Taxable Income and Tax Payable For Individuals - PowerPoint Presentation

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Uploaded On 2019-11-24

Taxable Income and Tax Payable For Individuals - PPT Presentation

Taxable Income and Tax Payable For Individuals Chapter 4 Copyright 2020 Pearson Education Ltd 1 From Net To Taxable Income Copyright 2020 Pearson Education Ltd 2 Available Deductions Employee Stock Options Chapter 3 ID: 767696

education 2020 copyright pearson 2020 education pearson copyright income 118 ita tax 000 credit amount canada net eligible individual

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Available Deductions Employee Stock Options (Chapter 3) Deductions For Payments Lump Sum Payments Lifetime Capital Gains Deduction (Chapter 11) Northern Residents Deductions Loss Carry Overs (Chapter 11) Copyright © 2020 Pearson Education Ltd. 3

Deduction For Payments Tax treaty exemptions Worker ’ s compensation – Removes from net income Income from employment with prescribed international organizations Social assistance payments – Removes from net income Copyright © 2020 Pearson Education Ltd. 4

Tax Payable - The Basic System 2019 Rates Taxable Income Marginal Rate In Excess Of Federal Tax On Excess $ -0- $ -0- 15.0% 47,630 7,145 20.5% 95,259 16,908 26.0% 147,667 30,535 29.0%210,371 48,719 33.0% Copyright © 2020 Pearson Education Ltd. 5

The Basic System Example For 2019, an individual has Taxable Income of $100,000 and only his basic personal tax credit of $1,810 [(15 %)($12,069)]. Tax On First $95,259 $ 16,908 Tax On Next $4,741 ($100,000 - $95,259) At 26% 1,233 Total Federal Tax Before Credit $18,141Basic Personal Credit ( 1,810) Federal Tax Payable $16,331 Copyright © 2020 Pearson Education Ltd. 6

Provincial Tax Payable All Provinces Apply Progressive Rates To Taxable Income 2019 Minimum = (5.05 + 15.0) 20.05% Combined 2019 Maximum = (21.0 + 33.0) 54.0% Combined Copyright © 2020 Pearson Education Ltd. 7

Tax Credit System Refundable Vs. Non-Refundable.In general, minimum rate applied to a base (15% for 2019).Some credits have income threshold.Provinces have similar credits. Copyright © 2020 Pearson Education Ltd. 8

2019 Personal Tax Credits Individuals ITA 118(1)(a): If Married ITA 118(1)(c): If Single [(15 %)($12,069)] = $ 1,810 If spouse has physical or mental infirmity: [(15 %)($12,069 + $ 2,230)] = 2,145 Copyright © 2020 Pearson Education Ltd. 9

2018 Personal Tax Credits Spouse Or Common-Law Partner – ITA 118(1)(a) If healthy(15%)($12,069 – Net Income Of Spouse) If mentally or physically impaired (15 %)($12,069 + $ 2,230 - Net Income Of Spouse) Maximum = $1,810 (healthy) or $2,145 (impaired)Copyright © 2020 Pearson Education Ltd. 10

2018 Personal Tax Credits Amount for Eligible Dependant ITA 118(1)(b)Same amount as spouse or common-law partner $ 1,810 if dependant healthy $ 2,145 if dependant impairedCopyright © 2020 Pearson Education Ltd. 11

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 Copyright © 2020 Pearson Education Ltd. 12

Canada Caregiver – ITA 118(1)(d) ConditionsCare for a dependant over 17 (does not have to be in-home)Resident of Canada (unless child or grandchild)Mental or physical infirmity Not available if eligible dependant available Not available for a spouse or common-law partner Copyright © 2020 Pearson Education Ltd. 14

Canada CaregiverAdditional Amount – ITA 118(1)(e) Additional amount for spouse or eligible dependantIf base for spousal or eligible dependant credits is less than the Canada caregiver amount base; Then, additional amount is available: Actual spousal or eligible dependant amount, less Income adjusted Canada caregiver amount Copyright © 2020 Pearson Education Ltd. 16

Canada CaregiverAdditional Amount – ITA 118(1)(e) Example Infirm spouse with income of $18,163 Regular spousal credit equal nilAdditional amount = $5,743 [$7,140 – ($18,163 – $16,766)] Copyright © 2020 Pearson Education Ltd. 17

Pension Income – ITA 118(3) Qualifying AmountsAge 65 Or Older At End Of Year Most Non-Government< Age 65 At End Of YearLife Annuities Amounts Resulting From Death Of Spouse No CPP, OAS, Or Provincial (QPP) Copyright © 2020 Pearson Education Ltd. 20

Adoption Expenses – ITA 118.01 Eligible ChildHas not attained age 18 Issued adoption orderEligible Expenses Fees to agency Court and legal fees Reasonable travel costs Mandatory fees related to immigration Other reasonable expenses incurred after the adoption file is opened Copyright © 2020 Pearson Education Ltd. 23

Home Accessibility – ITA 118.041 Qualifying individualsAn individual over 65 An individual eligible for the disability tax creditEligible dwelling: Housing unit located in CanadaQualifying costs: Allows qualifying individual to be more mobile or more functional within an eligible dwelling 15% of the lesser of $10,000 and the amount of qualifying costs Some costs will also be added to the medical expense credit base (double counting). Copyright © 2020 Pearson Education Ltd. 24

Charitable Donations – ITA 118.1 Calculation [(15%)(A)] + [(33%)(B)] + [(29%)(C)] where:A = The first $200 of eligible gifts. B = The lesser of: Total gifts, less $200; and Taxable Income, less $210,371 (for 2019) C = The excess, if any, by which the individual's total gifts exceed the sum of $200 plus the amount determined in B..Copyright © 2020 Pearson Education Ltd. 28

Charitable Donations – ITA 118.1 Example: An individual with net income and taxable income equal to $300,000, makes eligible gifts of $210,000. Copyright © 2020 Pearson Education Ltd. 29 15% of $200 $ 30 33% Of The Lesser Of: $210,000 - $200 = $209,800 $300,000 - $210,371 = $89,629 29,578 29% Of $210,000 – ($200 + $89,629) = $120,171 34,850(Remember to add the $30 on the first line.) $ 64,458

Charitable Donations – ITA 118.1 General RulesLimit: 75% Of Net Income (100% in individual’s year of death and preceding year), plus25% of taxable capital gains on gifts of capital property (See Chapter 11), plus 25% of recapture on gifts of capital property (See Chapter 11) Copyright © 2020 Pearson Education Ltd. 30

Medical Expenses – ITA 118.2 General Rules15% of eligible costs Reduced by the lesser of3% of Net Income$2,352 – The 2019 Figure Any 12 month period ending in the year Copyright © 2020 Pearson Education Ltd. 32

Medical Expenses – ITA 118.2 Spouse And Minor Dependants No Additional ReductionDependants Over 17 Years Of AgeCalculated For Each Dependant Each Dependant’s Medical Expenses, Reduced By The Lesser Of: $ 2,352 3% Of Dependant’s Net IncomeCopyright © 2020 Pearson Education Ltd. 33

Medical Expenses – ITA 118.2 Example: An individual with income > $100,000 and medical expenses of $5,000. His 20-year-old child has medical expenses of $10,000 and net income of $9,000. Taxpayer ’ s Expenses $ 5,000 Threshold (Maximum) ( 2,352) Subtotal $ 2,648 Dependant Expenses - $10,000 Reduced By Lesser Of: (3%)($9,000) = $270 $ 2,352 9,730 Allowable Amount Of Medical Expenses $12,378 Credit [(15%)($12,378)] $ 1,857 Copyright © 2020 Pearson Education Ltd. 34

Disability Amount – ITA 118.3 Must Be Severe And ProlongedSignificantly Restricts Basic Living Activities A Continuous Period Of At Least 12 MonthsRequires Form T2201 Copyright © 2020 Pearson Education Ltd. 35

Disability Amount – ITA 118.3 15% Of $8,416 = $ 1,262No Income TestNo 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) Copyright © 2020 Pearson Education Ltd. 36

Disability Supplement If under 18 at end of year: 15% Of $4,909 = $736Combined provides $ 1,999 [(15%)($ 8,416 + $ 4,909)] The $ 4,909 is reduced by deducted costs in excess of $2,875 forChild care costs deducted;Amounts deducted under the disability supports deduction; orAttendant care amounts claimed for the medical expense tax credit Copyright © 2020 Pearson Education Ltd. 37

Tuition Credit - ITA 118.5 TuitionIncludes all ancillary, including examination fees, if mandatory Includes $250 of ancillary fees and $250 of examination fees even if not mandatoryUnlimited carry forward by student Copyright © 2020 Pearson Education Ltd. 39

Interest on Student Loans Interest On Student Loans15% Of Amounts Paid Loans Under The Canada Student Loans Act, the Canada Student Financial Assistance Act, Or A Provincial Statute Copyright © 2020 Pearson Education Ltd. 40

Transfer Of Credits Spouse - ITA 118.8Eligible AgePensionDisabilityCurrent year tuition After Personal, CPP, EI, credits under 118.01 through 118.07, And Tuition Credit Used Copyright © 2020 Pearson Education Ltd. 43

Transfer Of Credits Tuition To A Parent Or GrandparentN/A If Student’s Spouse Claims Credit Unused Amount After Personal, CPP, EI, And DisabilityTo Parent Or GrandparentMax = 15%($5,000) = $750 Carry Forward By Student Only If Unused Copyright © 2020 Pearson Education Ltd. 44

Political Contributions Canada Elections Act Individuals limited to $1,600 (2019) for registered party candidate or leadership contestant nomination contestant Limit increases by $25 on January 1 of each year. Corporations Totally banned Copyright © 2020 Pearson Education Ltd. 46

Labour Sponsored Funds (LSVCCs) First registered holder Federal credit for provincially registered funds15% of costThe provincial credit must be at least 15% of cost60% of the fund’s investments must be in small and medium sized enterprises Copyright © 2020 Pearson Education Ltd. 47

Support For Canada’s Media Sector 15 percent non-refundable credit for subscribers to digital news mediaA donations tax credit for contributions to a new category of "qualified donee " for non-profit journalism organizations. This will allow these organizations to issue tax receipts for donations from both individuals and corporations . A refundable tax credit for qualifying news organizations that produce a wide variety of news and information of interest to Canadians. Specifically, the credit will apply to the labour costs associated with producing original content.Copyright © 2020 Pearson Education Ltd. 48

Refundable Tax Credits Most credits can only be used against Tax PayableRefundable tax credits are paid to the taxpayer, without regard to whether there is a Tax Payable balance.Discussed HereGST/HSTMedical Expense Supplement Canada Workers Benefit (Limited Discussion) Teacher And Early Child Educator’s Supplies Climate Action Incentive (Some Provinces) Canada Training Credit Copyright © 2020 Pearson Education Ltd. 49

Refundable GST Credit $290 Individual $290 Qualified Relation$290 Eligible Dependant $ 153 Qualified Dependant Total Of Above Less: 5% Of Family Income > $37,789Copyright © 2020 Pearson Education Ltd. 50

Refundable Medical Expense Supplement The credit is the lesser of:$ 1,24825/15 of the medical expense tax credit claimedReduced by:5% of family net income in excess of $ 27,639 Not available when family net income reaches $ 52,599 Copyright © 2020 Pearson Education Ltd. 52

Refundable Medical Expense Supplement John Lux and his spouse have medical expenses of $4,500. He has Net Income of $29,000 while her Net Income is nil. As a result, the family net income is $29,000. His medical expense tax credit would be:$545 [15%][$4,500 – (3%)($29,000)]His supplement would be the lesser of: $ 1,248 $908 [(25/15)($545) Reduced by $ 68 [(5%)($29,000 - $27,639)]The refundable credit would be $840 ($908 - $68)Copyright © 2020 Pearson Education Ltd. 53

Canada Workers Benefit (Formerly Working Income Tax Benefit) The problem : At minimum wage, an individual may be better off not workingReductions in social assistance Loss of subsidized housing Other low income benefits Calculations Very Complex (Not Covered In Text) Copyright © 2020 Pearson Education Ltd. 54

Refundable Teacher School Supply 15 percent of the cost of eligible supplies up to $1,000 Eligible EducatorA teacher will need a teacher’s certificateEarly childhood educator needs either a teacher's certificate or a diploma in early childhood education Eligible Supplies Durable goods (games, puzzles, educational support software) Consumable goods (construction paper, items for science projects, art supplies) Copyright © 2020 Pearson Education Ltd. 55

Refundable Climate Action Incentive Payments Available in provinces that rejected the federal carbon tax ManitobaNew BrunswickOntario Saskatchewan The refundable credit Varies by province ($128 to $305 for a single individual) Varies by family size (Ontario = $154 for a single individual to $307 for a family with two children) Not income dependent Copyright © 2020 Pearson Education Ltd. 56

Refundable Canada Training Credit Qualified individual Resident of Canada 25 to 64 years of ageEarned income in excess of $10,000 in year Net income does not exceed 3 rd tax bracket ($147,667 for 2019) An account accumulates, beginning in 2019, at the rate of $250 per year. Refund equals the lesser of: One-half of training costs during the year Account balance for preceding year (first year of availability is 2020)Copyright © 2020 Pearson Education Ltd. 57

Clawback of EI Applicable if EI recipient’s net income exceeds $66,375 30 percent of the lesser of:EI benefits receivedExcess of net income over $66,375 for 2019 Copyright © 2020 Pearson Education Ltd. 58

Taxable Income and Tax Payable For Individuals - PowerPoint Presentation

Taxable Income and Tax Payable For Individuals - PPT Presentation

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