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ADMS 3520 (32)

3520-5-updated 2012.doc

7 Pages

Administrative Studies
Course Code
ADMS 3520
Jason Fleming

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3520-5: 10/8/12 1-5 1 Lecture 5: Other Income and Deductions  The lecture will cover parts of CTP chapter 9 and CTP 10 (mainly on RRSP contributions)  The designated problems are:  Moving Expenses: Exercise 9-1, Self-study Problem 9-1  Child Care Expenses: Exercise 9-2, Self-study Problem 9-2  Support Payments: Exercise 9-5  Annuity Payments: Exercise 9-6  CESG: Exercise 9-7  RRSP Contributions - Chapter 10, Exercises 10-2, 10-3, 10-6 2 Pension Benefits [9-11 to 9-12]  ITA 56(l)(a)(i) = Inclusion section for employer’s registered pension plans (RPP) and government’s Old Age Security (OAS) and Canada Pension Plan (CPP) payments received 3 Retiring Allowances [9-13 to 9-15]  ITA 56(l)(a)(ii) = inclusion section for retiring allowances received  Retiring allowances = payment(s) by employer for long service or loss of office whether or not ordered by a court judgment [ITA 248(l)]  the eligible portion of retiring allowances can be transferred tax-free to an RRSP based on a formula, i.e. the income inclusion is offset by a special limited registered retirement savings plan (RRSP) deduction (formula covered in ADMS 4561) 4 Death Benefits [9-16 to 9-19]  ITA 56(l)(a)(iii) = inclusion section for death benefits for a deceased employee’s surviving spouse or common-law partner as defined in ITA 248(l): 1st $10,000 is tax-free and is not a death benefit, the rest is taxable 5 Income Inclusions from Deferred Income Plans [9-20 to 9-21]  RRSPs, Deferred Profit Sharing Plans (DPSPs) and Registered Retirement Income Funds (RRIFs) and RPPs are registered plans  They are registered with the federal government  In order to be registered they must meet certain conditions  The advantage of registration is  that contributions into the plan are either tax-free benefits (e.g., employer RPP and DPSP contributions) or tax-deductible individual contributions (e.g. RRSPs, RPPs) or tax-free transfers (RRSPs to RRIFs)  income grows tax-free in the plan  Payments out of the following plans are included in income when received: Jason Fleming [[email protected]]/Joanne Magee [[email protected]] 3520-5: 10/8/12 2-5  RRSP withdrawals are taxable [ITA 56(l)(h)]  DPSP payments received [ITA 56(l)(i)]  RRIF withdrawals [ITA 56(l)(t)] 6 Scholarships, Prizes and Research Grants [9-22 to 9-24]  ITA 56(1)(n) includes the full amount minus the ITA 56(3) exemption  Secondary school scholarships and bursaries are fully exempt (no inclusion): ITA 56(3)(a)(ii)  Post-secondary scholarships and bursaries: - fully exempt (no inclusion) if the student is eligible for the education credit for full-time students: ITA 56(3)(a)(ii). Note that this includes all students eligible for the disability credit even if they are part-time: 118.6(3) - partially exempt if the student is eligible for the education credit for part-time students. The exemption is limited to the tuition paid plus the cost of program related materials: ITA 56(3.1)(b)  other prizes are eligible for one $500 annual exemption: ITA 56(3)( c)  post-doctoral fellowships are not eligible for any exemption: see ITA 118.6(1) definition of “qualifying program” for education credit  ITA 56(1)(o): research grant net of (unreimbursed) expenses must be included in income 7 Social Assistance and Workers’ Compensation Payments [9-25 to 9-26]  ITA 56(1)(u) and (v): include in calculation of net income for tax purposes for means testing (i.e., for determining certain tax credits etc.) but deducted in the calculation of taxable income as exempt income for policy reasons [i.e., not taxable, ITA 110(1)(f)] 8 Universal Child Care Benefit [9-27 to 9-29]  Universal Child Care Benefit (UCCB) =: $100 a month for each child under the age of 6 (i.e., 5 and under)  ITA 56(6): include in income of lower-income spouse or common-law partner  Single parents have the option of including the UCCB in the income of a child o If the single parent claims the equivalent to spouse/eligible dependent credit for a child (discussed in lecture 6) then the UCCB is included in this child’s income; if not then the UCCB is included in the income of the child for whom the UCCB is paid 9 CPP Contributions on Self-employed Earnings [9-30 to 9-33]  ITA 60(e): deduct one-half of all CPP contributions payable on self-employed income. Note: self employed individuals must pay 2 times the CPP contribution of employees (i.e. they pay the employee and the employer’s share. Self employed individuals typically do not pay (and typically do not qualify for) employment insurance (EI), as discussed in lecture 2 Jason Fleming [[email protected]]/Joanne Magee [[email protected]] 3520-5: 10/8/12 3-5  the remaining half is treated the same as CPP contributions made by employees (i.e., it’s eligible for a tax credit as discussed in lecture 6) 10 Moving Expenses [9-34 to 9-47]  ITA 62(1): eligible relocation as defined in ITA 248(1)  The move must bring you 40 km. closer to workplace/school and the reason for the move must be to carry on business, to be employed, or to be a full-time student  Can only be deducted against income from the new location. There is a one year carryforward for un-deducted moving expenses  ITA 62(3) on items included: see 9-38  For examples of items not allowed, see 9-39  Simplified method: for 2011 rates see 9-42;  2011 rates – for meals: $17/person/meal = $51/person/day, for car expenses it depends on the province, e.g. 57 cents/km for Ontario  for 2012 rates when they are posted (in 2013) see  ITA 6 (20): half of any reimbursement for a loss on the sale of the old residence > $15,000 to be included as taxable benefit [as discussed in lecture 2, see examples at 9-44 and 9-47] 11 Child Care Expenses [9-48 to 9-61]  ITA 63: if incurred to earn taxable income or receive an education  Terms to know:  Eligible Child = under 16 at some time during the year  Annual Child Care Expense Amount  $10,000 for child of any age eligible for disability tax credit  $7,000 for child under age of 7 at year-end  $4,000 for child aged 7 to 16 or child over 16 who is infirm but not eligible for disability tax credit  Periodic Child Care Expense Amount per week: 1/40 of annual child care expense amount  Attendance at boarding school or camp: limited to Periodic Child Care Expense per week [i.e., $250 for children eligible for the disability tax credit, i.e., $10,000/40; $175 for children under age 7, i.e., $7,000/40; and $100 for other eligible children, i.e., $4,000/40]  Earned Income: will be provided in this course  No deduction for services beyond child care such as computer lessons or sports fees (can get the child fitness credit for most sports fees, discussed in lecture 6)  Child care expenses can generally only be deducted if both parents (“supporting persons”) work because child care expenses can generally only be claimed by the lower income parent Jason Fleming [[email protected]]/Joanne Magee [[email protected]] 3520-5: 10/8/12 4-5  In the case of a single parent family, the single parent must have earned income to benefit from the deduction  ITA 63(2): child care expenses can be claimed by a higher income spouse (including situations where one spouse is not working)  when the other spouse is, in the tax year:  attending a designated educational institution  full time: 10 hours a week for at least 3 weeks  part time: 12 hours a month for at least 3 weeks; or  mentally or physically impaired for at least 2 weeks, confined to bed
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