Chapter 6
Taxable Income And Tax Payable
For Individuals
© 2006, C. 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
 Residing In Prescribed Zone
 Lifetime Capital Gains (Chapter 14)
 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, 2006. The rate on the loan is 1 percent and, during the remainder of the
year, assume the prescribed rate is 3 percent.
ITA 80.4 Benefit [(3% - 1%)($100,000)(1/2)]
110(1)(j) Deduction [($25,000)(3%)(1/2)]
Net Benefit
$1,000
( 375)
$ 625
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
$36,378 @ 15.25%
 $36,378 to $72,756 @ 22%
 $72,756 to $118,285 @ 26%
 Over $118,285 @ 29%
 Full Indexing
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The Basic System

Example An individual has Taxable Income
of $118,285 and only his basic personal tax
credit.
15.25% of $36,378
22% of ($72,756 - $36,378)
26% of ($118,285 - $72,756)
Total Before Credit
 After credit
($25,389 - $1,348)
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$ 5,548
8,003
11,838
$ 25,389
$ 24,041
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Provincial Tax Payable

All Provinces Except Alberta Apply
Progressive Rates To Taxable Income
 Minimum
= (6.05 + 15.25) 21.30% 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 (15.25 percent for 2006).
 Some have income threshold.

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2006 Personal Tax Credits
Individuals
 ITA 118(1)(a): If Married
 ITA 118(1)(c): If Single
 [(15.25%)($8,839)] =
$1,348

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2006 Personal Tax Credits

Spouse Or Common-Law Partner –
ITA 118(1)(a)
 Includes
common-law and same sex
 [(15.25%)($7,505) - (Income > $751)]
 Maximum = $1,145
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2006 Personal Tax Credits

Amount For Eligible Dependant
 Same
amount as spouse or common-law
partner
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2006 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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Caregiver

Conditions



Maintain Household With Dependant Over 17
Resident Of Canada (Unless Parent Or Grandparent)
Infirm (Unless Parent Or Grandparent 65 Or Older)
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Caregiver

Value



$600 [(15.25%)($3,933)]
Reduced By 15.25% Of Dependant’s Income In
Excess Of $13,430
Not Available If Eligible Dependant Or Infirm
Dependant Over 17 Available
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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
 [(15.25%)($3,933) - (Income > $5,580)] =
Maximum Of $600
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Age - ITA 118(2)
Reach 65 In The Year
 [(15.25%)($4,066)] = $620
 Reduction

 15%
Of Income > $30,270
 $57,377 - $30,279 = $27,107
 $27,107 (15%) = $4,066
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Pension Income – ITA 118(3)

Amount = 15.25% Of 1st $2,000 = $305
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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
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CPP, OAS, Or Provincial (QPP)
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Adoption Expense – ITA 118.01

Up to $1,525 [(15.25%)($10,000)]
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Adoption Expense – 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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Charitable Donations – ITA 118.1

General Rules
 15.25%(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


15.25% of eligible costs
Reduced by the lesser of



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3% of Net Income
$1,884 (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
 $1,884
 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 $2,000. His 20 year old
child has medical expenses of $10,000 and net
income of $9,000.
Taxpayer’s Expenses
$2,000
Threshold
(1,884)
Subtotal
Dependant Expenses - The Lesser Of:
$10,000 – (3%)($9,000) = $9,730
Absolute Maximum = $10,000
Allowable Amount Of Medical Expenses
$ 116
Credit (15.25%)
$1,501
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$9,730
$9,846
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Refundable Medical Expense
Supplement – ITA 122.51

Qualifying
 Age
18 or over
 Earned income > $2,919
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Refundable Medical Expense
Supplement – ITA 122.51

Refundable Supplement
 Lesser
of:
 $1,000
 25/15.25
Of The Medical Expenses Tax Credit
Then Reduced By 5% Of Family Income > $22,140
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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 = $433 [(15.25%)($3,500 $660)]

[(25/15.25)($433)] = $710

Refundable amount = $710, less Nil [(5%)($22,000 $22,140)] = $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
 15.25% Of $6,741 = $1,028, 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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Tuition Fees - ITA 118.5

Tuition
15.25% 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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15.25% Of $400 Per
Month Of Full Time
Attendance
15.25% Of $120 Per
Month Of Part Time
Attendance
Unlimited Carry
Forward By Student
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Textbook (2006 Budget)
$10 [(15.25%)($65)]
 For each month of education credit
eligibility

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Interest on Student Loans

Interest On Student
Loans
15.25% 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
15.25% Of Actual Payments
 Maximums For 2006

 CPP
= [(4.95%)($42,100 - $3,500)] = $1,911
15.25% of $1,911 = $291
 EI = [(1.87%)($39,000)] = $729
15.25% of $729 = $111
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Transfer Of Credits

Spouse - ITA 118.8
 Eligible






Age
Pension
Disability
Tuition
Education
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 = 15.25%($5,000)
= $763
 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

Same For Corporations
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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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Canada Employment Credit
New for 2006!
 15.25 percent of the lesser of $250 or
employment income.
 Maximum = $38
 Base to $1,000 in 2007

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Public Transit Passes Credit
New For 2006 (as of July 1)
 15.25 percent of cost of monthly or longer
transit passes.
 Individual, spouse, dependent children
under 19.

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Child Fitness Credit
New for 2007
 For enrollment of a child
under 16 in an eligible
program of physical
activity
 15.25 percent the lesser
of fees or $500
 Maximum = $76

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Apprenticeship Job Creation Credit
New for 2006!
 Available to a business
 10 percent of salaries
and wages
 Maximum = $200
[(10%)($2,000)]

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Refundable GST Credit





$232 Individual
$232 Qualified
Relation
$232 Eligible
Dependant
$122 Qualified
Dependant
Less: 5% Of Family
Income > $30,270
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Child Tax Benefit System






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$104.58/Month For Each
Qualified Dependant
+$7.33/Month For Each
Dependant Over Two
+$20.75/Month For Each
Dependant Under Seven
Working Income Supplement
Less, 2% Of Family Income In
Excess Of $36,378 (One Child)
Less, 4% Of Family Income in
Excess Of $36,378 (2+ Children)
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Clawback of EI
Applicable if EI recipient’s
net income exceeds
$48,750
 30 percent of the lesser of:

 EI
benefits received
 Excess of net income over
$48,750
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Clawback Of OAS

Lesser Of


Payments Received
15% Of Income In
Excess Of $62,144
Disappears At
$100,917
 Not Paid If Income Is
High In Previous
Years

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