Unit 4 Flashcards
(32 cards)
summary of federal tax calc
Gross federal tax
-Determine federal tax before credit by applying federal tax rates to TI
rates vary from 15%-33%
Nonrefundable tax credits
-Credits cannot be used in the CY do not form the basis of the refund
-Cant be CF with the exception of tuition, donation, student loans
-Credits are a direct reduction in tax payable
base of credit is multiplied by 15% to determine the reduction in tp
Common credits
Common credits P2
-Interest on student loans: credit base= inters paid in the yr or preceding 5 yrs (if no credit was claimed)-> no maximum
-Tuition: credit base=amount, trf to spouse parent up to $5K, more than $100
EI RTC
- Credit base/req payments: $60,300 * 1.58%
- Lesser of earnings & 60,300
CPP amounts
- Credit base=(Earning-3,500)*4.95%
- Maximum=$3,039
-Req payments= ($64,900-3,500)*5.70%
Lower of actual income & 64,900
Medical RTC
Amount paid in the yr
Less: lesser of
a) Maximum credit 3% of NI ceiling
b) 3% of taxpayer NI
Donation tax credit - Taken after RTC
-Eligible Canadian charities, governments, and certain charitable paths outside of Canada
-Credit base= lesser of donation amount and 75% of net income
-Unused credits can be CF up to 5 yrs
Federal political contributions-Taken after RTC
Dividend tax credit taken after RTC
-Eligible=6/11 of 38% GU
-Non eligible 9/13 of 15% of GU
Refundable tax credits
-Paid regardless of federal tax payable
Clawbacks and tax payable (refundable)
-OAS clawback when NI> $81,761
-EI clawback when NI>73,375
-When repayment is requied its deducted from NI and added to TP
-When self-employed individual made CPP cont the entire amount (2(pensionable earning-$3.5K)5.70%) is added back at this point
Calc federal tax payable
-Net federal tax calc by aggregating all the above balances
-Gross federal tax payable less non refundable tax credits before considering withholdings and installments cant be negative
Division C deductions-loss CF
-farm losses
-ABIL
Farm losses- division C deduction
-Full-time farmers are categorized as a noncapital loss that is full deductible
-Hobby farmers farming losses are not deductible
ABIL
-1/2 of capital loss arising of disposal of shares or debt of a small business corp
-CF are deducted against any source of income for 10 yrs
-After 10 yrs the unused amount is added to the net capital loss
Other non refundable tax credits and AMT
Foreign business income tax credit
Alternative min tax
Level of government and its role in the tax system
1) Federal government: initiates proposals for change in tax legislation which are presented by the minister of finance
2) Dep of finance: drafts wording of tax legislation & is involved in drafting changes required by the government in the federal budget
3) CRA: admin and enforces tax laws
4) Provincial and territorial governments: these tax systems parallel the federal systems–> in some case the admin of prov or territorial system has bee turned to CRA
Liab for tax and residency
-Factual full time resident: tax of world wide income
-Factual part yr resident: taxed on ww income for the part of the yr they resident in Canada
-Deemed full time resident: taxed in ww income for the yr
-Non residents: taxed on Canadian soiurce income
Tax treaties
-An agreement on taxation between Canada and another country
tax treaties override the provision of the ITA and are relevant to both residents of Canada with respect to international transactions
Purpose of tax treaties
1) define which taxes are covered
2) reduce the amount of tax withheld by a resident of one country on the payment made to a resident of another country
3) define the circumstances in which the income of individuals who are resident in one country will be taxed in another country
4) limit the tax imposed by one country on the busi income of a resident of another country
5) may provide for exemption of certain types of org and individuals
6) provide procedural frameworks for enforcement and dispute resolution
