crowd funding, graphic design busi­
nesses, and mining and oil and gas extraction businesses as businesses with an increased likeli­
hood of underpaid taxes. In addition, the CRA has identified issues with certain expenses, such as
expenses for vehicles, home offices, office supplies, meals and entertainment, advertising, and
incorporation expenses as worthy of increased audit attention.
Finally, the CRA is pursuing additional sources of information to enhance its data analytic capa­
bilities. These sources include T4A reporting for professional fees, increased reporting for trusts
(particularly family trusts), reporting on the sale of principal residences, and an increased effort to
access accountant working papers and the issuance of information requirements (RFI). An RFI is
a demand for information. Recently the CRA requested Rona Hardware to make its loyalty pro­
gram information available. A court challenge by Rona proved unsuccessful. The RFI allowed the
CRA to identify contractors participating in the loyalty program to be identified with respect to
cash purchases that led to unreported income. Other businesses such as PayPal have also been
issued RFIs.
Data Analytics in Introductory Taxation
Data analytics requires a reporting system that accumulates accurate, comprehensive, and reliable
data that can be used to assess many important factors to taxpayers depending on the circum­
stances. Many of the important uses to which data analytics can be applied relate to compliance
matters for businesses, property income such as rental properties, and employment expenses.
These uses also predominate when it comes to identifying areas of interest to the CRA in terms of
accurate income tax reporting. The ability to access the relevant information within the accounts of
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Preface xxi
Introduction to Data Analytics in Taxation
a taxpayer is critical to the analysis. The following represents a list of some of the more common
identifiable items for data analytics:
Interest Expenses Interest incurred by a taxpayer that is not deductible for income tax
purposes leads to a conclusion that charges may relate to compliance matters such as late
filing, tax audits, late filed election, and late payments of income tax including insufficient
withholdings and instalments. In addition, if the taxpayer is a corporation there is greater
flexibility provided for tax payments and instalments but only if the corporation is fully
compliant in both income tax and GST/HST.
• Penalties The identification of non-deductible penalties can lead to many conclusions since
there are numerous types of penalties for various infractions. Identifying the reasons behind
the penalties may result in taking corrective action in future years. Penalty and interest identi­
fication may also result in action to recover the amounts through taxpayer relief applications.
• Legal and Professional Fees Determining the reasons behind these expenses, particu­
larly larger than average changes, is important since they may relate to compliance matters
relating to tax audits and notices of objection.
• Contracts Analyzing the existence of contracts to determine taxpayer risk where the
work performed by the contractor is similar to work performed by employees. This would
be particularly relevant for contractors who were ex-employees. Employer risks include
CPR El, and other employee-related premiums together with interest and penalty charges.
• Taxable Benefits The reporting of taxable benefits should be scrutinized to ensure that
the reporting is accurate and reflects appropriate GST/HST treatment. Where a taxpayer is
a corporation, transactions between the corporation and related family members should
be compared to transactions with other employees.
• Stock Options (Emerging Trends) Beginning in July 2021, new stock option rules came
into effect. Determining whether the corporate taxpayer and its employees are subject to
the new rules is important in understanding income tax obligations to both the corporate
employer and employee recipients of such benefits.
• Employee Expenses Employee expenses are generally not deductible unless a valid
T2200 form has been signed by the employer. The ITA sets a series of contractual condi­
tions that relate to the nature of any contractual commitments by employees. Ensuring
that these conditions have been met is key to an employee claiming expenses.
• Travel Expenses These expenses may lead the CRA to increased taxable benefits or an
indication that there is a permanent establishment situated outside of Canada.
• Advertising Expenses There are many restrictions on the deduction of certain advertis­
ing expenses, particularly those incurred outside of Canada. Identifying the details of such
expenditures will facilitate a determination of best advertising practices from an income
tax perspective.
• Capital Expenditures The acquisition of certain depreciable property may entitle the
purchaser to increased tax benefits such as accelerated depreciation (CCA) that may dou­
ble the usual first-year tax deduction to allow all of the cost to be expensed. Ensure that
the conditions for the tax deductions apply since the expenditure may have considered the
after-tax cost as a condition of making the purchase.
• Sales of Depreciable Property Ensure that the disposition by sale or trade-in is accu­
rately determined. This is particularly important where a business is sold along with all of
the business properties.
• Type of Income Identifying and categorizing the type of income (business versus prop­
erty) becomes critical in the case of a private corporation. Looking to cash account bal­
ances will help identify income that may be considered connected to a business even
though it appears to be investment-type income. Manipulating cash flow to achieve the
low tax cost business income becomes important in current and future years.
• Capital Gain Transactions Determining the details of such transactions, including the
type of property sold, the period of ownership, the identification of the person from whom
the property was acquired and sold, the reasons for the purchase, and the reasons for the
sale, will help identify potential challenges by the CRA.
•
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xxii Preface
Introduction to Data Analytics in Taxation
Data Analytics Conclusion
Data analytics provides businesses and others with a set of newly designed tools that utilize
enhanced computer capabilities to analyze internal and external data in a manner that can greatly
improve efficiencies by identifying areas of concern as well as areas of opportunity and improve­
ment. The development of action plans to correct these inefficiencies and optimize short- and long­
term goals is critical to the success of any entity. Data analytics employs a process where creativity
can play an important role in using this valuable tool to the best advantage.
CPA Competencies in data analytics that are relevant to this title:
Assesses reporting systems, data requirements, and business processes to
support reliable tax compliance
6.1.2
a)
Explains the importance of reliable tax data obtained from transaction processing
systems
6.1.3
Explains implications of current trends, emerging issues, and technologies in
taxation
a) Identifies current trends, and recent updates, in taxation
b) Explains the implications of impending changes and their impact on an entity
c) Explains the potential impact of emerging issues and technologies in taxation
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2024 Rates, Credits, and Other Data xxiii
Information Applicable to Individuals
2024 Rates, Credits, and Other Data
A downloadable version of this document is available
as a PDF from MyLab.
Information Applicable to Individuals
Federal Tax Rates for Individuals (Based on a 4.7% indexed rate for 2024)
Taxable Income
in Excess of
$ -055,867
111,733
173,205
246,752
Federal Tax
Marginal Rate
on Excess
$ -08,380
19,833
35,816
57,145
15.0%
20.5%
26.0%
29.0%
33.0%
Federal Tax Credits for Individuals—Personal Tax Credits (ITA 118)
Reference
118(1.1) Basic
Personal Amount (BPA) Each individual is entitled to one BPA plus a second BPA if that
individual supports a spouse, common-law partner, or eligible dependant if certain condi­
tions are met. There are three BPA alternatives each dependent on net income (not taxable
income).
• $15,705 for individuals with net income of $173,205 or less;
• $14,156 for individuals with net income of $246,752 or higher;
• Prorated for individuals with net income between $173,205 and $246,752 calculated
as $15,705 -1$1,549][(net income - $173,205) -r $73,547]
Individuals Who Are Legally Married or in a Common-Law Partnership 15% of the BPA of
the individual. A common-law partnership is defined for income tax purposes in ITA 248(1) and is
generally different than the ordinary meaning of a common-law relationship.
118(1 )(a)
Supported Spouse or Common-Law Partner 15% of the same BPA amount of the individual
claiming the credit and:
if the spouse or common-law partner of the individual is dependent because of a mental
or physical infirmity, there is an additional amount of $2,616 added to the BPA The total
of these two amounts is reduced by the net income of the individual's spouse or
common-law partner. Note that it is the BPA of the individual claiming the credit that is
used and not the BPA of the spouse or common-law partner who is claimed.
118(1
)(b)
Supported Eligible Dependant 15% of the same BPA amount of the individual claiming the
credit and:
if the dependent person is dependent because of a mental or physical infirmity, there is
an additional amount of $2,616 added to the BPA. The total of these two amounts is
reduced by the net income of the dependent person. Note that it is the BPA of the indi­
vidual claiming the credit that is used and not the BPA of the eligible dependant who is
claimed. Note that this credit for an eligible dependant cannot be claimed if there is a
spouse or common-law partner unless there is a separation or divorce.
ll8(D(b.1) Canada Caregiver Credit for Child under 18 15% of $2,616.
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xxiv
2024 Rates, Credits, and Other Data
Information Applicable to Individuals
Single Individuals Not Legally Married, Not in a Common-Law
Supporting an Eligible Dependant 15% of the BPA of the individual.
Partnership,
and
Not
118(lXdJ
Canada Caregiver Credit 15% of $8,375, reduced by 15% of the dependant’s net income in
excess of $19,666. This credit applies to an infirm individual who is a spouse, common-law partner,
or a dependant who is 18 years of age and older. A dependant is defined in ITA 118(6).
118(1)(e)
Additional Canada Caregiver Credit When a supporting person is entitled to claim an individual
as an eligible dependant or a spousal or common-law partner credit and is also eligible to claim the
caregiver credit for that same individual the ITA prohibits the claiming of the caregiver credit (ITA
118(4)(c)). In this case, if the caregiver credit calculation exceeds the credit amount that could have
been claimed for an eligible dependant or a spousal or common-law partner credit then 15% of the
difference can be claimed as a separate additional caregiver credit. In general, this additional credit
will apply in 2024 when the net income of the supported individual is between $9,947 and $28,040.
118(2)
Age Credit The age credit base is $8,790. The base for this credit is reduced by 15% of the
amount by which the individual's net income exceeds $44,325. Not available when income reaches
$102,925. Part or all of this credit can be transferred to a spouse or common-law partner.
118(3)
Pension Credit 15% of up to $2,000 of eligible pension income. Part or all of this credit can be
transferred to a spouse or common-law partner. The pension credit is not subject to annual indexing
(ITA 1171(2)).
118(10)
Canada Employment Credit 15% of the lesser of $1,433 and the individual's employment
income for the year. For the purpose of this credit, employment income is determined without
considering any deductible employment expenses.
Other Common Federal Personal Tax Credits (Various ITA)
118.01
Adoption Expenses Credit 15% of eligible expenses (reduced by any reimbursements) up to a
maximum of $19,066 per adoption.
118.02
Digital News Subscriptions Credit 15% of the lesser of $500 and the cost of qualifying sub­
scription expenses. Note that the last year that this credit will be available is 2024 and that the
credit is not eligible for annual indexing (ITA 117.1 (2)).
118.041
Home Accessibility Credit 15% of the lesser of $20,000 and the amount of qualifying expendi­
tures for the year. Note that this credit is not eligible for annual indexing (ITA 117.1(2)).
118.05
First Time Home Buyers' Credit 15% of $10,000 of the cost of an eligible home. Note that this
credit is not eligible for annual indexing (ITA 117.1(2)).
118.06
Volunteer Firefighters Credit 15% of $3,000 for qualifying volunteers. Note that this credit is not
eligible for annual indexing (ITA 117.1 (2)). There is a federal budget proposal that would increase the
credit amount to $6,000 beginning in 2024.
118.07
Volunteer Search and Rescue Workers Credit 15% of $3,000 for qualifying volunteers. Note
that this credit is not eligible for annual indexing (ITA 117.1(2)). There is a federal budget proposal
that would increase the credit amount to $6,000 beginning in 2024.
118.1
Charitable Donations Credit—Regular The general limit on amounts for this credit is 75% of
net income. There is an addition to this general limit equal to 25% of any taxable capital gains and
25% of any recapture resulting from a donation (e.g., a gift) of capital property. In addition, the
income inclusion on capital gains arising from a gift of some publicly listed shares is reduced from
one-half to nil (ITA 38(a.1)). For individuals, the credit is equal to:
[{15%)(A)] ♦ [(33%)(B)] + [(29%)(C)] where:
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2024 Rates, Credits, and Other Data xxv
Information Applicable to Individuals
A = The first $200 of eligible gifts.
B = The lesser of:
• total gifts, less $200; and
• taxable income, less $246,752.
C = The excess, if any, by which the individual's total gifts exceed the sum of $200 plus
the amount determined in B.
118.2 Medical Expenses Credit The medical expense tax credit is determined by the following formula:
[15%] [(B - C) + D], where:
B is the total of an individual’s medical expenses plus medical expenses for a spouse or
common-law partner, and any children who are less than 18 years of age at the
end of the taxation year.
C is the lesser of 3% of the individual's net income and $2,759. The threshold of $2,759
is the lesser amount when net income is $91,967 or higher.
D is the total of all amounts each of which is, in respect of a dependant of the individual
(other than a child of the individual who is less than 18 years of age at the end of the
taxation year), an amount determined by the formula:
E - F, where:
E is the total of the dependant's medical expenses.
F is the lesser of 3% of the dependant's net income and $2,759.
118.3
Disability Credit—All Ages 15% of $9,872. Part or all of this credit can be transferred to a person
claiming the disabled individual as a dependant.
118.3
Disability Expenses Supplement —Under 18 and Qualifies for the Disability Tax Credit 15%
of $5,758, reduced by the total of amounts paid for attendant care or supervision in excess of
$3,373 that are deducted as child care expenses, deducted as a disability support amount, or
claimed as a medical expense in calculating the medical expense credit. Note that the supplement
is designed to add an additional amount to the disability tax credit.
Education-Related Credits
118.5
• Tuition Fees, which Includes Examination and Ancillary Fees
• 15% of qualifying tuition fees
• 15% of examination fees for both post-secondary examinations and examinations required
in a professional program
• 15% of ancillary fees that are imposed by a post-secondary educational institution on
all of their full- or part-time students. Up to $250 in such ancillary fees can be claimed
even if not required of all students. The $250 limit is not subject to annual indexing
(ITA 117.1(2)).
118.62
• Interest Credit on Student Loans
15% of interest paid on qualifying student loans. In the 2023 federal budget the govern­
ment announced a plan to permanently eliminate interest on Canada student loans.
118.9
• Transfer of Tuition Credit
If the individual student cannot use the tuition credit, is not claimed as a dependant by
a spouse or common-law partner, and does not transfer the unused credit to a spouse
or common-law partner, then a parent or grandparent of the individual can claim up to
$750 |(15%)($5,000)] of any unused tuition credit. The amount that can be transferred
is reduced by the amount of the tuition credit required to reduce the student's federal
income tax payable to nil. The annual $5,000 limit is not subject to annual indexing (ITA
1171(2)).
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xxvi 2024 Rates, Credits, and Other Data
Information Applicable to Individuals
Employment Insurance Credit (El) 15% of amounts paid by employees up to the maximum El
118.7
premium of $1,049 (1.66% of insurable earnings to a maximum of $63,200).
Canada Pension Plan Credit and Deduction (CPP) for Employees The maximum tax credit base
118.7
for all individuals is $3,218 [(4.95%)($68,500 maximum pensionable earnings - $3,500 exemption)].
The actual maximum CPP contributions for those individuals with pensionable earnings of $73,200
or more is $4,056 |(5.95%)($68,500 maximum pensionable earnings - a $3,500 exemption) +
a second-tier contribution (introduced in 2024) equal to (4%)($73,200 - $68,500)]. The difference
between the required annual CPP contribution and the amount eligible for a CPP credit is treated as
a separate deduction from net income: If the maximum contribution of $4,056 is required, then the
CPP net income deduction (ITA 60(e.1)) is equal to $838 [$4,056- the CPP credit amount of $3,218].
118
7
122.51
Pension Credit and Deduction (CPP) for Self-Employed Individuals The maximum
tax credit base for self-employed individuals is the same as that of employees, which is $3,218
[(4.95%)($68,500 maximum pensionable earnings -$3,500 exemption)]. The actual maximum CPP
contributions for self-employed individuals with pensionable earnings of $73,200 or more is $8,112
[(2)(5.95%)($68,500 maximum pensionable earnings - $3,500 exemption + the second-tier contri­
bution for 2024 of (2)($73,200 - $68,500)(4%)|.The difference between the required CPP contribu­
tions and the CPP credit is treated as a separate net income deduction as a result of ITA 60(e.1). If
the maximum CPP contributions are required, then the CPP net income deduction will be equal to
$4,894 ($4,056 - $3,218). CPP contributions made as a result of employment require the employer
to contribute the same amount as the employee (maximum $4,056). In a self-employment situa­
tion, the individual is required to make CPP contributions equal to the employee and employer CPP
contributions, doubling the required CPP contributions, by the self-employed individual.
Canada
Medical Expense Supplement The individual claiming this amount must be 18
or over at the end of the taxation year and have earned income of at least $4,275. The amount
is equal to the lesser of $1,464 and 25/15 of the medical expense tax credit. The refundable
amount is then reduced by 5% of family net income in excess of $32,419. Not available when
family income is more than $61,699. The medical expense supplement is designed to add an
additional amount based on the medical expense credit, which is fully refundable. The refund­
able amount does not reduce the medical expense credit that would otherwise have been
claimed.
Refundable
122.9 Eligible Educator School Supply Credit A maximum of 25% of up to $1,000 of eligible expen­
ditures that are made by eligible educators. This credit is not subject to annual indexing (ITA 117.1 (2)).
122.91
Canada Training Credit The lesser of the training limit amount and 50% of eligible training costs
incurred in the previous year. Minimum required working income must be $11,511 and maximum
net income is $165,430 based on the previous taxation year's income tax rate for the second-high­
est federal income tax bracket. The credit adds $250 for each eligible year for individuals who are
between 26 and 66 years of age. If an individual qualified for each year, then the 2024 training limit
would be $1,250 |(5years)($250)].
122.92
Multigenerational Home Renovation Tax Credit A maximum of 15% of $50,000 of qualifying
expenditures that are the costs of renovating, altering, or adding to a housing unit in Canada for the
purpose of creating a secondary unit that would enable either an individual 65 years of age or older
or a disabled individual to live together within that home with family members. Qualifying expendi­
tures are those incurred on or after January 1, 2023. The credit can only be claimed in the taxation
year in which the work is completed. This credit is not subject to annual indexing (ITA 117.2)).
127(3) Political Donations Credit Three-quarters of the first $400, one-half of the next $350, one-third
of the next $525, to a maximum credit of $650 on donations of $1,275. This credit is not subject to
annual indexing (ITA 117.1(2)).
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2024 Rates, Credits, and Other Data xxvii
Information Applicable to Individuals
127.4
Labour Sponsored Venture Capital Corporations (LSVCC) Credit The federal credit is equal to
15% of acquisitions of LSVCCs registered with a province or territory. This credit no longer applies
to federally registered LSVCCs.
ITA 82 and Dividend Gross-up and Dividend Tax Credit
• Eligible Dividends These dividends are grossed up by 38% with a federal dividend tax credit
ITA 121
of 6/11 of the gross up.
Non-Eligible Dividends These dividends are grossed up by 15% with a federal dividend tax
credit of 9/13 of the gross up.
• Tax-Free Taxable Dividends An individual with no income can receive a fairly large amount
of taxable dividends without having to pay any federal income tax as a result of a combination
of the BPA and the dividend tax credit. The maximum amount that can be received tax free
requires that the tax on split income (TOSI) not apply and that, in the case of a single individual,
there is no other income and, in the case of a dependant (spouse, common-law partner, or
individual qualifying for the eligible dependant credit), that the dependant does not have any
income. The following amounts can be received without any federal income tax in 2024:
•
Taxable Dividend Single Individual Individual with Dependant
Non-eligible
Eligible
$34,300
$71,700
$59,000
$92,100
Other Data for Individuals
Part 1.2
Old Age Security (OAS) Clawback Limits The tax (clawback) on OAS benefits is based on the
lesser of 100% of the OAS benefits received and 15% of the amount by which “threshold
income" (net income calculated without the net income deduction for the OAS clawback) exceeds
$90,997. OAS maximum benefits in 2024 are approximately $8,500 for individuals between the
ages of 65 and 74, meaning that when net income reaches $147,664 all of the OAS would be
clawed back. Maximum annual OAS payments for 2024 for individuals 75 years of age and older
is approximately $9,400, meaning that all of the OAS would be clawed back when net income
exceeds $153,664.
Chapter 4
Employment Insurance (El) Clawback Limits The tax (clawback) on El benefits is determined
under the El Act and applied to the ITA. The clawback is based on the lesser of 30% of the El ben­
efits received and 30% of the amount by which "threshold income" exceeds $79,000 (1.25 times
the maximum insurable earnings of $63,200). For this purpose, "threshold income" is net income
calculated without the net income deductions determined for both the OAS and El clawbacks.
Chapter 9 Child Care Expenses The least of three amounts, none of which are subject to annual indexing:
1.
2.
3.
The amount actually paid for child care services. If however the child is at a camp or
boarding school, this amount is limited to a weekly amount of $275 (any age if eligible for
the disability credit), $200 (under 7 year of age), or $125 (age 7 through 16 or over 16 with
a mental or physical impairment where the impairment does not qualify for the disability
credit) regardless of the actual amount paid.
The sum of the annual child care expense amounts for eligible children.The perchild
amounts are $11,000 (any age if eligible for the disability credit), $8,000 (under 7 year
of age), or $5,000 (age 7 through 16 or over 16 with a mental or physical impairment
where the impairment does not qualify for the disability credit).
2/3 of the individuals earned income (for child care expenses purposes).
Chapter 10 RRSP Deduction Room For 2024, the addition to RRSP deduction room is equal to:
• the lesser of $31,560 and 18% of 2023 earned income,
• reduced by the 2023 pension adjustment (PA) and any 2024 past service pension adjust­
ment (PSPA), and
• increased by any 2024 pension adjustment reversal (PAR).
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xxviii 2024 Rates, Credits, and Other Data
Information Applicable to Individuals and Corporations
Chapter 11
Capital Gains Deduction For 2024, the deduction limit for dispositions of shares of qualified
small business corporations (QSBC) shares and qualified farm and fishing property (QFP) is
$1,016,836, which offsets $508,418 in taxable capital gains that have been calculated using the
50% inclusion rate. Since the indexed 2024 capital gains deduction now exceeds $1,000,000 there
is no additional amount for QFP. Note that the 2024 federal budget proposed to increase the capital
gains deduction limit to $1,250,000 beginning June 25, 2024.
Provincial.Territorial
Income
Tax
Rates
and
Provincial/Territorial
Tax
Credits
for
Individuals
Provincial/Territorial income taxes are based on federal taxable income, with most provinces and
territories adopting multiple income tax rates. The number of income tax rate brackets range from
three brackets in Manitoba and Saskatchewan to eight brackets in Newfoundland and Labrador.
Provincial and territorial tax credits are generally based on the minimum provincial/territorial rate
applied to a credit base that is similar to that used for federal tax credits. In addition to regular
income tax rates, two provinces, Ontario and Prince Edward Island (PEI), also include surtaxes.
Information Applicable to Individuals and Corporations
UR 4301
Prescribed Interest Rates The following table show the base interest rate that would be used in
calculations such as imputed interest on loans. It also shows the interest rates charged on amounts
owing from and to the CRA. The interest rates have been as follows:
Year
Quarter
Base Rate
Owing From*
Owing To
2021
2022
2022
2022
2023
2023
2024
All
I. II
III
IV
I
II, III, IV
III
1%
1%
2%
3%
4%
5%
6%
3%
3%
4%
5%
6%
7%
8%
5%
5%
6%
7%
8%
9%
10%
*The interest rate earned on refunds from CRA to corporations is limited to the base
rate while the interest rate earned on refunds from CRA to individuals is as shown in the
"Owing From" column. The ’Owing To" column represents the interest rate charged by
the CRA on amounts owing to the CRA by taxpayers.
Automobile Deduction Limits
• For Class 10.1 passenger vehicles purchased, new or used, on or after January 1, 2024,
the CCA base is limited to the first $37000 of the cost, plus the GST/HST & PST based on
that same $37,000 amount.
• For zero-emission passenger vehicles (ZEPV) purchased, new or used, on or after January 1,
2024, the CCA base is limited to the first $61,000 of the cost, plus the GST/HST & PST
based on that same $61,000 amount, which is unchanged from 2023.
• Interest on financing of automobiles is limited to $11.67 per day based on a $350 limit
divided by 30 days.
• Deductible leasing costs are limited to $1,050 per month for leases entered into on or after
January 1, 2024.
• Operating cost benefit = $0.33 per kilometre, which is unchanged from 2023.
• Deductible rates = $0.70 for the first 5,000 kilometres, $0.64 for any additional kilometres.
The rates are $0.74 and $0.68, respectively, per kilometre for each of the three territories).
CCA Rates See Appendix to Chapter 5.
Quick Method Rates (GST Only)
Percentage on GST Included Sales
_______________________________________ First $30,000__________ On Excess
Retailers and Wholesalers
Service Providers and Manufacturers
0.8%
2.6%
Note Different rates apply in the provinces that participate in the HST.
1.8%
3.6%
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2024 Rates, Credits, and Other Data xxix
Information Applicable to Corporations
Information Applicable to Corporations
Federal Corporate Income Tax Rates are as follows (federal tax abatement removed):
General Business Basic Corporate Income Tax Rate
38%
General Business Federal Abatement on income earned in Canada
(10%)
General Business General Rate Reduction (GRR)
(13%)
General Business (After Abatement and GRR)
15%
General Business Rate for Income Eligible for M&P Deduction
15%
Income Eligible for Small Business Deduction (SBD) (38% -10% -19%)
9%
Part IV Refundable Tax
38 1/3%
Part I Additional Refundable Tax on Investment Income of a CCPC (ART) 10 2/3%
Reference
89(1) General Rate Income Pool (GRIP) A CCPC's GRIP is defined as follows:
• The GRIP balance at the end of the preceding taxation year; plus
• 72% of the CCPC's taxable income after it has been reduced by amounts eligible for the
SBD and aggregate investment income; plus
• 100% of eligible dividends received in the year; plus
• adjustments related to amalgamations and wind-ups; less
• eligible dividends paid in the preceding taxation year.
125(1) Small Business Deduction (SBD) is equal to 19% of the least of:
A. Net Canadian active business income.
B. Taxable income, less:
1.
100/28 times the ITA 126(1) credit for income taxes paid on foreign non-business
income, calculated without consideration of the ART under ITA 123.3 or the GRR under
ITA 123.4; and
2. 4 times the ITA 126(2) credit for income taxes paid on foreign business income, calcu­
lated without consideration of the GRR under ITA 123.4.
C. The annual business limit of $500,000, less any portion allocated to associated
corporations, less the grinds for large corporations and passive income.
125(5.1)
Small Business Deduction Grind Grind to the SBD for a taxation year is the greater of the
following:
(1) TCEC (Taxable Capital Employed in Canada) Grind = AxBr $90,000
A = The business limit for the year
B = 0.00225 (TCEC for the previous year - $10,000,000); and
(2) AAII (Adjusted Aggregate Investment Income) Grind = (D - $500,000) x 5 (E - $50,000)
where
D =The business limit for the year
E = AAII for the preceding year
If there are associated corporations, then the combined TCEC and AAII of all associated corpora­
tions for the previous year would be added.
123.3
Additional Refundable Tax on Investment Income (ART) is equal to 10 2/3% of the lesser of:
• the corporation's "aggregate investment income" (All) for the year las defined in
ITA 129(4)]; and
• the amount, if any, by which the corporation's taxable income for the year exceeds the
amount upon which the SBD is determined.
123.4(2)
General Rate Reduction (GRR) is equal to 13% of full rate taxable income. This is taxable income
reduced by the amount upon which the SBD is determined, income eligible for the M&P deduc­
tion, and the corporation's "aggregate investment income" (All) for the year.
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