Sample Chapter 4 - PowerPoint (PPT

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Chapter 4
TAXABLE INCOME AND TAX
PAYABLE FOR INDIVIDUALS
Canadian Tax Principles
From Net To Taxable Income
Employment
Income
Business And
Property
Income
Net Taxable
Capital Gains
Other Sources
Of Income
Other
Deductions
From Income
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Division C
Deductions
Taxable
Income
Canadian Tax Principles
Available Deductions
• Employee Stock Options (Chapter 3)
• Deductions For Payments
• Home Relocation Loan
• Lump Sum Payments
• Lifetime Capital Gains Deduction (Chapter 11)
• Northern Residents Deductions
• Loss Carry Overs (Chapter 11)
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Canadian Tax Principles
Deduction For Payments
• Tax treaty exemptions
• Worker’s compensation – Removes from net income
• Social assistance payments – Removes from net income
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Canadian Tax Principles
Home Relocation Loan Deduction
Example: An employee receives a $100,000, interest free loan from
his employer on July 1, 2014. During the remainder of the year,
assume the relevant prescribed rate is 2%.
ITA 80.4 Benefit [(2% - Nil)($100,000)(6/12)]
$1,000
ITA 110(1)(j) Deduction [(2%)($25,000)(1/2)]
(
Net Benefit
$ 750
• Available for 5 years only
• Can use rate at inception or go quarter to quarter
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250)
Canadian Tax Principles
Tax Payable - The Basic System
• 2014 Rates
Taxable Income
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Marginal Rate
In Excess Of
Federal Tax
On Excess
$ -0-
$ -0-
15%
43,953
6,593
22%
87,907
16,263
26%
136,270
28,837
29%
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Canadian Tax Principles
The Basic System
Example For 2014, an individual has Taxable Income of $92,300
and only his basic personal tax credit of $1,671 [(15%)($11,138)].
Tax On First $87,907
$ 16,263
Tax On Next $4,393 ($92,300 - $87,907)
At 26%
Total Before Credit
1,142
$ 17,405
• After credit
($17,405 - $1,671)
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$ 15,734
Canadian Tax Principles
Provincial Tax Payable
• All Provinces Except Alberta Apply Progressive Rates To
Taxable Income
– Minimum = (5.06 + 15) 20.06% Combined
– Maximum = (21 + 29) 50% Combined
– Provincial Surtaxes
– Alberta Has Flat Tax @ 10%
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Canadian Tax Principles
Tax Credit System
• Refundable Vs. Non-Refundable.
• In general, minimum rate applied to a base (15% for 2014).
• Some have income threshold.
• Provinces have similar credits.
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Canadian Tax Principles
2014 Personal Tax Credits
• Individuals
• ITA 118(1)(a): If Married
• ITA 118(1)(c): If Single
• [(15%)($11,138)] = $1,671
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Canadian Tax Principles
2014 Personal Tax Credits
• Spouse Or Common-Law Partner –
ITA 118(1)(a)
– Includes common-law and same sex
– (15%)($11,138 – Net Income Of Spouse)
– Gets The $2,058 Family Caregiver Amount if infirm
– Maximum = $1,671 or $1,979 (If FCA)
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Canadian Tax Principles
2014 Personal Tax Credits
• Amount for Eligible Dependant
ITA 118(1)(b)
– Same amount as spouse or common-law partner
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Canadian Tax Principles
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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Canadian Tax Principles
2014 Personal Tax Credits
• Child Tax Credit
– ITA 118(1)(b.1)
• [(15%)($2,255)] = $338
– Gets The $2,058 Family Caregiver Amount if infirm
• [(15%)($4,313)] = $647
– For each child under 18 at end of year
– No income threshold
– Can take eligible dependant and this credit for the same child.
– If eligible dependant, take family caregiver only for child credit
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Canadian Tax Principles
Caregiver
• Conditions
– Maintain Household With Dependant Over 17
– Resident Of Canada (Unless Child Or Grandchild)
– Infirm (Unless Parent Or Grandparent 65 Or Older)
– Not Available If Eligible Dependant Credit Available
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Canadian Tax Principles
Caregiver
• Value
– [(15%)($4,530)]
• Maximum = $680
– Gets The Family Caregiver Amount if infirm
• [(15%)($4,530 + $2,058)] to maximum of $988
– Reduced By 15% Of Dependant’s Income In Excess Of $15,472
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Canadian Tax Principles
Infirm Dependant Over 17
– ITA 118(1)(d)
• Dependants:
– Sister
– Child
– Aunt
– Grandchild
– Uncle
– Parent
– Niece
– Grandparent
– Nephew
– Brother
– Sister
[ITA 118(6)]
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Canadian Tax Principles
Infirm Dependant Over 17
- ITA 118(1)(d)
• Conditions
– Reach 18 Before End Of Year
– Mentally Or Physically Infirm
• (15%)($6,589) = $988
– Not Available If Eligible Dependant Or Caregiver Credits
Available
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Canadian Tax Principles
Age - ITA 118(2)
• Reach 65 In The Year
• $1,037 = [(15%)($6,916)]
• Reduction
– 15% Of Income > $34,873
– $80,980 - $34,873 = $46,107
– [($46,107)(15%)] = $ 6,916
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Canadian Tax Principles
Pension Income – ITA 118(3)
• Amount = 15% Of 1st $2,000 = $300
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Canadian Tax Principles
Pension Income – ITA 118(3)
• Qualifying Amounts
– Age 65 Or Older 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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Canadian Tax Principles
Canada Employment – ITA 118(10)
• 15 percent of the lesser of $1,127 or employment income.
• Maximum = $169
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Canadian Tax Principles
Adoption Expenses – ITA 118.01
• Up to $2,250 [(15%)($15,000)]
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Canadian Tax Principles
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 incurred after the adoption file is
opened
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Canadian Tax Principles
Public Transit Passes – 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 one-way trips.
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Canadian Tax Principles
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
– Additional $75 [(15%)($500)] for child eligible for the disability
tax credit
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Canadian Tax Principles
Children’s Arts – ITA 118.031
• 15% of up to $500 of costs
– Maximum $75
– Child under 16
– Eligible expenses
– Does not include
• travel, food, or lodging
• child care costs
– Additional $75 [(15%)($500)] for child eligible for the disability
tax credit
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Canadian Tax Principles
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
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Canadian Tax Principles
Volunteer Firefighter’s – ITA 118.06
• 15% of $3,000
– Requires 200 hours of volunteer firefighting
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Canadian Tax Principles
Volunteer Search And Rescue Workers
ITA 118.07
• 15% of $3,000
– Requires 200 hours of volunteer search and rescue work
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Canadian Tax Principles
Charitable Donations – ITA 118.1
• General Rules
– 15% (1st $200) + 29% Of Excess
• Super Credit For First-Time Donors
– 40% (1st $200) + 54% (next $800) + 29% of additional
– Can be claimed one time only
– Can claim in any year prior to 2018 for qualifying donations
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Canadian Tax Principles
Charitable Donations – ITA 118.1
• General Rules
– Limit: 75% Of Net Income
(100% in individual’s year of death and preceding year), plus
– 25% of taxable capital gains on gifts of capital property
(See Chapter 11), plus
– 25% of recapture on gifts of capital property
(See Chapter 11)
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Canadian Tax Principles
Charitable Donations – ITA 118.1
• General Rules
– Carry Forward: 5 Years
– Subject to the same limitations
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Canadian Tax Principles
Medical Expenses – ITA 118.2
• General Rules
– 15% of eligible costs
– Reduced by the lesser of
• 3% of Net Income
• $2,171 (3%)($72,367)
– Any 12 month period ending in the year
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Canadian Tax Principles
Medical Expenses – ITA 118.2
• Spouse And Minor Dependants
– No Additional Reduction
• Dependants Over 17 Years Of Age
– Calculated For Each Dependant
– Each Dependant’s Medical Expenses, Reduced By The Lesser
Of:
• $2,171
• 3% Of Dependant’s Net Income
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Canadian Tax Principles
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
( 2,171)
Subtotal
$
329
Dependant Expenses - $10,000 Reduced By Lesser Of:
•
(3%)($9,000) = $270
•
$2,171
Allowable Amount Of Medical Expenses
Credit (15%)
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9,730
$ 10,059
$ 1,509
Canadian Tax Principles
Refundable Medical Expense Supplement –
ITA 122.51
• Qualifying
– Age 18 or over
– Earned income > $3,363
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Canadian Tax Principles
Refundable Medical Expense Supplement –
ITA 122.51
• Refundable Supplement
– Lesser of:
• $1,152
• 25/15 Of The Medical Expense Tax Credit
Then Reduced By 5% Of Family Income > $25,506
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Canadian Tax Principles
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 - $25,278)] = nil
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Canadian Tax Principles
Disability Amount – ITA 118.3
• Must Be Severe And Prolonged
– Significantly Restricts Basic Living Activities
– A Continuous Period Of At Least 12 Months
• Requires Form T2201
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Canadian Tax Principles
Disability Amount – ITA 118.3
• 15% Of $7,766 = $1,165, 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)
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Canadian Tax Principles
Disability Supplement
• If under 18 at end of year:
– 15% Of $4,530 = $680
– Combined Provides $1,844 [(15%)($7,766 + $4,530)]
– The $4,530 is reduced by
• Child care costs deducted;
• Amounts deducted under the disability supports deduction; and
• Attendant care amounts claimed for the medical expense tax credit
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Canadian Tax Principles
Tuition Credit - ITA 118.5
• Tuition
– 15% Of Actual
– Post-Secondary
– Cost > $100
– No Upper Limit
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Canadian Tax Principles
Tuition Credit - ITA 118.5
• Tuition
– Includes all ancillary, including examination fees, if mandatory
– Includes $250 of ancillary fees and $250 of examination fees
even if not mandatory
– Unlimited carry forward by student
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Canadian Tax Principles
Education Credit – 118.6(2)
• Education
– 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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Canadian Tax Principles
Textbook Credit
• Available for each month of education credit eligibility:
– Full time attendance = $10 [(15%)($65)]
– Part time attendance = $3 [(15%)($20)]
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Canadian Tax Principles
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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Canadian Tax Principles
CPP And EI - ITA 118.7
• 15% Of Actual Payments
• Maximums For 2014
– EI = [(1.88%)($48,600)] = $914
15% of $914 = $137
– CPP = [(4.95%)($52,500 - $3,500)] = $2,426
15% of $2,426 = $364
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Canadian Tax Principles
Transfer Of Credits
• Spouse - ITA 118.8
– Eligible
• Child tax credit
• Age
• Pension
• Disability
• Current year tuition, education, and textbook
– After Personal, CPP, EI, credits under 118.01 through 118.07
Used
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Canadian Tax Principles
Transfer Of Credits
• Tuition/Education/Textbook - ITA 118.9
– N/A If Student’s Spouse Claims Credit
– Unused Amount After Personal, CPP, EI, And Disability
– To Parent Or Grandparent
– Max = 15%($5,000)
= $750
– Carry Forward By Student If Unused
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Canadian Tax Principles
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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Canadian Tax Principles
Political Contributions
• Federal Accountability Act
– Individuals limited to $1,200 for
• registered party
• candidate or leadership contestant
• nomination contestant
– Corporations
• Totally banned
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Canadian Tax Principles
Labour Sponsored Funds
• First Registered Holder
• For 2014 - 15% of maximum Of $5,000, Or Credit Of $750
• Phase-Out
– 2015 Equal 10%
– In 2016 goes to 5%
– After 2016 = Nil
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Canadian Tax Principles
Refundable GST Credit
• $268 Individual
• $268 Qualified Relation
• $268 Eligible Dependant
• $141 Qualified Dependant
• Less: 5% Of Family Income > $34,872
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Canadian Tax Principles
Working Income Tax Benefit
• The problem:
At minimum wage, an individual may be better off not working
– Reductions in social assistance
– Loss of subsidized housing
– Other low income benefits
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Canadian Tax Principles
Working Income Tax Benefit
• Benefit for single individual – Lesser of:
– 25% of working income in excess of $3,000
– Max = $998
• Reduced by 15 percent of income in excess of $11,332
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Canadian Tax Principles
Working Income Tax Benefit
• Benefit for couples – lesser of:
– 25% of family working income in excess of $3,000
– Max = $1,813
• Reduced by 15 percent of family working income in excess of
$15,649
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Canadian Tax Principles
Child Tax Benefit System
• Basic
– $1,446/Year For Each Qualified Dependant
– + $101/Year For Each Dependant Over Two
– Eroded when family income exceeds $43,953
• Supplement
– $2,241/Year for 1st child
– $1,982/Year for 2nd
– $1,886/Year for 3rd and subsequent
– Eroded when family income exceeds $25,584
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Canadian Tax Principles
Clawback of EI
• Applicable if EI recipient’s net income exceeds $60,750
• 30 percent of the lesser of:
– EI benefits received
– Excess of net income over $ 60,750
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Canadian Tax Principles
Clawback of OAS
• Lesser Of
– Payments Received
– 15% Of Income In Excess Of $71,592
• Disappears At $115,716
• OAS Not Paid If Income Is High In Previous Two Years
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THE END

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