ADMS 3520 Lecture Notes - Lecture 7: Nurse Practitioner, Optometry, Lesse
25 Jun 2018
School
Department
Course
Professor
1 Lecture 7: Taxable Income and Tax for Individuals
1.1 Coverage
▪Exercises 4-1 to 4-18, 4-20
▪Self-Study Problems 4-1; 4-2; 4-3; and 4-4
▪Self-Study Problem 11-7
2 Overview of Computation of Taxable Income and Tax for Individuals
▪The basic calculation of taxable income and tax for individuals is as follows:
▪Division B Net Income
▪- Division C Deductions
§
= Taxable Income
▪x Tax Rates
§
= Tax owing (before tax credits)
▪- Tax Credits
§
= Federal Tax
§
+ Provincial Income Tax
▪Total Income Tax
3 Division C Deductions [CTP 4-4 to 4-12]
3.1 ITA 110(1)(d), (d.1) Stock option deduction
▪deduction for 50% of ITA section 7 stock option benefit (see lecture 2 notes)
3.2 ITA 110(1)(f) Deduction for Payments
▪Payments covered are:
▪Amounts exempt from tax due to a tax treaty or agreement with another country
▪Worker’s compensation payments
▪Income from employment with a prescribed international organization
▪Social assistance payments
▪These payments are included in net income under other income [ITA 56(1)(a),(u) & (v)] but
are
not included in taxable income
▪Therefore they are not taxed but are taken into consideration in the computation of net income
(which can affect various tax credits and benefits)
3.3 ITA 110(1)(j) Home relocation loan deduction
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▪for a dwelling that is at least 40 km closer to the new work location [ITA 248(1)], a deduction
from taxable income equal to lesser of:
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▪the employment income benefit, calculated by applying the prescribed interest rate that is
applicable to each quarter that the loan is outstanding [ITA 80.4(1)(a)]. Note: when
computing the prescribed interest benefit for a home relocation loan you can use the
prescribed interest rate in effect when the loan was granted (for the entire year) if it results
in a lower amount [ITA 80.4(4)]. The amount of the benefit is reduced by any payments
made by the employee during the year or within 30 days of the end of the year [ITA
80.4(1)(c)]; and
▪the interest benefit on a $25,000 housing loan – using the lesser of the prescribed rate and
the rate in effect at the time the loan is made
▪Note: the 110(1)(j) deduction is only available in the first 5 years of a loan
▪As indicated in the 2017 budget, this deduction will not be available after 2017.
▪read 4-9 to 4-12 carefully
3.4 ITA 110.6 Capital Gains Exemption
▪this is a lifetime deduction of $835,716 available for each individual for capital gains realized
from the sale of shares of qualified small business corporations (incorporated small businesses
that meet certain criteria) and qualified farming and fishing properties. Discussed further in
ADMS 4562
3.5 ITA 111 Loss carryovers from other years
▪Loss carryovers are losses from another taxation year “carried over” as a deduction in
computing the taxable income of the current taxation year
▪There are two main types of loss carryovers:
▪No
n-ca p
ital
losses
▪losses from a source other than allowable capital losses
▪they can be carried back 3 years, forward 20 years if losses incurred in taxation years
ending after 2005, 10 years if losses incurred in taxation years ending after March 22,
2004 but before 2006 and 7 years if losses incurred in taxation years ending before
March 23, 2004
▪N
et
ca p
ital
l o
sses
▪allowable capital losses in excess of taxable capital gains
▪can be carried back 3 years and/or carried forward indefinitely. Can only be used
against taxable capital gains
4 Calculation of Taxes Payable [CTP 4-14 to 4-31]
▪Since 2000, we have had full annual indexing of tax brackets and credits based on the
Consumer Price Index (CPI; i.e., an official estimate of the rate of inflation)
▪This means that most tax brackets and tax credits change each year, as does the threshold for
the Old Age Security and EI clawback
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