Tax 2 Midterm Flashcards
What is a primary indicator of an individual’s residency in Canada?
Dwelling
Maintaining a dwelling place in Canada generally indicates residency unless rented to an arm’s-length party for an extended period.
How does having a spouse or common-law partner in Canada affect residency status?
It generally results in being considered a Canadian resident
This is unless the individual was living separate due to a relationship breakdown before leaving Canada.
What role do dependants play in determining Canadian residency?
Having dependants in Canada weighs in favor of residency
This typically refers to minor children.
List three secondary indicators of residency in Canada.
- Personal property in Canada
- Social ties with Canada
- Economic ties with Canada
What are some examples of economic ties with Canada?
- Employment with a Canadian employer
- Involvement in a Canadian business
- Canadian bank accounts
- Retirement savings plans
- Credit cards
- Securities accounts
What constitutes a deemed resident of Canada?
Individuals who sojourn in Canada for more than half the year (183 days or more)
This definition is specified under ITA 250(1)(a).
What happens if there is an income tax treaty between Canada and another country?
Apply the treaty tie-breaker rules
This determines residency status between the two countries.
If the tie-breaker rules favor the other country, what is the residency outcome?
The individual is deemed a non-resident of Canada by ITA 250(5)
Otherwise, they are considered a resident of Canada.
What tax rights does Canada have if an individual is a resident of a non-treaty country?
Canada can impose income tax on the individual’s worldwide income
Foreign tax relief may apply to any foreign income tax charged.
Non Refundable tax credits
- Basic personal amount (BPA)
- Individuals with a spouse/CLP; or
Eligible dependent
-Education related:
Interest on student loans;
Tuition fees (to spouse; or
parent/grand parent) - CPP and EI
- Canada Employment
- First-Time Home Buyers
- Volunteer Firefighters and Search
and Rescue Workers - Charitable Donations
- Political Contributions
- Medical Expense
- Age and Pension (to spouse/CLP)
- Disability (to caregiver)
- Canada Caregiver
- Home Accessibility
Which non-refundable tax credits are transferable
Common transferable non-refundable tax credits include:
- Tuition Amounts: Students who do not need to use the full tuition credit to offset their taxes can transfer the unused portion (up to a specified maximum) to a parent, grandparent, spouse, or common-law partner. The student must designate the transfer on their tax return and provide the appropriate forms (e.g., T2202 Certificate) to the transferee.
- Disability Tax Credit (DTC): If an individual with a disability does not have sufficient income to utilize the full DTC, they may transfer the unused portion to a supporting family member. Eligible recipients include parents, grandparents, children, grandchildren, siblings, aunts, uncles, nieces, or nephews. The transferee must have provided some form of support to the person with the disability.
WIKIPEDIA - Age Amount: Individuals aged 65 or older who do not have sufficient income to benefit from the age amount credit can transfer the unused portion to their spouse or common-law partner.
GOVERNMENT OF CANADA - Pension Income Amount: If a taxpayer cannot fully utilize the pension income credit, they may be able to transfer the unused portion to their spouse or common-law partner.
How do you calculate Charitable donation credit?
Step 1: Determine the maximum credit base: (75%) (Net income) any donation exceeding will be carried forward for next 5 years
Step 2: Calculate based on formula:
(15%)(A) + (33%)(B) + (29%)(C)
A: first $200 of donation
B: Lesser of:
- donation amount - 200 and;
- Taxable income - Highest
bracket
C: Donation amount - A - B
Medical Expense Calculation
Step 1 - Calculate the expense with following formula:
(B - C) + E
Where:
B = Sum of all eligible medical expense of taxpayer, their spouse and minor (under 18) dependent
C= Lesser of:
-3% of taxpayers net income and
- 2759
E (for each 18+ dependant) = (D-F) Where:
D = Dependants eligible medical
expense
F = Lesser of:
- 3% of dependants net income
- 2759
Step 2 - After Adding up all expenses multiply by the credit base (15 %)
CCA for residential buildings acquired after 1987:
4%
- Cannot use to create or increase
rental loss (Calculate last after accounting for all the expenses)
Which expense can be deducted from rental income
Taxes (Provincial)
Fees (strata)
Intrest on Mortgage
CCA
Foreign Tax Credit Steps
Step 1: Determine if the income is business or non-business income.
Step 2: Determine the amount of income and foreign tax paid
Step 2 (only non-business): Determine the amount of deduction by: (taxes paid foreign - 15% of foreign income)
Step 3: Determine the amount of Canadian tax by multiplying income by canadian tax rate
Step 4: Determine the amount of FTC:
-if Business income: Lesser of:
- Canadian tax and;
- Foreign tax
-if Non-Business: 15% of non-
business income only
Step 5: Calculate net tax payable
TFSA Withdrawals
Added back to contribution room next year
TFSA Restricted Investments
Shares of Private companies and Direct investment in real Estate
FHSA Age Limits
Must be 18 and less than 71
FHSA Contribution per Year and maximum contribution per Person
8000 Annual Contribution and;
40000 Lifetime contribution limit
(Withdrawals do not replenish contribution room)
-Can be transferred to RRSP without affecting RRSP Room
Moving Expense Deductions
- Relocate to be employed, carry on business or full-time study at PSI
- Old residence to new work - new residence to new work > 40 km
-Limit to income at new work location
-Excess can be carried forward to
subsequent years
Eligible expenses:
Travel costs (taxpayer and family)
Moving household effects
Meals/lodging at new or old residence (15 days)
Lease cancellation costs
For old residence:
$5,000 interest, taxes, insurance, utilities
Selling costs
Costs of acquiring new residence (if owned & sold an old residence)
Cost of revising legal documents
Vehicle & Meal Expenses – Detailed vs Simplified Methods:
Detailed method: requires receipts & uses actual expenses
Simplified method: flat rate (no receipts required)
Meals: $23 per meal/person ($69 per person/day)
Mileage: $0.55 per km
Non eligible expenses:
Job hunting expenses in anther city
House hunting trips before the move
Loss on sale of old residence
Child Care Expense Deduction
Who Can Claim?
- Lower-income parent in a two-parent family
- Single parent if no other supporting person exists
- Eligible claimants:
- Child’s parent
- Spouse of the child’s parent
- Individual who can claim a tax credit for the child (eligible dependant or Canada caregiver)
Claimable Amount – Lesser of:
- Amount actually paid
- Receipts provided by service provider (must include SIN if required & filed with Form T778)
- Camps – subject to periodic limit (details below)
- Annual child care expense limits:
- $11,000 if child is eligible for the Disability Tax Credit
- $8,000 if child is under 7
- $5,000 if child is aged 7 to 16 or infirm over 16 but not eligible for DTC
- Periodic limits for camps & similar programs:
- 1/40th of the annual limit per week
- Maximums per week:
- $275 (if DTC eligible)
- $200 (if under 7)
- $125 (if aged 7–16 or infirm over 16 but not DTC eligible)
Additional Limitations:
- Cannot exceed 2/3 of the claimant’s earned income, including:
- Salaries, wages, taxable benefits (e.g., allowances, stock options) before employment expenses
- Business income
- Scholarships, training allowances & research grants
- Claim reduced by the higher-income parent’s claim (if applicable)
RRSP considerations
- Tax deduction when making contribution (till 60 days of next year)
-Taxed when receiving payments
-Involuntary termination by end of year when reaches age 71; must transfer to RRIF
-Penalty of 1% per month on “cumulative excess”
“Cumulative excess” is
Undeducted contributions > RRSP deduction limit plus $2,000
Calculating RRSP Deduction Limit for a Year
A + B - C Where:
A = unused RRSP deduction room at
end of last year
B = lesser of:
- RRSP dollar limit for current
year;
-18% of earned income for
previous year, Reduced by
Pension adjustment (PA) of
previous year
C = Past Service Pension Adjustment
(PSPA) for the year
Earned Income for RRSP purposes:
Employment income (add back employee RPP contributions)
Income from carrying on business
Rental income from real property
Business income – active partner of partnership
Spousal support amounts received
CPP & QPP disability benefits
Supplementary unemployment benefit plan payments
Net research grants received; Royalties (if recipient is creator of work)
Deductions:
Losses from carrying on
business/partnership/rental from
real property
Spousal support payments
