Other Income and Deductions Flashcards
4 common types of non Employment income, Business income, Property income, Capital income include
Scholarships and bursaries and Research grants (exempt, conditions exist)
Alimony & Maintenance (spousal only)
Worker’s compensation
Pension Benefits
Pension Benefits include
How are Scholarships, Bursaries, Research Grants taxed
student can claim the education tax credit, otherwise are exempt only up to $500 annually
Provides that research grants are taxable and costs related to it are deductible against it
How is Alimony taxed
Deductible for payer
taxable for receiver
conditions:
Payment made pursuant to order of competent tribunal or pursuant to written agreement
Payment as an allowance for maintenance of recipient
Payable on a periodic basis
recipient must be living apart from spouse as a result of divorce or judicial separation
How is Alimony (Legal Fees) taxed
To enforce pre-existing rights support are deductible. Now includes legal costs to obtain spousal support.
How is Worker’s Compensation
taxed
Include any WCB benefits into income
However get a deduction under Paragraph 110
(1) (f) in arriving at taxable income for full
amount
RRSP deduction limit 2023
+ lesser of:
$30,780 (for 2023) minus last year’s pension adjustment (PA)
18% of “earned income” of previous year minus last year’s PA
Amount contributed in year and in first 60 days following taxation year
+ the individual’s unused RRSP deduction room carried forward from 2022
How to get RRSP earned income
Income from office and employment (sect. 5 to 8 excluding deduction for RRP)
Business income
Rental income from real property
Alimony and maintenance income
Research grants net of related expenses
Minus
Business losses
Rental losses
Alimony and maintenance deductions
What is Pension Adjustment (PA)
Provided on individual T4.
Represents the value of tax- assisted or sheltered benefits accruing to the taxpayer in a year.
Implications of EXCESS CONTRIBUTION TO AN RRSP
Subsection 204.1 (2) Levies a tax of 1% per month on the excess contributions
Excess contribution is in excess of $2,000 above deductible contribution limit
Excess contribution is not deductible but taxable on withdrawal
Any excess amount can be withdrawn from the plan and included in year of receipt, if withdrawn within a year can be deducted, not double taxed
max contribution to spouse’s RRSP is?
Max RRSP contribution still limited to the amount that may be deducted by taxpayer for his / her own RRSP
how are Pooled Registered Retirement Savings Plan taxed?
Similar to an RPP:
Employers can deduct contributions
Employees not taxed until withdrawn
Tax Free First Home Savings Account (FHSA) max contribution
contributions can be made to a FHSA, up to $8,000 per year
$40,000 lifetime contribution limit
Only for one property
Tax Free First Home Savings Account (FHSA) Benefits
Contributions are deductible for tax purposes
Income earned in the FHSA is tax-free
Withdrawals from the FHSA is tax-free, if used to buy a qualifying first home
Can transfer to RRSP, without impact on RRSP room
Registered Education Savings Plan (RESP) & Canada Education Savings Grant CESG
max contribution
$50,000 lifetime contribution limit
-Annually – 20% of contribution up to
$2,500 – max grant $500
- May be increased to $1,000 if maximum grant was not received in prior years
-Lifetime –maximum grant $7,200
Registered Education Savings Plan (RESP) Benefits
Investment returns accumulate in plan on tax deferred basis Similar to RRSP
Investment returns are taxed in child’s hands
Usually a lower income levels resulting in lower overall tax
Registered Education Savings Plan (RESP) maximum withdrawals (EAPs)
First 13 weeks of consecutive studies:
-Full-time studies – Max of $8,000 per year
-Part-time studies – Max of $4,000 per year
Receipts from Contributions made by Contributor:
-Paid Tax Free
Receipts from Earnings and Grant
Taxable when received
Registered Education Savings Plan (RESP) withdrawals to contributor
Original contributions
– not taxable
Earnings – two levels of tax
-Income taxed at usual levels
-Additional tax of 20%
Rollover to RRSP avoids both levels of tax
Must have contribution room
Tax-Free Savings Accounts (TFSA)
max contributions
Contributions are limited to
-$6,500 for 2023
-(cumulative $88,000)
Can contribute individual and/or spouses plan
-Combined contribution is $13,000
when are tax deductiableMoving Expenses ITA 62 & how much is deductible
Eligible if new residence location is at least 40 km closer to new work location than previous home
or to attend a post secondary
Only deductible to the extent of employment/business income at
new location (+ scholarship + grants)
What moving expenses are deductible
- Traveling costs for taxpayer
- Cost of transporting furniture, etc.
- Cost of food and lodging at the old or new location for up to 15 days
- Cost of canceling a lease on former residence
- Cost of selling his former residence
- Legal fees and transfer tax on new residence (only if old residence is being sold)
- Cost of maintaining a vacant former residence
Max childcare deduction
$200/ child / week for children under 7 years old at year end ($8,000/40)
$275/ child/ week if infirmed ($11,000/40)
$125 / child / week for other eligible children ($5,000/40)
Limited to 2/3 of earned income
Earned Income for childcare deduction is calculated as: (ITA 63 (3) (b))
income from employment or business plus taxable training allowances, scholarships, bursaries, prizes, research grants
Circumstances where spouse with higher income is allowed to claim childcare deduction
- is in full time attendance at a designated educational institution
- is certified by a doctor to be incapable of caring for children by reason of medical or physical infirmity
- is in prison for at least 2 weeks in the year
- Is living apart for at least 90 days in the
year by reason of marriage breakdown
