Ch.15 Other Income-Personal Flashcards
Pension income splitting
- Marginal tax rates of both the transferor and the transferee spouse — if the transferee spouse is in a lower tax bracket, pension income splitting will generally be beneficial.
- Availability of the pension tax credit to the transferee spouse — If the transferee spouse does not have any pension income, allocation of $2,000 of pension income from the transferor spouse to the transferee spouse will make the pension credit available to both spouses.
- Impact of allocation on the Old Age Security (OAS) clawback — allocation of pension income from the higher-income spouse to the lower-income spouse will reduce the higher-income spouse’s net income and possibly reduce or eliminate an OAS clawback.
- Impact of the allocation on tax credits where net income is relevant, including the spousal, age and medical expense tax credits.
Other registered plans
Registered education savings plans (RESPs) and registered disability savings plans (RDSPs) are other types of deferred income plans. They differ from the deferred income plans noted above in that the amounts contributed to the plan are not deductible
no tax deferral on amounts contributed to the plan, and the contributions are not taxed when withdrawn from the plan.
Annuities
An annuity is defined as an amount payable on a periodic basis. If an annuity is acquired within a tax-deferred plan as noted above, the full amount of the payment received is taxed when amounts are received. Annuities may also be acquired outside a deferred income plan.
Canada Pension Plan
The amount that can be shared is 50% of the combined CPP benefits received but pro-rated by the length of time the individuals have been living together in relation to the period over which they have been contributors. A non-contributing spouse must be at least 60 years of age at the time of this election.
OAS
OAS payments are made by the government of Canada to any individual 65 years of age or older who has been resident in Canada for a minimum of 10 years. OAS payments are included in income. Higher-income earners may be required to pay back some or all of their OAS
Retiring allowances
he amount that may be transferred on a tax-free basis is the lesser of:
(i) $2,000 for each year or part year during which the individual was employed by the employer or related employer with respect to service before 1996, plus an additional $1,500 for each year or part year, the taxpayer was employed by the employer prior to 1989 for which the employer’s contributions to an RPP or DPSP had not vested by the time the retiring allowance was paid.
(ii) The amount of the retiring allowance received in the year.
Death benefits
death benefits are paid to multiple beneficiaries, the following rules apply to the $10,000 exemption:
• A beneficiary who is the surviving spouse is allocated the exemption up to a maximum of $10,000.
• If any amount of the $10,000 remains after the allocation to the surviving spouse, the remaining amount is allocated on a pro-rata basis to beneficiaries other than the spouse.
Employment Insurance benefits
Payments received under an Employment Insurance (EI) plan are included in income
Amounts included in net income and deducted under Division C
included in net income and deducted under Division C:
• social assistance benefits (welfare)
• Workers’ Compensation
• Guaranteed Income Supplement
Indirect payments
decision to pay or transfer property must have been made by or with the concurrence of the taxpayer. The following conditions must hold:
• The taxpayer must have benefited from the transfer.
• The payment or value of the transferred property would have been included in the taxpayer’s income if the transfer had not been made.
If these conditions apply, the payment or value of the transferred property is included in the income of the transferor.
Scholarships, bursaries and fellowships
Any amount received by a student in a year as a scholarship, fellowship or bursary is exempt from tax if the student was in full-time attendance at a post-secondary educational institution or a secondary or elementary school.
Research grants
are included in the taxpayer’s income to the extent the grant exceeds expenses incurred in carrying out the research. The following expenses are not allowed:
• personal or living expenses
• expenses the taxpayer has been reimbursed for
• expenses deductible in the year under other provisions of the ITA
• expenses that are unreasonable in the circumstances
• expenses paid by someone else on behalf of the taxpayer
Spousal and child support
amounts that are tax-deductible to the payer are included in the income of the recipient.
spousal support are deductible to the payer and taxable to the recipient
mounts paid for the support or maintenance of a child are not deductible to the person making the payment and are not taxable to the recipient.
