Ch9: Other Income, Other Deductions, And Other Issues Flashcards
What is included in individual inclusions?
- Pension benefits
- OAS, CPP (QPP), RPP received.
- Include 100% into income.
- we are not responsible for the OAS clawback. - Retiring allowances (buyback/buy-out/wrongful dismissal)
- include 100% into income.
- deduct if transferred to RRSP: max you can transfer to RRSP:
—> 2,000 per year (years worked for this employer prior to 1996).
—> +1,500 per year (years worked for this employer prior to 1989 and had no RPP or DPSP with this employer).
What are income inclusions from deferred income plans?
- Death benefits received
- include only amounts received greater than 10,000 (if benefit is 30k, only include 20k).
- only one 10,000 exemption per death
- spouse gets the 10,000 exemption first, if she/he doesn’t need it, others can split the balance. - Payments received from RRSPs
- include 100% into income. - Payments received from DPSPs
- include 100% into income. - RRIF Withdrawals
- include 100% into income. - Home buyers plan - (35,000 RRSP withdrawal to acquire a first home)
- deficient repayments added to income.
- need to repay a minimum per year (based on 15 year repayment), if you don’t that amount is included in income. - Lifelong learning plan - (10,000 withdrawal in calendar year from your RRSP to finance full time training).
- maximum 20,000 in total.
- deficient repayments added to income.
- need to repay a minimum per year (based on 10 year repayment), if you don’t that amount is included income.
What is included in education assistance?
Scholarships
- amounts received are usually exempt (not taxable).
- exemption limitations for post-secondary (does not include post-doc fellowships).
What is included in research grants?
Included in income net of expenses related to research.
What is included in social assistance (welfare) and workers’ compensation?
Both are included in net income. Both are deducted from taxable income.
When you add all your income ==> Division B
Remove social assistance & workers’ compensation (because you don’t pay taxes on it).
Taxable income ==> Division C
What is included in individual deductions - CPP Contributions?
Self-employed must pay both halves of CPP (employer and employee part).
- maximum 2023 contribution amount = (3,754)(2) = 7,508
- maximum tax credit for 2022 is 3,123 (we will see when we calculate tax payable).
- the balance, 4,385 is a deduction.
For employees (final exam)
- maximum 2023 contribution amount = 3,754
- maximum tax credit for 2022 is 3,123 (we will see when we calculate tax payable.
- the balance, 631 is a credit.
What is included in individual deductions - Moving Expenses?
Who can deduct?
- move to a new work location (from old work location, from full time attendance at university or college, from unemployment).
- move to full time attendance at college or university.
- move must be greater than 40 km and within Canada.
What can you deduct?
- travel costs (employee and family, includes vehicle costs, air, etc. and food and lodging).
- moving household effects and storage (moving company fees, storage room fees if house is not ready yet).
- meals/lodging at new or old residence (15 days), move above does not count (if move is 4 days, do not count in the 15 days).
- lease cancellation costs (if you have to pay to cancel your lease).
- selling costs - old residence; commissions.
- costs of acquiring new residence - legal fees before taxes (provided the employee owned an old residence).
- max 5,000 interest, taxes, insurance, and utilities - of old residence while you are trying to sell it (excess costs).
- cost of revising legal documents, changing drivers, license, connecting utilities.
—> House hunting is not a moving expense (not deductible),
—> maximum moving expense deduction for the year is equal to the employment income you earned, excess can be carried forward.
Tax planning
- important if costs shared with employer.
- employer pays for non-deductible costs to you:
- pays for your costs of visits to new locations (not a taxable benefit to you even though the amount would not have been deductible if you had paid it).
- pays for your loss on the sale of the old house (amount reimbursed - 15k x 50%).
What is included in individual deductions - Child Care Cost?
Eligible child:
- under 16 at some time during the year.
- older, but mentally or physically infirm.
- income less than $14,398 (2022).
Costs must be supported by receipts. Generally deducted by low income spouse. Deduction is the least of 3 amounts:
1) annual limit
- 11k if eligible for the disability tax credit (doctor certified) - any age.
- 8k if child under 7.
- 5k if child aged 7-16 and child over 16 with disability (but not eligible for the disability tax credit).
2) actual costs + periodic limit (for overnight stays at camp).
- 275/week if eligible for the disability tax credit.
- 200/week if child under 7.
- 125/week if child aged 7-16 and child over 16 with disability (but not eligible for the disability tax credit).
3) 2/3 earned income of lower income spouse
What is included in individual deductions - Disability Supports?
Eligibility:
- work as employee
- carry on a business
- attend a designated educational institution
- carry on research for which a grant was received
Expenses limited to the lesser of:
- qualifying costs, less amounts reimbursed
- the total of: (1) employment, business, and scholarship income and research grants. (2) if at designated educational institution or secondary school, the lesser of: 15k and 375/week of attendance.
Cannot claim medical expense credit for same costs.
What is related inclusions and deductions - Employment Insurance?
Receipts included in income.
Repayments deductible from income (if you get too much E.I., you have to repay some and it is deductible).
What is related inclusions and deductions - Pension Income Splitting?
Can re-allocate up to 50% of your pension income with your spouse.
- includes RPP, RRSP, and RRIF income. Does not include OAS and CPP (QPP).
- first include pension in income, then deduct amount split with spouse.
Ex. You earned 45k, allowed to deduct 17.5k (because excludes OAS and CPP), so you have to pay taxes on 27.5k.
—> your spouse includes the 17.5k in their income.
What is related inclusions and deductions - Child Support and Spousal Support?
Child support
- not deductible to payor spouse.
- not taxable to recipient spouse.
Spousal support is taxable to recipient/deductible to payor if:
- to spouse or former spouse
- living apart
- paid pursuant to a formal agreement
- made on a periodic basis (lump sums don’t qualify)
- recipient has discretionary use of payments
What is related inclusions and deductions - Additional Considerations?
Spousal and child support:
- if insufficient payments, first payments made are considered child support, rather than spousal support.
- payments for spouse to third parties can be deductible and taxable.
- child support is not added to or deducted from earned income for RRSP purposes. Spousal support is added and deducted (will see later).
- recipient of child support can still take credit for eligible dependant (will see later).
- individual deducting support payments cannot take credit for spouse or eligible dependant (will see later).
What is related inclusions and deductions - Annuity Receipts?
Requires the inclusion of all annuity payments received.
Available deduction: capital element is deductible (cost of annuity/number of years).
Explain TFSAs
Began in 2009.
- maximum contribution increased to 6,500 for 2023.
- tax free accumulation of earnings.
- penalty of 1% per month on excess contributions.
- not subject to income attribution rules (TFSA, RESP, RRSP contributions/withdrawals are not taxable and not deductible, so do not effect income).
