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Chapter 10

AFM362 Chapter 10: Chapter 10


Department
Accounting & Financial Management
Course Code
AFM362
Professor
Andy Bauer
Chapter
10

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Chapter 10
Division C Deductions: Deductions from net income for tax purposes to arrive at
taxable income.
Stock Option Deduction: Equal to 50% of the employment income generated by the
stock option. The full amount of employment income is included in Division B and the
50% deduction is subtracted in Division C.
- For non-CCPCs:
o The stock option deduction can only be claimed if the stock option was not
in-the-money at the time it was exercised.
o The employment benefit and stock option deduction are both recognized in
the year the stock option is exercises
- For CCPCs:
o The stock option deduction can be claimed if the stock option was not in -
the-money at the time it was granted or the shares acquired under the
option of held for period of two years or more
o The employment benefit and stock option deduction are both recognized in
the year the shares acquired under the options are disposed of
General Ordering Rules for Division C:
1. Other deductions, such as empl oyee stock options
2. Lump-sum payments
3. Loss carryovers, such as non-CL, net-CL, and capital gains deductions
4. Deductions for residing in prescribed zones
Marginal Tax Rates
Type
Taxable Income
Marginal Tax Rate
Federal
$46,605 or less
$46,605
15.00%
In excess of $46,605
$46,603
20.50%
In excess of $93,208
$51,281
26.00%
In excess of $144,489
$61,353
29.00%
In excess of $205,842
Excess
33.00%
Provincial
$46,605 or less
$46,605
10.00%
In excess of $46,605
$46,603
12.00%
In excess of $93,208
$51,281
15.00%
In excess of $144,489
$61,353
17.00%
In excess of $205,842
Excess
17.00%
Tax Credits: Credit for items paid that can be applied against income tax payable. Two
types:
Non-Refundable Tax Credits: If the amount of a non-refundable credit exceeds the
amount of tax owing, the excess credit is n ot refunded to the taxpayer and in the
majority of cases will expire.
Refundable Tax Credits: Any excess credit is always refunded to the taxpay
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Types of Non-Refundable Tax Credits:
- Basic personal amount
- Spousal amount
- Equivalent-to-spouse amount
- Canada caregiver credit
- Age amount
- Canada employment amount
- Adoption expense amount
- Home renovation tax credit
- Home accessibility tax credit
- First-time home buyers tax credit
- Volunteer firefighters tax credit
- Search and recue volunteers tax credit
- Canada or Quebec Pension Plan contributions
- Employment Insurance premiums
- Pension Income amount
- Disability amount
- Tuition amount
- Tuition amount transferred from a child
- Amounts transferred from spouse
- Medical expense
- Charitable donations
- Interest paid on student loans
- Dividend Tax Credit
Personal Tax Credits: A collection of credits (including the basic personal amount,
married or common-law partnership amount, etc) that are aggregated and multiplied by
the lowest percentage rate of individual tax (15% in 2018).
Basic Personal Credit: A pre-set base multiplied by the lowest percentage of
individual tax. In 2018, $11,809 * 15% = $1,771, which allows every taxpayer to
earn their first $11,809 of income tax free.
Married or Common-Law Partnership Credit: Individuals who are married or have
a common-law partner combine the basic personal amount with any unused portion
of their spouses or common law partners basic personal credit. Equals:
Basic Personal Tax Credit Base
Spouses Tax Credit Base
Less: Spouses Division B Income
Net Amount (minimum of zero)
Total Credit Base
Tax Credit @ 15%
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