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TAXX301 (ch.4)
Taxable Income and Tax Payable for Individuals
| Question | Answer |
|---|---|
| What is the four step process for determining if there is additional tax payable or a refund to be issued? | 1. Net Income 2. Taxable Income 3. Gross Federal Tax 4. Personal Tax Credits |
| What does chapter 4 prepare you to do? | prepare T1 returns for individuals |
| What is a surtax? | additional tax calculated on the basis of regular income tax payable calculation (Ontario only for individuals) |
| in what province are individuals subject to income tax? | wherever they reside on December 31st of the tax year |
| what are the three types of income? | 1. ordinary income - 100% included in net income(employment, business, property, other miscellaneous) 2. capital gains/losses 3. taxable dividends |
| what is the consequence of income not earned in a province or territory? | 48% surtax on top of federal income tax attributable to income not earned in a province or territory |
| what are the two types of income tax credits? | non-refundable (most), and refundable |
| what is a tax credit base? | a dollar amount base or threshold to apply a rate to determine tax credit |
| what is a tax credit base rate? | a percentage rate that is applied to the base to determine credit amount (most use 15%) |
| what is indexation? | almost all credits and thresholds are indexed annually to offset effects of inflation |
| what is a tax credit transfer? | some limited non refundable credits can be transferred to spouse, parents, etc if it can't be used due to insufficient income tax payable |
| what is the BPA for individuals earning less than $177,882? | $16,129 |
| what is the BPA for individuals earning more than $253,414? | $14,538 |
| what additional amount can individuals deduct if their spouse, CLP, or elligible dependant has no income of their own? | the equivalent of their BPA |
| what is the formula for determining BPA for individuals with net income between $177,882 and $253,414? | $16,129 - [$1,591 x ((net income-$177,882)/$75,532)] |
| what are the two criteria for a common law partnership (must meet one of two) | 1. couple who has cohabited for at least 12 months (continuously, needs 90 days to be considered separated) and does not have a child 2. couple cohabits in conjugal relationship and are parents of a child (biological or adopted) |
| who does the spousal amount apply to? | all individuals who have had a spouse or CLP at any time in the year |
| what is the spousal credit for the person claiming it? | 15% of the individuals BPA for the year |
| what is the spouses credit amount when they are healthy with no net income of their own? | 15% of the supporting individuals BPA |
| what is the spouses credit amount when when they have net income? | 15% of (BPA - spouses net income) |
| what is the spouses credit amount when they are dependent on the individual due to infirmity? | 15% of (BPA+$2,867-spouses net income) |
| what is the total spousal credit calculation? | (BPA + spousal amount) x 0.15 |
| in what two scenarios does the eligible dependent credit apply? | 1. individual is single 2. individual was married or CLP in the year but separated and individual wholly supports certain family members |
| how many dependents can the eligible dependent credit be claimed for? | one dependent person per individual |
| what two benefits apply in in the eligible dependent credit? | BPA for claimer and eligible dependent amount |
| what relations qualify for an eligible dependent? | must be related by blood (parents, grandparents, children, siblings, children of siblings), marriage, common law, or adoption (doesn't include aunts, uncles, nieces, nephews |
| what are the 3 standards for an eligible dependent credit? | 1. must be wholly dependent on individual 2. must be under 18, infirm, or individuals parent/grandparent 3. must live in a home maintained by the individual |
| what is the eligible dependent amount if the dependent is not infirm? | 15% of (BPA-dependents income) |
| what is the eligible dependent amount if the dependent is 18 or older and infirm? | 15% of (BPA + $2,687 - dependents net income) |
| what is the final calculation for the eligible dependent tax credit? | (individuals BPA + eligible dependent amount) X 15% |
| in what 2 situations can the Canada caregiver amount be claimed for a child, and what is the calculation? | 1. infirm child lives with both parents 2. infirm child lives with single person who also claims the eligible dependent credit for the child (or could have) calculation: 15% of $2,867 ($430.05) |
| what is the caregiver amount for individuals with no spouse, CLP, or eligible dependent? | 15% of individuals BPA |
| to whom is the Canada caregiver credit available? | to someone who supports an infirm individual who is: 1. a spouse or CLP or... 2. a dependent aged 18 or older in the year |
| what's the main difference between the eligible dependent and caregiver tax credits? | caregiver credit can be claimed for a broader group of dependents |
| how is the caregiver credit calculated? | base amount: $8,601 reduced by eligible individuals net income in excess of $20,197 calculation: 15% of base amount |
| how many people can the caregiver credit be claimed for? | each and every eligible individual |
| can the caregiver credit be shared between supporting individuals? | Yes, if agreed upon by them |
| is it possible to claim the spousal elligible dependent credit and the caregiver credit? | no it is not possible. Only one can be claimed |
| can the caregiver credit be claimed if you are required to pay support to current/former spouse? | No you cannot |
| can the caregiver credit be claimed if infirm dependent is not a resident of Canada? | no, dependent must be a Canadian resident (except children/grandchildren) |
| when does an additional amount apply to the caregiver credit? | - when base for spousal credit is less than base for caregiver credit - when caregiver credit is subject to reduction when dependents income surpasses $20,197 |
| what is the calculation for an additional amount of the Canada caregiver credit? | caregiver credit base - spousal (or ED) base |
| when is the age credit available? | every year after year of 65th birthday |
| what is the calculation for the age tax credit? | $9,028 - (15% of (net income - $45,522)) |
| what is the calculation for the pension income tax credit? | 15% of first $2,000 pf eligible pension income (max $300) |
| what qualifies as eligible pension income for the pension income credit? | qualified pension income for those 65 and older (can't include other items not qualified as a pension) |
| what can be included in pension income for individuals over 65? | - life annuity payments from RPP - annuity out of RRSP - payment out of RRIF - annuity payment from DPSP |
| what is an annuity? | amounts payable on a periodic basis at intervals that can be shorter or longer than one year |
| what can be included in pension income for individuals under 65? | only includes life annuity payments from an RPP |
| who is the Canada employment tax credit available to? | all individuals with employment income |
| how is the Canada employment credit calculated? | Base: lesser of $1,471 or all of individuals employment income Final Calculation: 15% of base |
| who is the adoption expenses credit available to? | all individuals who adopt an elligible child |
| what is the calculation for the adoption expenses credit? | 15% of up to $19,580 of eligible adoption expenses |
| when must the adoption expenses credit be claimed? | during the year the adoption is finalized |
| when must eligible adoption expenses be incurred? | during adoption period Begins earlier of 1) time application is made to provincial adoption ministry 2) time an application is made to a court Ends at later of 1) time adoption order issued/recognized by gov 2) time child begins residence w individual |
| what is the purpose for the home accessibility tax credit? | non refundable credit for renovations allowing seniors and disabled people to be more independent at home |
| what is the calculation for the home accessibility tax credit? | Base: lesser of $20,000 and amount of qualifying expenditures Amount: 15% of base |
| what are the two groups of eligible individuals for the home accessibility credit? | 1) someone 65 or older at year-end (or someone eligible for disability credit 2) qualifying individuals spouse/CLP or individual eligible to claim Canada caregiver credit |
| what is an eligible dwelling for the home accessibility credit? | a housing unit located in Canada and owned by eligible or qualifying individual |
| what is the rule of thumb for eligible expenditures for the home accessibility credit? | item purchased must generally become a permanent part of the dwelling |
| can expenditures double for home accessibility and medical expense credit? | yes they can |
| what is the amount for the first time home buyers tax credit? | 15% of first $10,000 of a qualifying home |
| what is the minimum hours of volunteering to qualify for the volunteer firefighters/rescue workers credit? | 200 hours |
| what is the calculation for the volunteer firefighters/rescue workers credit? | Base: $6,000 Amount: 15% of base |
| how do individuals decide between claiming the volunteer firefighters or rescue workers credit? | whichever they volunteer the most hours with |
| what gifts are eligible for the charitable donations credit? | registered charities, Canadian amateur athletics, news orgs, Canadian municipalities, Canadian Government, foreign university that enrolls Canadians, foreign charity Canadian gov has donated to in current or preceeding year |
| what is the limit to claims for charitable donations? | 75% of net income (increased to 100% in year and preceeding year of death) |
| what is the calculation for the charitable donations credit? | 15% of A + 33% of B + 29% of C A) first $200 of gifts B) lesser of 1) amount by which gifts exceed $200 2) amount by which taxable income exceeds $253,414 C) Amount by which total gifts exceed sum of $200 + amount "B" |
| what is the carry forward for the charitable donations credit if over 75% of net income is donated? | excess donations can be carried forward 5 years (10 years for ecological gifts) |
| do cosmetic procedures qualify for the medical expense tax credit? | no they don't unless required for medical/reconstructive purposes |
| what is the calculation for the medical expense credit? | A[(B-C)+D] A) percentage for year (15%) B) med expenses of individual, spouse/CLP, children <18 C) lesser of 3% individuals income and $2,834 D) dependents med expenses claimed - lesser of 3% dependents income and $2,834 *B-C must be positive or nil |
| How is part D of the medical expense credit treated if individual has no dependents 18 or older? | D is ignored |
| what period can medical expenses be claimed for? | any 12 month period that ends in the year (extended to 24 in year of death) |
| what administrative concessions does the CRA allow for claiming of the medical expense credit? | they allow the individuals spouse to claim the credit administratively |
| what is the calculation for the disability tax credit? | Base: $10,138 + ($5,194 - amounts paid attendant care in excess of $3,646) Amount: 15% of base |
| what are the general criteria for claiming the disability credit? | 1. impairment must be continuous for at least 12 months 2. doctor, nurse, or other qualified person must certify on a T2201 |
| is the disability credit transferrable? | yes it is if disabled person has insufficient income tax to use the credit (can be transferred to a supporting person who claimed disabled person as an eligible dependent or caregiver credit |
| what choice is present when the disabled person has full-time attendant care? | must choose between claiming care as a medical expense and claiming disability credit |
| what is the threshold for full-time attendant care? | $10,000 ($20,000 in year of death) |
| what choice is present when the disabled person has part-time attendant care? | must choose between claiming medical expenses for attendant care plus disability credit, claim attendant care as deduction for child-care expenses, or claim disability supports deduction |
| what is the amount for the tuition tax credit? | 15% of qualifying tuition fees paid with respect to calendar year (min $100, no maximum) *can't claim if reimbursements from employer are included in income *up to $250 in ancillary and exam fees can be included *unlimited carry forward |
| what is the amount for the interest on student loans tax credit? | 15% of interest paid in the year or any of 5 preceeding years (carry forward of 5 years) |
| what are the rules for transferring the tuition tax credit? | they're allowed to parent/grandparent but can't be made if spouse/CLP has made spousal credit maximum transfer: lesser of available tuition credit and $5,000, multiplied by 5% |
| how much EI tax credit are employees entitled to? | EI tax credit of same amount of contributions |
| how much CPP tax credit are employees entitled to with a CPP contribution of $4,430? | $3,356 |
| what happens if an overpayment of CPP or EI is witheld by the employer? | employee is entitled to a refund calculated on a T2204 form |
| what are the 4 transferrable tax credits? | 1. age tax credit 2. pension tax credit 3. disability tax credit 4. tuition tax credit |
| how is the maximum transferrable amount calculated? | total tax base for each of four transferrable credits - (spouses taxable income reduced by bases of BPA, Canada employment CPP and EI credits, and credits under ITA 118.01 to ITA 118.07 |
| are corporations allowed to make political contributions? | no there is a ban on corporations making political contributions |
| what is the maximum political contribution for individuals? | $1,750 to each registered party/candidate and to all contestants in a particular contest (increased by $25 each year) |
| how is the credit for political contributions calculated? | 3/4 on first $400, 1/2 on next $350, 1/3 on next $525 (maximum of $650) *contributions past $1,275 do not result in credit |
| what is a labour sponsored venture capital corporation (LSVCC)? | a form of mutual fund corporation sponsored by an eligible labor organization mandated to provide venture capital to small/medium sized businesses |
| what is the calculation for the LSVCC credit? | 15% of first $5,000 net cost of shares ($750) |
| whare are the requirements for eligibility for the LSVCC credit? | 1. be eligible for provincial/territorial tax credit of at least 15% of cost of individuals shares 2. be sponsored by an eligible labor organization 3. mandate at least 60% of the LSVCC's shareholders equity be invested in small/medium businesses |
| what are the other tax credits to be discussed later in the textbook? | dividend tax credit, foreign tax credits, investment tax credits |
| what is an eligible individual for the GST/HST credit, and what amount are they entitled to? | a Canadian resident who is 19 or over during current year, or is married or living common law amount: $349 |
| what is a qualified relation and what amount are they entitled to for the GST/HST credit? | a cohabiting spouse or CLP amount: $349 (only one spouse/CLP is eligible) |
| what is the additional GST/HST credit if you have no qualifying relation? | lesser of $184 or 2% of individuals net income |
| what is the GST/HST credit amount for an eligible dependent (must be eligible for the eligible dependent credit) | $349 |
| what is a qualified dependent and what amount are they entitled for the GST/HST credit? | a person who is the individuals child or dependent on the individual (or individuals cohabiting spouse/CLP) for support. must be under 19, reside with individual, never had a spouse/CLP, and have never been the parent of a child) |
| how is the total GST/HST credit reduced? | total of all amounts (individual, spouse, CLP, dependent, etc.) reduced by 5% of the individuals 2023 adjusted income in excess of $45,521 |
| what is the eligibility for the refundable medical expense supplement? | 18 years old on December 31, 2025 and have employment/business income of at least $4,390 |
| what is the amount for the refundable medical expense tax credit? | lesser of $1,504 and 25/15 of medical expense tax credit claimable for year, further reduced by 5% of family net income in excess of $33,294 |
| what is the eligibility for the Canada workers benefit? | individuals 19 or older on Dec 31st, 2025 and have working income greater than $3,000 |
| what qualifies as working income for the workers benefit credit? | employment income (without deductions), business income, scholarships, research grants |
| what are the amounts for the Canada workers benefit? | individuals: $1,633 (phaseouts start at $26,855) families w spouses, CLP, or eligible dependents: $2,813 (phaseouts start at $30,639) |
| how are phaseouts calculated for the Canada workers benefit? | $0.15 on every $1.00 above the threshold |
| what is the purpose and amount of the early childhood educators school supply tax credit? | to reimburse early childhood educators who use personal funds for supplies amount: 25% for up to $1,000 |
| what qualifies as an eligible educator for the early childhood educators school supply tax credit? | anyone employed in Canada with a teachers certificate valid in employed province/territory |
| how often is the Canada carbon rebate credit paid? | quarterly generally available once return is filed |
| what are the carbon rebate payments for each type of family member? | single adult/first family member: $140 second adult in couple or first child of single parent: $70 each child under 19: $35 |
| what is the eligibility for the Canada training credit? | 25-65 years old (not meant for post secondary students) |
| what is the amount for the Canada training credit? | $250 added per year (starting 2019), maximum life accumulation of $5,000 |
| how are CTC amounts and tuition tax credit amounts related? | amounts qualified for CTC are the same as for tuition tax credit except for tuition to institutions outside of Canada |
| what is the CTC amount for 2025? | lesser of half tuition fees incurred current year, and individuals training limit for 2025 (max $1,500) |
| what is the criteria for eligibility for the CTC? | - file tax return for preceeding year - Canadian resident through preceeding year - earnings of $11,821 or more in preceeding year - net income not exceeding$173,205 in preceeding year |
| what is the purpose of the multigenerational home renovation credit? | to assist with creating a secondary unit to enable a senior or individual with disability to live with certain family members |
| what qualifies as a secondary unit for the multigenerational home renovation credit? | a self contained unit with private entrance, kitchen, bathroom, and sleeping area |
| what is a qualifying relation for the multigenerational home renovation credit? | at least 18 years old at end of renovation period and related to qualifying individual, spouse, or CLP |
| who is a qualifying individual for the multigenerational home renovation credit? | at least 65 years old at end of renovation period, or entitled to a disability tax credti |
| what is the amount for the multigenerational home renovation credit? | maximum 15% of $50,000 in qualifying expenditures for any one dwelling (can be multiple claimants but limit still applies) |
| what are clawbacks for OAS and EI? | repayment of OAS and EI based on level of income (if its too high) |
| when are clawback necessary for OAS and EI? | if income is greater than $82,125 (1.25x max insurable earnings of $65,700) |
| how is the amount to be repaid calculated for clawbacks on EI? | lesser of (income in excess of $82,125, and EI benefits included in current year income)x 0.30 |
| how is the amount to be repaid calculated for clawbacks on OAS | lesser of 15% of taxpayers net income in excess of the $93,454 income threshold and OAS payments included in income |
| what is done for income tax is OAS and EI clawbacks are expected base on previous tax year? | expected clawbacks are witheld |
| in what areas are individuals eligible for the carbon rebate? | all provinces except Quebec and BC (not territories) |
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