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Chapter 9 - Other Income & Deductions.docx

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Wilfrid Laurier University
Tao Zeng

Chapter 9 – Other Sources of Income/Deductions Other Sources of income includes miscellaneous taxable amounts not attributable to sources discussed such as employment income, property income, and business income. Frame Work Earned Income includes: - Employment Income (before RPP contribution deduction) - Business Income - Rental Income - Support Payment Income - Research grants net of related expenses Earned income is reduced by: - Business Losses - Rental Losses - Deductible Support Payments Other Income – Major Sources [Sec 56] Benefits from Pensions Amounts received from deferred income plans Annuity Payment Retiring Allowances Social Assistance & Workers Compensation Support Payments from Former Spouse (Alimony) Other Deductions – Major Sources [Sec 60-63] RRSP Contributions Support Payments to a Former Spouse Fees/Expenses for objection or appeal of a Tax Assessment Retiring Allowance transferred to RRSP/RPP Moving Expenses Child Care Expenses Registered Retirement Savings Plans Contributions (RRSP) [Div. G] Investments deposited into an RRSP account are not taxed until they are withdrawn from the account. Contribution up to the lessor limit of $22,970 or 18% of Earned Income (2012) is deductible. This amount must be net of any Prior Year Pension Adjustment (PA). Any unused contribution room can be carried forward into future years. Any contributions exceeding the annual limit are subject to a penalty of 1% per month on the excess amount. A taxpayer is permitted to over-contribute up to a limit of $2,000 in excess of the taxpayers contribution limit without paying any penalty. Over-contribution is not deductible against any source of income. Spousal RRSP An individual may contribute all or part of his/her contribution limit to the RRSP of a spouse. Contributors are able to claim a deduction on this amount. However withdrawals from the spousal plan within two taxation years of the contribution year must be added back in the contributor’s income. Withdrawals before retirement subject to withhold tax [Regs. 103(4)(6)] Home buyers plan [Sec 146.01] RRSP Maturity Options: RRIF [Sec 146.3] Retiring Allowance Transferred to RRSP [Sec 60] A taxpayer can claim a deduction on the amount transferred to RRSP up to the limit of: - $2,000 per year employed before 1989 - PLUS: $1,500 per year before 1989 when employer’s RPP and DPSP contribution did not vest Moving Expenses [Sec 62] A taxpayer may claim a deduction for moving expenses incurred for the purpose of relocation to start a business, employment, or attend a university. It is important to note that the move must be greater than 40km from previous location. If Moving Expenses are greater than the income earned in the new location, a claim for the full deduction of the amount can be made. Any unclaimed portion can be carried forward and deducted in the following year. Moving expenses that can be claimed are: - Travel costs in moving to a new place (meal $51/day without receipt) - Transportation and storage of belongings - Temporary board and lodging (up to 15 days) - Costs of cancelling a lease for the old residence - Selling costs of the old residence - Legal fees and land transfer taxes - Cost of maintain a vacant former residence up to the limit of $5,000 - Cost of revising legal documents Child Care Expenses [Sec 63] Childcare expenses include the cost of: - Babysitting - Daycare - Lodging at a boarding school These costs must be associated with a child under the age of or turning the age of 16 years old in the taxation year. The childcare expense limit is the lessor of: - $4,000 per child ages 7-16; $7,000 per child under the age of 7 OR $10,000 per a disabled child OR - 2/3 of earned income The lower income spouse claims the expense deduction. The higher income spouse can claim the expense if the low-income spouse is in such situations: - Becomes a student - Stays in the hospital - Goes to jail - Marriage breakdown (separation) The limit calculation for the low-income spouse determined by using earned income for the high-income spouse. The limit is the sum of: - $250 per disabled child - $175 per child under 7 - $100 per child 7-16 Multiplied by the # of weeks the low-income spouse is in the above special situation. Example:
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