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Chapter 6Chapter 6
Taxable Income And Tax Taxable Income And Tax Payable For IndividualsPayable For Individuals
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From Net To Taxable IncomeFrom Net To Taxable Income
Taxable IncomeDivision C Deductions
EmploymentIncome
Business AndProperty Income
Net TaxableCapital Gains
Other SourcesOf Income
Other DeductionsFrom Income
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Available DeductionsAvailable Deductions
Employee Stock Options (Chapter 5)Employee Stock Options (Chapter 5)Deductions For PaymentsDeductions For PaymentsHome Relocation LoanHome Relocation LoanResiding In Prescribed ZoneResiding In Prescribed ZoneLifetime Capital Gains (Chapter 14)Lifetime Capital Gains (Chapter 14)Losses (Chapter 14)Losses (Chapter 14)
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Deduction For PaymentsDeduction For Payments
Tax convention exemptionsTax convention exemptionsWorkman’s compensationWorkman’s compensationSocial Assistance PaymentsSocial Assistance Payments
No Intention To Tax
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Home Relocation Loan Home Relocation Loan DeductionDeduction
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)] $1,000 110(1)(j) Deduction [($25,000)(3%)(1/2)] ( 375)
Net Benefit $ 625
Available for 5 years onlyCan use rate at inception or go quarter to quarter
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Tax Payable - The Basic Tax Payable - The Basic SystemSystem
1st $36,378 @ 15.25%1st $36,378 @ 15.25%$36,378 to $72,756 @ 22%$36,378 to $72,756 @ 22%$72,756 to $118,285 @ 26%$72,756 to $118,285 @ 26%Over $118,285 @ 29%Over $118,285 @ 29%Full IndexingFull Indexing
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The Basic SystemThe Basic System
ExampleExample An individual has Taxable An individual has Taxable Income of $118,285 and only his basic Income of $118,285 and only his basic personal tax credit.personal tax credit.
15.25% of $36,37815.25% of $36,378 $ 5,548$ 5,548
22% of ($72,756 - $36,378)22% of ($72,756 - $36,378) 8,003 8,003
26% of ($118,285 - $72,756)26% of ($118,285 - $72,756) 11,838 11,838
Total Before CreditTotal Before Credit $ 25,389$ 25,389 After creditAfter credit
($25,389 - $1,348)($25,389 - $1,348) $ 24,041$ 24,041
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Provincial Tax PayableProvincial Tax Payable
All Provinces Except Alberta Apply All Provinces Except Alberta Apply Progressive Rates To Taxable IncomeProgressive Rates To Taxable IncomeMinimum = (6.05 + 15.25) 21.30% Minimum = (6.05 + 15.25) 21.30%
CombinedCombinedMaximum = (24 + 29) 53% CombinedMaximum = (24 + 29) 53% CombinedProvincial SurtaxesProvincial SurtaxesAlberta Has Flat Tax @ 10%Alberta Has Flat Tax @ 10%
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Tax Credit SystemTax Credit System
Refundable Vs. Non-Refundable.Refundable Vs. Non-Refundable. In general, minimum rate applied to In general, minimum rate applied to
a base (15.25 percent for 2006).a base (15.25 percent for 2006).Some have income threshold.Some have income threshold.
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2006 Personal Tax Credits2006 Personal Tax Credits
Individuals Individuals ITA 118(1)(a): If ITA 118(1)(a): If
MarriedMarried ITA 118(1)(c): If ITA 118(1)(c): If
SingleSingle[(15.25%)($8,839)] = [(15.25%)($8,839)] =
$1,348$1,348
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2006 Personal Tax Credits2006 Personal Tax Credits
Spouse Or Common-Law Partner – Spouse Or Common-Law Partner – ITA 118(1)(a)ITA 118(1)(a)Includes common-law and same sexIncludes common-law and same sex[(15.25%)($7,505) - (Income > $751)][(15.25%)($7,505) - (Income > $751)]Maximum = $1,145Maximum = $1,145
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2006 Personal Tax Credits2006 Personal Tax Credits
Amount For Eligible DependantAmount For Eligible DependantSame amount as spouse or common-law Same amount as spouse or common-law
partnerpartner
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Amount For Eligible DependantAmount For Eligible DependantConditions: you are single, divorced, Conditions: you are single, divorced,
separated, or widowed and you separated, or widowed and you supported a dependant:supported a dependant:who is under 18 (unless parent, who is under 18 (unless parent,
grandparent, or infirm)grandparent, or infirm)related by blood, marriage, or adoptionrelated by blood, marriage, or adoptionresident of Canada (except child)resident of Canada (except child)dependent on individual for supportdependent on individual for support
2006 Personal Tax Credits2006 Personal Tax Credits
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CaregiverCaregiver
ConditionsConditions Maintain Household With Dependant Over 17Maintain Household With Dependant Over 17 Resident Of Canada (Unless Parent Or Resident Of Canada (Unless Parent Or
Grandparent)Grandparent) Infirm (Unless Parent Or Grandparent 65 Or Infirm (Unless Parent Or Grandparent 65 Or
Older)Older)
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CaregiverCaregiver
ValueValue $600 [(15.25%)($3,933)]$600 [(15.25%)($3,933)] Reduced By 15.25% Of Dependant’s Income In Reduced By 15.25% Of Dependant’s Income In
Excess Of $13,430Excess Of $13,430 Not Available If Eligible Dependant Or Infirm Not Available If Eligible Dependant Or Infirm
Dependant Over 17 AvailableDependant Over 17 Available
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Infirm Dependant Over 17 - Infirm Dependant Over 17 - 118(1)(d)118(1)(d)
Dependants: Child, Grandchild, Dependants: Child, Grandchild, Parent, Grandparent, Brother, Sister, Parent, Grandparent, Brother, Sister, Aunt, Uncle, Niece, Nephew [ITA Aunt, Uncle, Niece, Nephew [ITA 118(6)]118(6)]
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Infirm Dependant Over 17 - Infirm Dependant Over 17 - 118(1)(d)118(1)(d)
ConditionsConditionsReach 18 Before End Of YearReach 18 Before End Of YearMentally Or Physically Infirm Mentally Or Physically Infirm [(15.25%)($3,933) - (Income > $5,580)] [(15.25%)($3,933) - (Income > $5,580)]
= Maximum Of $600= Maximum Of $600
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Age - ITA 118(2)Age - ITA 118(2)
Reach 65 In The YearReach 65 In The Year[(15.25%)($4,066)] = $620[(15.25%)($4,066)] = $620ReductionReduction
15% Of Income > $30,27015% Of Income > $30,270$57,377 - $30,279 = $27,107$57,377 - $30,279 = $27,107$27,107 (15%) = $4,066$27,107 (15%) = $4,066
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Pension Income – ITA 118(3)Pension Income – ITA 118(3)
Amount = 15.25% Of 1st $2,000 = Amount = 15.25% Of 1st $2,000 = $305$305
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Pension Income – ITA 118(3)Pension Income – ITA 118(3)
Qualifying AmountsQualifying AmountsAge 65 At End Of YearAge 65 At End Of Year
Most Non-GovernmentMost Non-Government< Age 65 At End Of Year< Age 65 At End Of Year
Life AnnuitiesLife AnnuitiesAmounts Resulting From Death Of SpouseAmounts Resulting From Death Of Spouse
No CPP, OAS, Or Provincial (QPP)No CPP, OAS, Or Provincial (QPP)
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Adoption Expense – ITA Adoption Expense – ITA 118.01118.01
Up to $1,525 [(15.25%)($10,000)]Up to $1,525 [(15.25%)($10,000)]
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Adoption Expense – ITA Adoption Expense – ITA 118.01118.01
Eligible ChildEligible ChildHas not attained age 18Has not attained age 18Issued adoption orderIssued adoption order
Eligible ExpenseEligible ExpenseFees to agencyFees to agencyCourt and legal feesCourt and legal feesOther reasonable expensesOther reasonable expenses
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Charitable Donations – ITA Charitable Donations – ITA 118.1118.1
General RulesGeneral Rules15.25%(1st $200) + 29% Of Excess15.25%(1st $200) + 29% Of Excess
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Charitable Donations – ITA Charitable Donations – ITA 118.1118.1
General RulesGeneral RulesLimit: 75% Of Net IncomeLimit: 75% Of Net Income
100% in individual’s year of death and 100% in individual’s year of death and preceding yearpreceding year
Plus 25 percent of capital gains on giftsPlus 25 percent of capital gains on giftsPlus 25 percent of recapture on giftsPlus 25 percent of recapture on gifts
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Charitable Donations – ITA Charitable Donations – ITA 118.1118.1
General RulesGeneral RulesCarry Over: 5 YearsCarry Over: 5 YearsSubject to the same limitationsSubject to the same limitations
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Medical Expenses – ITA 118.2Medical Expenses – ITA 118.2
General RulesGeneral Rules 15.25% of eligible costs15.25% of eligible costs Reduced by the lesser Reduced by the lesser
ofof3% of Net Income3% of Net Income$1,884 (3%)($62,800)$1,884 (3%)($62,800)
Any 12 month period Any 12 month period ending in the yearending in the year
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Medical Expenses – ITA 118.2Medical Expenses – ITA 118.2
Spouse And Minor DependantsSpouse And Minor Dependants No Additional ReductionNo Additional Reduction
Dependants Over 18 Years Of AgeDependants Over 18 Years Of Age Calculated For Each DependantCalculated For Each Dependant Maximum Of $10,000 Per DependantMaximum Of $10,000 Per Dependant Each Dependant’s Medical Expenses, Reduced Each Dependant’s Medical Expenses, Reduced
By The Lesser OfBy The Lesser Of$1,884$1,8843% Of Dependant’s Net Income3% Of Dependant’s Net Income
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Medical Expenses – ITA 118.2Medical Expenses – ITA 118.2
Example: An individual with income > Example: An individual with income > $100,000 and medical expenses of $2,000. $100,000 and medical expenses of $2,000. His 20 year old child has medical expenses His 20 year old child has medical expenses of $10,000 and net income of $9,000.of $10,000 and net income of $9,000.
Taxpayer’s ExpensesTaxpayer’s Expenses $2,000$2,000
ThresholdThreshold (1,884)(1,884)
SubtotalSubtotal $ 116 $ 116 Dependant Expenses - The Lesser Of:Dependant Expenses - The Lesser Of:
$10,000 – (3%)($9,000) = $9,730$10,000 – (3%)($9,000) = $9,730Absolute Maximum = $10,000Absolute Maximum = $10,000 $9,730$9,730
Allowable Amount Of Medical ExpensesAllowable Amount Of Medical Expenses $9,846$9,846
Credit (15.25%)Credit (15.25%) $1,501$1,501
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Refundable Medical Expense Refundable Medical Expense Supplement – ITA 122.51Supplement – ITA 122.51
QualifyingQualifyingAge 18 or overAge 18 or overEarned income > $2,919Earned income > $2,919
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Refundable Medical Expense Refundable Medical Expense Supplement – ITA 122.51Supplement – ITA 122.51
Refundable SupplementRefundable SupplementLesser of:Lesser of:
$1,000$1,00025/15.25 Of The Medical Expenses Tax 25/15.25 Of The Medical Expenses Tax
CreditCredit
Then Reduced By 5% Of Family Income > Then Reduced By 5% Of Family Income > $22,140$22,140
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Refundable Medical Expense Refundable Medical Expense Supplement – ITA 122.51Supplement – ITA 122.51
Refundable Supplement Example – Refundable Supplement Example – Ms. Forbes has medical expenses of Ms. Forbes has medical expenses of $3,500 and income of $22,000.$3,500 and income of $22,000. Medical Expense Credit = $433 [(15.25%)Medical Expense Credit = $433 [(15.25%)
($3,500 - $660)]($3,500 - $660)]
[(25/15.25)($433)] = $710[(25/15.25)($433)] = $710
Refundable amount = $710, less Nil [(5%)Refundable amount = $710, less Nil [(5%)
($22,000 - $22,140)] = $710($22,000 - $22,140)] = $710
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Disability Amount – ITA 118.3Disability Amount – ITA 118.3
Must Be Severe And ProlongedMust Be Severe And ProlongedRestricts Basic Living ActivitiesRestricts Basic Living ActivitiesA Continuous Period Of At Least 12 MonthsA Continuous Period Of At Least 12 Months
Requires Form T2201Requires Form T2201
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Disability Amount – ITA 118.3Disability Amount – ITA 118.3
15.25% Of $6,741 = $1,028, No Income 15.25% Of $6,741 = $1,028, No Income TestTest
No Claim If More Than $10,000 For Full No Claim If More Than $10,000 For Full Time Attendant Care Or Costs Of Time Attendant Care Or Costs Of Nursing Home Are ClaimedNursing Home Are Claimed
Can Be Transferred To Individual Making Can Be Transferred To Individual Making Claim Under ITA 118(b) Or (d)Claim Under ITA 118(b) Or (d)
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Tuition Fees - ITA 118.5Tuition Fees - ITA 118.5
TuitionTuition 15.25% Of Actual15.25% Of Actual Post-SecondaryPost-Secondary Cost > $100Cost > $100 No Upper LimitNo Upper Limit
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Tuition Fees - ITA 118.5Tuition Fees - ITA 118.5
TuitionTuition Includes all ancillary if Includes all ancillary if
mandatorymandatory Includes $250 of Includes $250 of
ancillary fees if not ancillary fees if not mandatorymandatory
Unlimited Carry ForwardUnlimited Carry Forward
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Education Deduction – Education Deduction – 118.6(2)118.6(2)
EducationEducation 15.25% Of $400 Per 15.25% Of $400 Per
Month Of Full Time Month Of Full Time AttendanceAttendance
15.25% Of $120 Per 15.25% Of $120 Per Month Of Part Time Month Of Part Time AttendanceAttendance
Unlimited Carry Unlimited Carry Forward By StudentForward By Student
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Textbook (2006 Budget)Textbook (2006 Budget)
$10 [(15.25%)($65)]$10 [(15.25%)($65)]For each month of education credit For each month of education credit
eligibilityeligibility
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Interest on Student LoansInterest on Student Loans
Interest On Student Interest On Student LoansLoans 15.25% Of Amounts 15.25% Of Amounts
PaidPaid Loans Under The Loans Under The
Canada Student Canada Student Loans ActLoans Act, the , the Canada Student Canada Student Financial Assistance Financial Assistance ActAct, Or A Provincial , Or A Provincial StatuteStatute
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CPP And EI - ITA 118.7CPP And EI - ITA 118.7
15.25% Of Actual Payments15.25% Of Actual PaymentsMaximums For 2006Maximums For 2006
CPP = [(4.95%)($42,100 - $3,500)] = CPP = [(4.95%)($42,100 - $3,500)] = $1,911$1,911
15.25% of $1,911 = $291 15.25% of $1,911 = $291 EI = [(1.87%)($39,000)] = $729EI = [(1.87%)($39,000)] = $729
15.25% of $729 = $11115.25% of $729 = $111
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Transfer Of CreditsTransfer Of Credits Tuition/Education - ITA Tuition/Education - ITA
118.9118.9 N/A If Student’s N/A If Student’s
Spouse Claims CreditSpouse Claims Credit Unused Amount After Unused Amount After
CPP, EI, And DisabilityCPP, EI, And Disability To Parent Or To Parent Or
GrandparentGrandparent Max = 15.25%Max = 15.25%
($5,000) = $763($5,000) = $763 Carry Forward By Carry Forward By
Student If UnusedStudent If Unused
SpouseSpouse - ITA 118.8- ITA 118.8 EligibleEligible
AgeAgePensionPensionDisabilityDisabilityTuitionTuitionEducationEducation
After Personal, After Personal, CPP, And EI UsedCPP, And EI Used
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Political ContributionsPolitical Contributions
3/4 First $4003/4 First $4001/2 Next $3501/2 Next $3501/3 Next $5251/3 Next $525
Max = $650 For $1,275Max = $650 For $1,275
Same For CorporationsSame For Corporations
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Labour Sponsored FundsLabour Sponsored Funds
15 Percent Of Cost15 Percent Of Cost First Registered First Registered
HolderHolder Maximum Of Maximum Of
$5,000, Or Credit $5,000, Or Credit Of $750Of $750
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Canada Employment CreditCanada Employment Credit
New for 2006!New for 2006!15.25 percent of the lesser of $250 15.25 percent of the lesser of $250
or employment income.or employment income.Maximum = $38Maximum = $38Base to $1,000 in 2007Base to $1,000 in 2007
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Public Transit Passes CreditPublic Transit Passes Credit
New For 2006 (as of July 1)New For 2006 (as of July 1)15.25 percent of cost of monthly or 15.25 percent of cost of monthly or
longer transit passes.longer transit passes. Individual, spouse, dependent Individual, spouse, dependent
children under 19.children under 19.
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Child Fitness CreditChild Fitness Credit
New for 2007New for 2007For enrollment of a For enrollment of a
child under 16 in an child under 16 in an eligible program of eligible program of physical activityphysical activity
15.25 percent the 15.25 percent the lesser of fees or $500lesser of fees or $500
Maximum = $76Maximum = $76
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Apprenticeship Job Creation Apprenticeship Job Creation CreditCredit
New for 2006!New for 2006!Available to a Available to a
businessbusiness10 percent of 10 percent of
salaries and wagessalaries and wagesMaximum = $200 Maximum = $200
[(10%)($2,000)][(10%)($2,000)]
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Refundable GST CreditRefundable GST Credit
$232 Individual$232 Individual $232 Qualified $232 Qualified
RelationRelation $232 Eligible $232 Eligible
DependantDependant $122 Qualified $122 Qualified
DependantDependant Less: 5% Of Family Less: 5% Of Family
Income > $30,270Income > $30,270
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Child Tax Benefit SystemChild Tax Benefit System
$104.58/Month For Each $104.58/Month For Each Qualified DependantQualified Dependant
+$7.33/Month For Each +$7.33/Month For Each Dependant Over TwoDependant Over Two
+$20.75/Month For Each +$20.75/Month For Each Dependant Under SevenDependant Under Seven
Working Income SupplementWorking Income Supplement Less, 2% Of Family Income In Less, 2% Of Family Income In
Excess Of $36,378 (One Child)Excess Of $36,378 (One Child) Less, 4% Of Family Income in Less, 4% Of Family Income in
Excess Of $36,378 (2+ Excess Of $36,378 (2+ Children)Children)
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Clawback of EIClawback of EI
Applicable if EI Applicable if EI recipient’s net income recipient’s net income exceeds $48,750exceeds $48,750
30 percent of the lesser 30 percent of the lesser of:of:EI benefits receivedEI benefits receivedExcess of net income Excess of net income
over $48,750over $48,750
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Clawback Of OASClawback Of OAS
Lesser OfLesser Of Payments ReceivedPayments Received 15% Of Income In 15% Of Income In
Excess Of $62,144Excess Of $62,144 Disappears At Disappears At
$100,917$100,917 Not Paid If Income Not Paid If Income
Is High In Previous Is High In Previous YearsYears