How to determine individuals taxes payable?
1) Calculate Net Income for tax purposes
2) Deduct Division C Deductions (stock options, deductions of payments such as workers’ compensation, social assistance, tax treaties, Northern residence)
3) Multiply taxable income by tax rates to determine total tax income
4) Deduct non-refundable tax credits
5) Determine Net federal taxes owing/refund
Federal installments
+ CPP
- Federal Instalments
-Withholdings
-Overpayments of CPP and EI
Net federal taxes owing/refund
What is a loss carryover?
A loss carryover is when you experience a loss in any tax year that can be carried back and carried forward to essentially receive a tax refundable from previous years.
If an employee has an income of $300,000, how is his gross income calculated?
You will automatically go to the tax bracket closest to the employee’s income. In this case, it is 221,708 — the tax of 51,345 would be quickly applied to it. The remaining balance of $78,292 ($300,000 - $221,708) would be taxed at 33% as well, giving us a tax of $25,836.
What is a refundable tax credit?
A refundable tax credit reduces how much tax you pay but also refunds you money periodically to assist with living expenses.
What is a non-refundable tax credit?
A non-refundable tax credit is designed to lower your taxes payable but no refunds are sent to you to assist with living expenses etc.
What is the northern resident deduction?
Any person who lives in a prescribed northern zone for more than 6 months can claim this deduction.
How are tax credits calculated?
Most tax credits are calculated by using the base tax amount (15%) of the balance allocated to the credit and applying that to the net income deduction.
What is the basic personal amount of credit and how is it applied?
The BPA tax credit is applied to all individuals based on their income. The BPA tax credit for someone lower than the third bracket is $155,625 which would be $14,398. Above the fourth bracket, $221,708 the BPA tax credit is $12,719.
Spouse or common-law partner credit?
The spousal or common-law partner credit is applied to couples that have either been living together for 12 months. Or if they have been living together with a child.
It can only be applied once for a couple.
There is a credit for the individual which is just 15%. However, having a healthy spouse with a positive
income would bring down their tax credit.
The formula of positive spousal net income: 15% * (BPA (Based off tax bracket) - Positive spousal net income)
Another situation is if the spouse is Infirm (Mental or Physical Impairment)
The formula in this situation is 15% * (BPA + Infirm credit ($2350)
If the spouse has a positive net income and is infirm, the formula is :
15% * (BPA + Infirm credit ($2350) - positive net income)
Eligible Dependent Tax Credit?
Credit only applies to a person who is not married or living with a common law partner.
One of the rules is that they have to be fully supporting an eligible dependent (Child under 18, Parents & Grandparent or Infirm person that is related by blood or adoption, excludes cousins, aunts, nephews and neices)
If there is more than one dependent, the credit is restricted to only one dependent.
Net income of any dependents works the same way as spousal credit as it reduces the eligible dependent credit. So always excercise the credit on the person that does not have a net income if you have multiple choices.
The amount is the same as spousal credit
$2350. (HOWEVER, IT IS NOT AFFORDED TO A CHILD OR ANY PERSON UNDER 18. They still do receive that amount but it is under a different tax credit (CANADA CAREGIVER AMOUNT)
If the eligible dependent is not INFIRM and has a positive income. The calculation is:
(15% * BPA - positive net income)
If the Eligible dependent is INFIRM and has a positive income, the calculation is:
(15% * BPA + Tax Credit ($2350) - positive net income)
Essentially this credit is calculated the same as a SPOUSAL CREDIT including extra 2,350 if the person is Infirm.
What is the difference between Spousal Credit and Eligible Dependent Tax Credit?
Spousal credit = Someone married or in a common law relationship.They can not claim eligible dependent credit.
Eligible dependent credit = Someone not in a married or common law relationship that is taking care of a minor, parent, grandparent, adopted relative. Especially if they are infirm. This excludes cousins, nephews, neices and non blood relatives.
Single persons tax credit
Anyone single, not married or in a common law relationship. They can receive a BPA tax credit as well.
(15% * BPA)
What is the Canada Caregiver for Child Tax Credit?
- Is applied when a child under 18 who is infirm and living with a both parents or single parent.
- Can be claimed for unlimited children as long as they are mentally or physically infirm.
- The tax credit is $2350 and is not reduced by any net income of the child.
- Can be claimed even if a eligible dependent credit has been used on the child.
Canada Caregiver tax credit?
- Supporting a spouse/common law partner or a dependent (blood relatives + cousins, nephews, neices etc) who is 18 years or older. They must be Infirm.
- Unlike eligible dependent credit, you can claim this for relatives such as cousins, uncles, aunts, neices and nephews etc.
- Can not claim for someone who has already been claimed as an eligible dependent.
- The credit amount is $7,525 and can be reduced if the income of the dependent is over $17,670. If the dependent has an income of $25,195… the credit is fully eliminated.
- So anytime a persons income is over $17,670 and below $25,195. You need to first calculate the difference. For example if the income is $20,000. The difference is $5,195. The eligible caregiver credit for this person would be $349 (15% * ($7,525 - $5,195)
How does the canada caregiver credit additional amount work?
In cases where you have someone that is considered an eligible dependent and spouse.
- You can claim both credits at the same time and essentially add them up together.
Age tax credit?
- Is for people that are 65 years old or older
-Works same exact way as the caregiver tax credit however the only difference is that the net income of the person has to be more than $39,826 and the credit is fully eliminated at $92,479.
- This credit can be transferred to a spouse if the net income is not large enough to use this credit (Under $39.826)
-Calculation is : (15% * ($92,479 - Net income) = Tax amount … And then we take 15% of that to find the credit.
Pension tax credit?
Is equal to 15% of $2,000 for any PENSION income.
- Pension income is “Pension Income” for individuals over the age of 65 (RRP, RRSP, RRIF) or “Qualified Pension Income” for anyone under age 65 (also RRP)
- Excludes old age security and CPP payments
Subscription credit ?
15% of $500 for subscription of original news content of general interest or current events.
Maximum of $500 can be used.
Home accessibility credit?
- Can claim upto $20,000 in expenses
- House must be owned by the individual or an eligible individual.
-Qualifying expenses would be anything that would make the home more accessible. The general rule is if the items purchased will not be permanent part of the household, they are not eligible.
Home buyer credit?
- The credit is $10,000
- Can not have owned a home in the previous four years. However this rule is not applicable if you are buying a new home for the purpose of making the home more accessible for a disabled person
-Can be claimed by either spouse
Volunteer Fire Fighters or Search and Rescue Credit?
Both are $3000
Can be eligible for both but claim only one
Must have over 200 volunteer hours.
Medical Expenses Credit?
Can be claimed for yourself or dependents. Dependents include spouse, children or blood relative.
The forumal is Amount is based on formula:
(B – C) + D where D = E-F
B = Total medical expenses for himself/ herself, his/her spouse and children who are under 18 at the end of the year
C = Lesser of 3% of taxpayer’s NITP and $2,479
D = total of all amounts for other dependants
E = Total of the dependant’s medical expenses
F = Lesser of 3% of Dependant’s NITP and $2,479
Charitable Donations Credit?
- Generally given to a charity, atheletic association, educational association or churches
- Must receive a receipt with a registration number to claim it
- Maximum credit is 75% of net income for tax purposes
- Spouses can combine their charitable donations
- Can be carried over for 5 years if:
NITP is not too large to fully deduct or
If contributing less than $200 per year
Calculated as:
15% x A + 33% x B + 29% x C
(A) is first $200 of charitable donations
(B) is lesser of:
Charitable donations greater than $200
Taxable Income greater than $221,708 (if any), otherwise use nil
(C) is the amount, if any, for which total charitable donations are greater than $200 plus the amount used for B
Disability Tax Credit?
- A person who is disabled receives a credit of $8,870
-Supplement available if the disabled person is a child
- Disability and being infirm is not the same
