Chapter 3
Taxable Income And Tax Payable
For Individuals
© 2008, Clarence Byrd Inc.
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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
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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)
 Residing In Prescribed Zone
 Loss Carry Overs (Chapter 10)

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Deduction For Payments
Tax convention exemptions
 Workman’s compensation
 Social Assistance Payments

No Intention To Tax
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Home Relocation Loan Deduction
Example: An employee receives a $100,000 loan from his employer on July
1, 2008. 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
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Tax Payable - The Basic System
 2008
Rates
 1st
$37,885 @ 15%
 $37,886 to $75,769 @ 22%
 $75,770 to $123,184 @ 26%
 Over $123,184 @ 29%
 Full Indexing Each Year
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The Basic System

Example An individual has Taxable Income of $123,184
and only his basic personal tax credit of $1,440
[(15%)($9,600)].
15% of $37,885
22% of ($75,769 - $37,885)
26% of ($123,184 - $75,770)
Total Before Credit
 After credit
($26,345 - $1,440)
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$ 5,683
8,334
12,328
$ 26,345
$ 24,905
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Provincial Tax Payable

All Provinces Except Alberta Apply
Progressive Rates To Taxable Income
 Minimum
= (6.05 + 15) 21.05% Combined
 Maximum = (19.25 + 29) 48.25% Combined
 Provincial Surtaxes
 Alberta Has Flat Tax @ 10%
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Tax Credit System

Refundable Vs. Non-Refundable.

In general, minimum rate applied to a
base (15 percent for 2008).

Some have income threshold.

Provinces have similar credits
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2008 Personal Tax Credits
Individuals
 ITA 118(1)(a): If Married
 ITA 118(1)(c): If Single
 [(15%)($9,600)] =
$1,440

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2008 Personal Tax Credits

Spouse Or Common-Law Partner –
ITA 118(1)(a)
 Includes
common-law and same sex
 (15%)($9,600 – Net Income Of Spouse)
 Maximum = $1,440
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2008 Personal Tax Credits

Amount For Eligible Dependant
ITA 118(1)(b)
 Same
amount as spouse or common-law
partner
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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
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2008 Personal Tax Credits

Child Tax Credit
– ITA 118(1)(b.1)

[(15%)($2,038)] = $306

For each child under 18 at
end of year

No income threshold

Can take eligible dependant
and this credit for the same
child.
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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

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Caregiver

Value


$614 [(15%)($4,095)]
Reduced By 15% Of
Dependant’s Income
In Excess Of $13,986
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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)]
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Infirm Dependant Over 17
- ITA 118(1)(d)

Conditions

Reach 18 Before End Of Year

Mentally Or Physically Infirm

[15%][$4,095 - (Income > $5,811)] = Maximum Of
$614

Not Available If Eligible Dependant Or Caregiver
Credits Available.
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Age - ITA 118(2)
Reach 65 In The Year
 $791 = [(15%)($5,276)]
 Reduction

 15%
Of Income > $31,524
 $66,697 - $31,524 = $35,173
 $35,173 (15%) = $5,276
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Pension Income – ITA 118(3)

Amount = 15% Of 1st $2,000 = $300
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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)
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Canada Employment – ITA 118(10)

15 percent of the
lesser of $1,019 or
employment income.

Maximum = $153
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Adoption Expenses – ITA 118.01

Up to $1,596 [(15%)($10,643)]
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Adoption Expenses – ITA 118.01

Eligible Child
 Has
not attained age 18
 Issued adoption order

Eligible Expense
 Fees
to agency
 Court and legal fees
 Other reasonable expenses
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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.

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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
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Charitable Donations – ITA 118.1

General Rules
 15%(1st
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$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)
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Charitable Donations – ITA 118.1

General Rules
 Carry
Forward: 5 Years
 Subject to the same limitations
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Medical Expenses – ITA 118.2

General Rules


15% of eligible costs
Reduced by the lesser of



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3% of Net Income
$1,962 (3%)($65,400)
Any 12 month period
ending in the year
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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:
 $1,962
 3% Of Dependant’s Net Income
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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
( 1,962)
Subtotal
Dependant Expenses - The Lesser Of:
$10,000 – (3%)($9,000) = $9,730
Absolute Maximum = $10,000
Allowable Amount Of Medical Expenses
$
Credit (15%)
$ 1,540
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9,730
$10,268
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Refundable Medical Expense
Supplement – ITA 122.51

Qualifying
 Age
18 or over
 Earned income > $3,040
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Refundable Medical Expense
Supplement – ITA 122.51

Refundable Supplement
 Lesser
of:
 $1,041
 25/15
Of The Medical Expenses Tax Credit
Then Reduced By 5% Of Family Income > $23,057
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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 - $23,057)]
= $710
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Disability Amount – ITA 118.3
 Must
Be Severe And Prolonged
 Restricts Basic Living Activities
 A Continuous Period Of At Least
 Requires
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Form T2201
12 Months
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Disability Amount – ITA 118.3

15% Of $7,021 = $1,053, 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) Or (d)

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Disability Supplement

If Under 18 at end of year:

15%($4,095) = $614

Combined Provides $1,667 [(15%)($7,021 + $4,095)]

The $4,095 is reduced by child and attendant care
costs in excess of $2,399
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Tuition Credit - ITA 118.5

Tuition
15% Of Actual
 Post-Secondary
 Cost > $100
 No Upper Limit

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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
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Education Credit – 118.6(2)

Education



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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
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Textbook Credit
Full time attendance = $10 [(15%)($65)]
Part time attendance = $3 [(15%)($20)]
 For each month of education credit
eligibility

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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
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CPP And EI - ITA 118.7
15% Of Actual Payments
 Maximums For 2008

 CPP
= [(4.95%)($44,900 - $3,500)] = $2,049
15% of $2,049 = $307
 EI = [(1.73%)($41,100)] = $711
15% of $711 = $107
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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
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
Tuition/Education - 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
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Working Income Tax Benefit

The problem
 At
minimum wage
 May be better off not working
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Working Income Tax Benefit

Benefit For Individuals
 20%
of income between
$3,000 and $5,550
 Max = $500
 Reduced by 15 percent of
income in excess of $9,500
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Working Income Tax Benefit

Benefit For Couples
 20%
of income between
$3,000 and $8,000
 Max = $1,000
 Reduced by 15 percent of
income in excess of $14,500
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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
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Political Contributions

Federal Accountability Act
 Individuals
$1,100 for
limited to
 registered
party
 candidate or leadership
contestant
 nomination contestant
 Corporations
 Totally
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banned
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Labour Sponsored Funds
15 Percent Of Cost
 First Registered
Holder
 Maximum Of $5,000,
Or Credit Of $750

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Refundable GST Credit





$242 Individual
$242 Qualified
Relation
$242 Eligible
Dependant
$127 Qualified
Dependant
Less: 5% Of Family
Income > $31,524
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Child Tax Benefit System


© 2008, Clarence Byrd Inc.
Basic

$1,307/Year For Each Qualified Dependant

+$91/Year For Each Dependant Over Two

Eroded when family income exceeds $37,885
Supplement

$2,025/Year for 1st child

$1,792/Year for 2nd

$1,704/Year for 3rd and subsequent

Eroded when family income exceeds $21,287
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Clawback of EI
Applicable if EI recipient’s
net income exceeds
$51,375
 30 percent of the lesser of:

 EI
benefits received
 Excess of net income over
$51,375
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Clawback Of OAS

Lesser Of


Payments Received
15% Of Income In
Excess Of $64,718

Disappears At
$104,905

OAS Not Paid If
Income Is High In
Previous Years
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© 2008, Clarence Byrd Inc.
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