Chapter 6
Taxable Income And Tax Payable
For Individuals
© 2007, 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 5)
 Deductions For Payments
 Home Relocation Loan
 Lifetime Capital Gains (Chapter 14)
 Residing In Prescribed Zone
 Losses (Chapter 14)

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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, 2007. The rate on the loan is 3 percent and, during the remainder of the
year, assume the relevant prescribed rate is 5 percent.
ITA 80.4 Benefit [(5% - 3%)($100,000)(1/2)]
110(1)(j) Deduction [($25,000)(5%)(1/2)]
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
 1st
$37,178 @ 15.5%
 $37,178 to $74,357 @ 22%
 $74,357 to $120,887 @ 26%
 Over $120,887 @ 29%
 Full Indexing
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The Basic System


Example An individual has Taxable Income
of $120,887 and only his basic personal tax
credit of $1,384 [(15.5%)($8,929)].
15.5% of $37,178
22% of ($74,357 - $37,178)
26% of ($120,887 - $74,357)
Total Before Credit
After credit
($26,040 - $1,384)
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$ 5,763
8,179
12,098
$ 26,040
$ 24,696
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Provincial Tax Payable

All Provinces Except Alberta Apply
Progressive Rates To Taxable Income
 Minimum
= (6.05 + 15.5) 21.55% Combined
 Maximum = (24 + 29) 53% 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 (15.5 percent for 2007).
 Some have income threshold.
 Provinces have similar credits

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2007 Personal Tax Credits
Individuals
 ITA 118(1)(a): If Married
 ITA 118(1)(c): If Single
 [(15.5%)($8,929)] =
$1,384

© 2007, Clarence Byrd Inc.
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2007 Personal Tax Credits

Spouse Or Common-Law Partner –
ITA 118(1)(a)
 Includes
common-law and same sex
 (15.5%)($8,929) – Net Income Of Spouse
 Maximum = $1,384
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2007 Personal Tax Credits

Amount For Eligible Dependant
ITA 118(1)(b)
 Same
amount as spouse or common-law
partner
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2007 Personal Tax Credits

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)
 related by blood, marriage, or adoption
 resident of Canada (except child)
 dependent on individual for support
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2007 Personal Tax Credits

Child Tax Credit – ITA
118(1)(b.1)
[(15.5%)($2,000)] =
$310
 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


$623
[(15.5%)($4,019)]
Reduced By 15.5% Of
Dependant’s Income
In Excess Of $13,726
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Infirm Dependant Over 17 118(1)(d)

Dependants: Child, Grandchild, Parent,
Grandparent, Brother, Sister, Aunt, Uncle,
Niece, Nephew [ITA 118(6)]
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Infirm Dependant Over 17 118(1)(d)

Conditions




Reach 18 Before End Of Year
Mentally Or Physically Infirm
[(15.5%)($4,019) - (Income > $5,702)] = Maximum
Of $623
Not Available If Eligible Dependant Or Caregiver
Credits Available.
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Age - ITA 118(2)
Reach 65 In The Year
 [(15.5%)($5,177)] = $802
 Reduction

 15%
Of Income > $30,936
 $65,449 - $30,936 = $34,513
 $34,513 (15%) = $5,177
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Pension Income – ITA 118(3)

Amount = 15.5% Of 1st $2,000 = $310
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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)

15.5 percent of the
lesser of $1,000 or
employment income.

Maximum = $155
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Adoption Expenses – ITA 118.01

Up to $1,619 [(15.5%)($10,445)]
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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

15.5% of cost



Individual
Spouse and children under 19
Qualifying pass



Unlimited travel for 28 days
Weekly if four consecutive
Electronic cards with at least 32
one-way trips.
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Child Fitness – ITA 118.03

15.5% of up to $500 of costs




Maximum $78
Child under 18
Eligible expenses
Does not include


travel, food, or lodging
child care costs
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Charitable Donations – ITA 118.1

General Rules
 15.5%(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
 Plus 25 percent of recapture on gifts
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Charitable Donations – ITA 118.1

General Rules
 Carry
Over: 5 Years
 Subject to the same limitations
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Medical Expenses – ITA 118.2

General Rules


15.5% of eligible costs
Reduced by the lesser of



© 2007, Clarence Byrd Inc.
3% of Net Income
$1,926 (3%)($62,800)
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 18 Years Of Age



Calculated For Each Dependant
Maximum Of $10,000 Per Dependant
Each Dependant’s Medical Expenses, Reduced By The
Lesser Of
 $1,926
 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
( 1,926)
Subtotal
Dependant Expenses - The Lesser Of:
$10,000 – (3%)($9,000) = $9,730
Absolute Maximum = $10,000
Allowable Amount Of Medical Expenses
$
Credit (15.5%)
$ 1,597
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$ 9,730
$10,304
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Refundable Medical Expense
Supplement – ITA 122.51

Qualifying
 Age
18 or over
 Earned income > $2,984
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Refundable Medical Expense
Supplement – ITA 122.51

Refundable Supplement
 Lesser
of:
 $1,022
 25/15.5
Of The Medical Expenses Tax Credit
Then Reduced By 5% Of Family Income > $22,627
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Refundable Medical Expense
Supplement – ITA 122.51

Refundable Supplement Example – Ms.
Forbes has medical expenses of $3,500
and income of $22,000.

Medical Expense Credit = $440 [(15.5%)($3,500 $660)]

[(25/15.5)($440)] = $710

Refundable amount = $710, less Nil [(5%)($22,000 $22,627)] = $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
 15.5% Of $6,890 = $1,068, No Income
 No Claim If More Than $10,000 For Full
Test
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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Tuition Fees - ITA 118.5

Tuition
15.5% Of Actual
 Post-Secondary
 Cost > $100
 No Upper Limit

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Tuition Fees - ITA 118.5

Tuition



Includes all ancillary if
mandatory
Includes $250 of ancillary
fees if not mandatory
Unlimited Carry Forward
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Education Deduction – 118.6(2)

Education



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15.5% Of $400 Per
Month Of Full Time
Attendance ($62)
15.5% Of $120 Per
Month Of Part Time
Attendance ($19)
Unlimited Carry
Forward By Student
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Textbook
$10 [(15.5%)($65)]
 For each month of education credit
eligibility

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Interest on Student Loans

Interest On Student
Loans
15.5% 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
15.5% Of Actual Payments
 Maximums For 2007

 CPP
= [(4.95%)($43,700 - $3,500)] = $1,990
15.5% of $1,990 = $308
 EI = [(1.8%)($40,000)] = $720
15.5% of $720 = $112
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Transfer Of Credits

Spouse - ITA 118.8
 Eligible







Age
Pension
Disability
Tuition
Education
Textbook
After Personal, CPP,
And EI Used
© 2007, Clarence Byrd Inc.

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%($5,000) =
$775
 Carry Forward By
Student If Unused
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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





$237 Individual
$237 Qualified
Relation
$237 Eligible
Dependant
$125 Qualified
Dependant
Less: 5% Of Family
Income > $30,936
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Child Tax Benefit System

$1,283/Year For Each Qualified
Dependant

+$90/Year For Each Dependant Over
Two

Supplement


$1,988/Year for 1st child

$1,758/Year for 2nd

$1,673/Year for 3rd and subsequent
Supplement Reduction

© 2007, Clarence Byrd Inc.
Applies when family income exceeds $20,883
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Working Income Benefit

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The “Welfare Wall”

Minimum wage work at
$7 per hour

Offset by reductions in
social assistance
50
Working Income Benefit

Regular



Disabled supplement


© 2007, Clarence Byrd Inc.
20 percent of earned
income in excess of
$3,000
Maximum $500
20 percent of earned
income between $1,750
and $3,000
Refundable
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Clawback of EI
Applicable if EI recipient’s
net income exceeds
$50,000
 30 percent of the lesser of:

 EI
benefits received
 Excess of net income over
$50,000
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Clawback Of OAS

Lesser Of


Payments Received
15% Of Income In
Excess Of $63,511
Disappears At
$102,864
 Not Paid If Income Is
High In Previous
Years

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