Ch4: Taxable Income and Tax Payable for Individuals Flashcards
What is the basic system of tax payable?
2023 rates
From 0 to 53,359: 15.0% of TI
53,359 –> 8,004 –> 20.5%
106,717 –> 18,942 –> 26.0%
165,430 –> 34,207 –> 29.0%
235,675 –> 54,578 –> 33.0%
How do you go from net to federal tax payable?
Calculating Federal Tax Payable
Employment income (+-)
Business income (+-)
Property income (+-)
Net TCG (+ only)
Other income (+ only)
Other deductions (- only)
= Net income (Division B income)
Division C deductions:
Worker’s compensation
Social assistance
Employee Stock Option deduction
Lifetime CG deduction
Carry over losses deductible
= Taxable income (Division C income)
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Tax Payable on taxable income (federal tax + rate)
Non refundable tax credits
Federal Tax Payable
What are the basics of the tax credit system?
→ Some tax credits are refundable, most are non-refundable (if you don’t use them, you lose them).
→ In general, minimum tax rate is applied to a non-refundable tax credit base (15% for 2023).
→ Some credits have income thresholds.
2023 personal tax credits: A) Basic Personal Amount (BPA)
→ Credit: (15%)(BPA)
→ For most individuals the BPA will be $15,000.
→ Credit: (15%)(15,000) = $2,250
2023 personal tax credits: B) Amount for Spouse or Common-Law Partner
→ In addition to the BPA if you are married or living common law you may be eligible for the spousal amount.
→ If spouse is healthy, credit: (15%)(BPA - NI of spouse)
→ If spouse is mentally or physically impaired, credit: (15%)(BPA + 2,499 - NI of spouse). You can claim tax credit if spouse is eligible or not for disability tax credit.
→ Mentally or physically impaired/infirmity means dependent on the individual for a considerable amount of time.
2023 personal tax credits: C) Amount for Eligible Dependant
→ Conditions: if you are single, divorced, separated, or widowed, and you support a dependant:
Who is 1) under 18 or is 2) your parent or grandparent, or is 3) mentally or physically infirm.
Living with the individual.
Related by blood, marriage, or adoption.
Resident in Canada (except child).
Dependent on individual for support.
→ If the E.D. is healthy, credit: (15%)(BPA - NI of E.D.)
→ If the E.D. is mentally or physically impaired, credit: (15%)(BPA + 2,499 - NI of E.D.)
→ Only allowed 1 E.D., choose the one that has less income.
2023 personal tax credits: D) Canada Caregiver for Child
→ If child is under 18 at end of year.
→ The child is mentally or physically impaired (eligible or not for disability tax credit).
→ Credit: (15%)(2,499) = 375
→ Can claim multiple.
→ 2,499 can only claim once per child.
2023 personal tax credits: E) Canada Caregiver Amount
→ Conditions:
Care for a dependant over 17 (does not have to be living at home with you, visit them frequently).
Resident of Canada (unless it’s your child or grandchild).
Has a mental or physical infirmity.
Not available for B).
Not available for C).
→ Can claim multiple.
→ The base is reduced by the dependant’s income in excess of $18,783.
→ Maximum credit: (15% (7,999) = $1,200.
→ NI under 18,783, tax credit available is $1,200.
→ NI is 20,000: (20,000-18,783) = 1,217 ⇒ (7,999-1,217) = 6,782 ⇒ (15%)(6,782) = credit of $1,017.
Additional amount for infirm spouse or infirm E.D.:
→ If the base for the infirm spousal or infirm E.D. credit is less than the base for the Canada Caregiver Amount, then an additional amount is available to compensate.
→ The objective is to ensure the credit for the infirm spouse or infirm E.D. is not less than the Canada Caregiver Amount.
→ Claim B) first at 15%, then claim additional amount for the difference at 15%.
Tax credits available: age
→ Reach 65 in the year.
→ Credit: (15%)(8,396) = $1,259
→ Reduction in base by 15% of NI over $42,335 (gone when NI reaches $99,308).
Tax credits available: pension income
→ Credit: (15%)(1st $2,000 of eligible pension income)
→ Max credit = $300
→ Qualifying Amounts:
Age 65 or older at Y/E: most non-government plan annuities (RRSPs, RPPs, RRIFs, DPSPs).
< Age 65 at Y/E: RPPs annuities (company pension plan), amounts resulting from death of spouse.
CPP, OAS, or QPP are not eligible.
Tax credits available: Canada employment
→ Credit: (15%)(lesser of $1,368 or employment income).
→ Max credit = $205.
→ Must have employment income.
Tax credits available: Adoption expenses
→ Credit: (15%)(Max of $18,210 of eligible adoption expenses)
→ Max credit = $2,732
→ Eligible child: has not attained age 18, issued adoption order.
→ Eligible 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.
Tax credits available: Digital News Subscription credit
→ For digital subscriptions with a qualifying Canadian journalism organization.
→ Credit: (15%)(Max of $500)
→ Max credit = $75.
Tax credits available: Home accessibility
→ Qualifying individuals: an individual over 65 or an individual eligible for the disability tax credit.
→ Eligible dwelling: housing unit located in Canada.
→ Qualifying costs: allows qualifying individual to be more mobile or more functional within an eligible dwelling.
→ Credit: (15%)(lesser of $20,000 and the amount of qualifying costs)
→ Max credit = $3,000 can be claimed by the qualifying individual or the spouse or person that could have claimed the person as an eligible dependant (have to live with you).
Tax credits available: First Time Home Buyer’s Tax Credit
→ Credit: (15%)($10,000) = $1,500.
→ Can be claimed by individual or spouse.
→ Neither must have owned a home in preceding 4 years.
