Chapter 3
Taxable Income And Tax Payable
For Individuals
From Net To Taxable Income
Employment
Income
Business And
Property Income
Net Taxable
Capital Gains
Division C
Deductions
Taxable Income
Other Sources
Of Income
Other Deductions
From Income
© 2009, Clarence Byrd Inc.
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Available Deductions
Employee Stock Options (Chapter 2)
 Deductions For Payments
 Home Relocation Loan
 Lump Sum Payments
 Lifetime Capital Gains (Chapter 10)
 Northern Residents Deductions
 Loss Carry Overs (Chapter 10)

© 2009, Clarence Byrd Inc.
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Deduction For Payments
Tax treaty exemptions
 Worker’s compensation
 Social assistance payments

No Intention To Tax
© 2009, Clarence Byrd Inc.
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Home Relocation Loan Deduction
Example: An employee receives a $100,000 loan from his employer on July
1, 2009. The rate on the loan is 3 percent and, during the remainder of the
year, assume the relevant prescribed rate is 5 percent.
ITA 80.4 Benefit [(5% - 3%)($100,000)(6/12)]
ITA 110(1)(j) Deduction [($25,000)(5%)(6/12)]
Net Benefit
$1,000
( 625)
$ 375
Available for 5 years only
Can use rate at inception or go quarter to quarter
© 2009, Clarence Byrd Inc.
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Tax Payable - The Basic System
 2009
Rates
 1st
$40,726 @ 15%
 $40,727 to $81,452 @ 22%
 $81,453 to $126,264 @ 26%
 Over $126,264 @ 29%
 Full Indexing Each Year
© 2009, Clarence Byrd Inc.
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The Basic System

Example For 2009, an individual has Taxable Income
of $126,264 and only his basic personal tax credit of
$1,548 [(15%)($10,320)].
15% of $40,726
22% of ($81,452 - $40,726)
26% of ($126,264 - $81,452)
Total Before Credit
 After credit
($26,720 - $1,548)
© 2009, Clarence Byrd Inc.
$ 6,109
8,960
11,651
$ 26,720
$ 25,172
7
Provincial Tax Payable

All Provinces Except Alberta Apply
Progressive Rates To Taxable Income
 Minimum
= (5.06 + 15) 20.06% Combined
 Maximum = (19.25 + 29) 48.25% Combined
 Provincial Surtaxes
 Alberta Has Flat Tax @ 10%
© 2009, Clarence Byrd Inc.
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Tax Credit System

Refundable Vs. Non-Refundable.

In general, minimum rate applied to a
base (15 percent for 2009).

Some have income threshold.

Provinces have similar credits.
© 2009, Clarence Byrd Inc.
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2009 Personal Tax Credits
Individuals
 ITA 118(1)(a): If Married
 ITA 118(1)(c): If Single
 [(15%)($10,320)] =
$1,548

© 2009, Clarence Byrd Inc.
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2009 Personal Tax Credits

Spouse Or Common-Law Partner –
ITA 118(1)(a)
 Includes
common-law and same sex
 (15%)($10,320 – Net Income Of Spouse)
 Maximum = $1,548
© 2009, Clarence Byrd Inc.
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2009 Personal Tax Credits

Amount For Eligible Dependant
ITA 118(1)(b)
 Same
amount as spouse or common-law
partner
© 2009, Clarence Byrd Inc.
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Amount For Eligible Dependant

Conditions: you are single, divorced, separated,
or widowed and you supported a dependant:
 who
is under 18 (unless parent, grandparent, or
infirm)
 living with the individual
 related by blood, marriage, or adoption
 resident of Canada (except child)
 dependent on individual for support
© 2009, Clarence Byrd Inc.
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2009 Personal Tax Credits

Child Tax Credit
– ITA 118(1)(b.1)

[(15%)($2,089)] = $313

For each child under 18 at
end of year

No income threshold

Can take eligible dependant
and this credit for the same
child.
© 2009, Clarence Byrd Inc.
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Caregiver

Conditions
Maintain Household With Dependant Over 17
 Resident Of Canada (Unless Parent Or Grandparent)
 Infirm (Unless Parent Or Grandparent 65 Or Older)
 Not Available If Eligible Dependant Credit Available

© 2009, Clarence Byrd Inc.
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Caregiver

Value


$630 [(15%)($4,198)]
Reduced By 15% Of
Dependant’s Income
In Excess Of $14,336
© 2009, Clarence Byrd Inc.
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Infirm Dependant Over 17
– ITA 118(1)(d)

Dependants: Child, Grandchild, Parent,
Grandparent, Brother, Sister, Aunt, Uncle,
Niece, Nephew [ITA 118(6)]
© 2009, Clarence Byrd Inc.
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Infirm Dependant Over 17
- ITA 118(1)(d)

Conditions

Reach 18 Before End Of Year

Mentally Or Physically Infirm

[15%][$4,198 - (Income > $5,956)] = Maximum Of
$630

Not Available If Eligible Dependant Or Caregiver
Credits Available.
© 2009, Clarence Byrd Inc.
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Age - ITA 118(2)
Reach 65 In The Year
 $961 = [(15%)($6,408)]
 Reduction

 15%
Of Income > $32,312
 $75,032 - $32,312 = $42,720
 $42,720 (15%) = $6,408
© 2009, Clarence Byrd Inc.
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Pension Income – ITA 118(3)

Amount = 15% Of 1st $2,000 = $300
© 2009, Clarence Byrd Inc.
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Pension Income – ITA 118(3)

Qualifying Amounts
 Age
65 At End Of Year
 Most
<
Non-Government
Age 65 At End Of Year
 Life
Annuities
 Amounts Resulting From Death Of Spouse
 No
CPP, OAS, Or Provincial (QPP)
© 2009, Clarence Byrd Inc.
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Canada Employment – ITA 118(10)

15 percent of the
lesser of $1,044 or
employment income.

Maximum = $157
© 2009, Clarence Byrd Inc.
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Adoption Expenses – ITA 118.01

Up to $1,636 [(15%)($10,909)]
© 2009, Clarence Byrd Inc.
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Adoption Expenses – ITA 118.01

Eligible Child
 Has
not attained age 18
 Issued adoption order

Eligible Expenses
 Fees
to agency
 Court and legal fees
 Other reasonable expenses
© 2009, Clarence Byrd Inc.
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Public Transit Pass – ITA 118.02

15% of cost



Individual
Spouse and children under 19
Qualifying pass
Unlimited travel for 28 days
 5 day passes if they cover 20 out of 28
days
 Electronic cards with at least 32 oneway trips.

© 2009, Clarence Byrd Inc.
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Child Fitness – ITA 118.03

15% of up to $500 of costs

Maximum $75

Child under 16

Eligible expenses

Does not include


travel, food, or lodging
child care costs
© 2009, Clarence Byrd Inc.
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Home Renovations Tax Credit
© 2009, Clarence Byrd Inc.

Maximum of $1,350
[(15%)($10,000 - $1,000)

Family based

Must be on principal residence
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First Time Home Buyer’s Tax Credit

$750 [(15%)($5,000)]

Can be claimed by
individual or spouse

No home purchase in
preceding four years
© 2009, Clarence Byrd Inc.
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Charitable Donations – ITA 118.1

General Rules
 15%(1st
© 2009, Clarence Byrd Inc.
$200) + 29% Of Excess
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Charitable Donations – ITA 118.1

General Rules
 Limit:
75% Of Net Income
 100%
in individual’s year of death and preceding
year
 Plus 25 percent of capital gains on gifts of capital
property (See Chapter 10)
 Plus 25 percent of recapture on gifts of capital
property (See Chapter 10)
© 2009, Clarence Byrd Inc.
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Charitable Donations – ITA 118.1

General Rules
 Carry
Forward: 5 Years
 Subject to the same limitations
© 2009, Clarence Byrd Inc.
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Medical Expenses – ITA 118.2

General Rules


15% of eligible costs
Reduced by the lesser of



© 2009, Clarence Byrd Inc.
3% of Net Income
$2,011 (3%)($67,033)
Any 12 month period
ending in the year
32
Medical Expenses – ITA 118.2

Spouse And Minor Dependants


No Additional Reduction
Dependants Over 17 Years Of Age



Calculated For Each Dependant
Maximum Of $10,000 Per Dependant
Each Dependant’s Medical Expenses,
Reduced By The Lesser Of:
 $2,011
 3% Of Dependant’s Net Income
© 2009, Clarence Byrd Inc.
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Medical Expenses – ITA 118.2
Example: An individual with income > $100,000
and medical expenses of $2,500. His 20 year old
child has medical expenses of $10,000 and net
income of $9,000.
Taxpayer’s Expenses
$ 2,500
Threshold
( 2,011)
Subtotal
Dependant Expenses - The Lesser Of:
$10,000 – (3%)($9,000) = $9,730
Absolute Maximum = $10,000
Allowable Amount Of Medical Expenses
$
Credit (15%)
$ 1,533
© 2009, Clarence Byrd Inc.
489
9,730
$10,219
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Refundable Medical Expense
Supplement – ITA 122.51

Qualifying
 Age
18 or over
 Earned income > $3,116
© 2009, Clarence Byrd Inc.
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Refundable Medical Expense
Supplement – ITA 122.51

Refundable Supplement
 Lesser
of:
 $1,067
 25/15
Of The Medical Expenses Tax Credit
Then Reduced By 5% Of Family Income > $23,633
© 2009, Clarence Byrd Inc.
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Refundable Medical Expense
Supplement – ITA 122.51

Refundable Supplement Example
Ms. Forbes has medical expenses of $3,500 and earned
income of $22,000.

Medical Expense Credit = $426 [(15%)($3,500 - $660)]

[(25/15)($426)] = $710

Refundable amount = $710, less Nil [(5%)($22,000 - $23,633)]
= $710
© 2009, Clarence Byrd Inc.
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Disability Amount – ITA 118.3
 Must
Be Severe And Prolonged
 Significantly Restricts Basic Living Activities
 A Continuous Period Of At Least 12 Months
 Requires
© 2009, Clarence Byrd Inc.
Form T2201
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Disability Amount – ITA 118.3

15% Of $7,196 = $1,079, No Income Test

No Claim If:



More Than $10,000 For Full Time Attendant Care Or
Costs Of Nursing Home Are Claimed
Can Be Transferred To Individual Making Claim Under
ITA 118(b), (c.1) Or (d)
© 2009, Clarence Byrd Inc.
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Disability Supplement

If Under 18 at end of year:

15%($4,198) = $630

Combined Provides $1,709 [(15%)($7,196 + $4,198)]

The $4,198 is reduced by child and attendant care
costs in excess of $2,459
© 2009, Clarence Byrd Inc.
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Tuition Credit - ITA 118.5

Tuition
15% Of Actual
 Post-Secondary
 Cost > $100
 No Upper Limit

© 2009, Clarence Byrd Inc.
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Tuition Credit - ITA 118.5

Tuition



Includes all ancillary if
mandatory
Includes $250 of ancillary
fees if not mandatory
Unlimited carry forward by
student
© 2009, Clarence Byrd Inc.
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Education Credit – 118.6(2)

Education



© 2009, Clarence Byrd Inc.
15% of $400 per
month of Full Time
attendance ($60)
15% of $120 per
month of Part Time
attendance ($18)
Unlimited carry
forward by student
43
Textbook Credit
Available for each month of education
credit eligibility:
 Full time attendance = $10 [(15%)($65)]
Part time attendance = $3 [(15%)($20)]

© 2009, Clarence Byrd Inc.
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Interest on Student Loans

Interest On Student
Loans


15% Of Amounts Paid
Loans Under The
Canada Student Loans
Act, the Canada
Student Financial
Assistance Act, Or A
Provincial Statute
© 2009, Clarence Byrd Inc.
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CPP And EI - ITA 118.7
15% Of Actual Payments
 Maximums For 2009

 CPP
= [(4.95%)($46,300 - $3,500)] = $2,119
15% of $2,119 = $318
 EI = [(1.73%)($42,300)] = $732
15% of $732 = $110
© 2009, Clarence Byrd Inc.
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Transfer Of Credits

Spouse - ITA 118.8
 Eligible





Age
Pension
Disability
Current year tuition,
education, and
textbook
After Personal, CPP,
And EI Used
© 2009, Clarence Byrd Inc.

Tuition/Education/Textbook
- ITA 118.9
 N/A If Student’s Spouse
Claims Credit
 Unused Amount After
CPP, EI, And Disability
 To Parent Or
Grandparent
 Max = 15%($5,000) =
$750
 Carry Forward By
Student If Unused
47
Working Income Tax Benefit

The problem
 At
minimum wage may be
better off not working
© 2009, Clarence Byrd Inc.
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Working Income Tax Benefit

Benefit For Individuals
 20%
of income between
$3,000 and $5,610
 Max
= $522
 Reduced
by 15 percent of
income in excess of $9,923
 Gone
© 2009, Clarence Byrd Inc.
At $13,403
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Working Income Tax Benefit

Benefit For Couples
 20%
of income between
$3,000 and $8,220
 Max
= $1,044
 Reduced
by 15 percent of
income in excess of $15,145
 Gone
© 2009, Clarence Byrd Inc.
At $22,105
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Political Contributions
3/4 First $400
 1/2 Next $350
 1/3 Next $525


Max = $650 For $1,275

Not Allowed For
Corporations And Partnerships
© 2009, Clarence Byrd Inc.
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Political Contributions

Federal Accountability Act
 Individuals
$1,100 for
limited to
 registered
party
 candidate or leadership
contestant
 nomination contestant
 Corporations
Partnerships
 Totally
© 2009, Clarence Byrd Inc.
And
banned
52
Labour Sponsored Funds
15 Percent Of Cost
 First Registered
Holder
 Maximum Of $5,000,
Or Credit Of $750

© 2009, Clarence Byrd Inc.
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Refundable GST Credit





$248 Individual
$248 Qualified
Relation
$248 Eligible
Dependant
$130 Qualified
Dependant
Less: 5% Of Family
Income > $32,312
© 2009, Clarence Byrd Inc.
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Child Tax Benefit System


© 2009, Clarence Byrd Inc.
Basic

$1,340/Year For Each Qualified Dependant

+$93/Year For Each Dependant Over Two

Eroded when family income exceeds $38,832
Supplement

$2,076/Year for 1st child

$1,837/Year for 2nd

$1,747/Year for 3rd and subsequent

Eroded when family income exceeds $21,816
55
Clawback of EI
Applicable if EI recipient’s
net income exceeds
$52,875
 30 percent of the lesser of:

 EI
benefits received
 Excess of net income over
$52,875
© 2009, Clarence Byrd Inc.
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Clawback Of OAS

Lesser Of


Payments Received
15% Of Income In
Excess Of $66,335

Disappears At
$107,695

OAS Not Paid If
Income Is High In
Previous Two Years
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© 2009, Clarence Byrd Inc.
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