chp 4

Question 1

what’s the difference between non-refundable vs refundable tax credits

Answer 1

non-refundable = reduces taxes payable but not below zero, many credits available

refundable = can reduce taxes payable into a refund position, such as income taxes withheld (T4)

Question 2

what are the non-refundable tax credits covered in afm 206

Answer 2

basic personal amount
CPP + EI credit
Canada employment Amount
Tuition credit
student loan interest credit
donation credit

Question 3

what’s the formula to tax credit

Answer 3

credit base * credit rate

credit rate = lowest marginal tax rate (15%), unless stated otherwise

credit base = amount that gets multiplied by credit rate - can change with income levels, and inflation

Question 4

what’s the taxable income with basic personal amount

Answer 4

criteria: Canadian resident individual

credit base: if taxable income is less than $165, 430 the credit base = $15,000
if taxable income is over $235, 675 the credit base is $13520
if taxable income is in between, it’s pro-rated at credit rate of 15%

Question 5

tell me about the CPP and EI credit

Answer 5

criteria: made CPP and EI contributions in the taxation year

credit base:
- CPP: max of $3123.45 (this doesn’t include the enhanced CPP)
- EI: max of $1002.45

credit rate: 15%

Question 6

tell me about the canada employment amount

Answer 6

criteria: earned employment income

credit base: lower of
- gross employment income
- $1368

credit rate: 15%

Question 7

tell me about the tuition credit

Answer 7

criteria: paid eligible post-secondary education tuition fees

credit base:
- current year tuition fees (T2202)
- unused tuition fees carried over from previous taxation years on indefinite basis

credit rate: 15%

tuition can be transferred over to eligible parties at a max of $5000

Question 8

tell me about the student loan interest credit

Answer 8

criteria: paid interest on eligible student loans

credit base:
- current year student loan interest
- unclaimed student loan interest carried over from previous taxation years

unused student loan interest can be carried forward up to 5 taxation years and cannot be transferred

credit rate: 15%

Question 9

tell me about donation credit

Answer 9

criteria: made donations to registered charities

credit base:
- Eligible donations in current year
- Eligible donations carried forward from previous taxation years

credit rate:
- 15% on first $200
- 29%/33% for the remainder - income tested (to promote social goals)

special rules:
- donations are limited to 75% of “net income”
- unused or excess donations can be carried forward up to 5 taxation years
- “income test” for credit rate
- if marginal rate is 33% -> use this rate provided you have sufficient taxable income to cover remaining donation
- if marginal rate is not 33%, use 29% instead