study guide chapter 4 - pearson · read paragraph 4-202. do self study problems four-4 and ......

How To Work Through Chapter 4

We recommend the following approach in dealing with the material in this chapter:

Taxable Income Of Individuals� Read paragraph 4-1 to 4-14 (in the textbook).� Do Exercise Four-1 (in the textbook) and check the solution on page S-64 (in the Study

Guide).� Read paragraph 4-15.

Federal And Provincial Tax Payable Before Credits� Read paragraph 4-16 to 4-28.� Do Exercise Four-2 and check the solution on page S-64.� Read paragraph 4-29 to 4-33.

Credits Against Tax Payable - Calculating The Amount� Read paragraph 4-34 to 4-38.

Personal Tax Credits - ITA 118(1)� Read paragraph 4-39 to 4-42.� Do Exercise Four-3 and check the solution on page S-64.

Tax Credits - Eligible Dependant, Child, Caregiver, And Infirm Dependant Over 17� Read paragraph 4-43 to 4-55.� Do Exercise Four-4 and check the solution on page S-64.� Read paragraph 4-56 to 4-61.� Do Exercise Four-5 and check the solution on page S-64.

Eligible Dependant vs. Caregiver vs. Infirm Dependant Over 17 Credits� Read paragraph 4-62 to 4-65.� Do Exercise Four-6 and check the solution on page S-64 and S-65.� Read paragraph 4-66 to 4-69.� Do Exercises Four-7 and Four-8 and check the solutions on page S-65.

Age And Pension Income Credits� Read paragraph 4-70 to 4-71.� Do Exercise Four-9 and check the solution on page S-65.� Read paragraph 4-72 to 4-76.

Canada Employment Credit� Read paragraph 4-77 to 4-79.

Canadian Tax Principles 2010/2011 - Study Guide S - 45


STUDY GUIDEChapter 4

Adoption Expenses Credit� Read paragraph 4-80 to 4-84.� Do Exercise Four-10 and check the solution on page S-65.

Public Transit Passes Credit� Read paragraph 4-85 to 4-89.

Child Fitness Credit� Read paragraph 4-90 to 4-93.

First Time Home Buyer’s Credit� Read paragraph 4-94 to 4-96.

Charitable Donations Credit� Read paragraph 4-97 to 4-107.� Do Exercise Four-11 and check the solution on page S-66.

Medical Expense Credit And Refundable Medical Expense Supplement� Read paragraph 4-108 to 4-117.� Do Exercise Four-12 and check the solution on page S-66.� Read paragraph 4-118 to 4-121.� Do Exercise Four-13 and check the solution on page S-66 and S-67.

Disability Credit� Read paragraph 4-122 to 4-129.� Do Exercise Four-14 and check the solution on page S-67.� Read paragraph 4-130 to 4-133.

Tuition, Education, Textbook And Student Loan Interest Credits� Read paragraph 4-134 to 4-142.� Do Exercise Four-15 and check the solution on page S-67.

Carry Forward And Transfers Of Tuition, Education And Textbook Credits� Read paragraph 4-143 to 4-151.� Do Exercises Four-16 and Four-17 and check the solutions on page S-68.

Employment Insurance And Canada Pension Plan Credits� Read paragraph 4-152 to 4-158.

Transfers To A Spouse Or Common-Law Partner� Read paragraph 4-159 to 4-160.� Do Exercise Four-18 and check the solution on page S-69.� Do Self Study Problem Four-1 on page 170 and check the solution on page S-70 to S-73.

Working Income Tax Benefit And WITB Disability Supplement� Read paragraph 4-161 to 4-166.� Do Exercise Four-19 and check the solution on page S-69.

New Graduates Working In Designated Areas� Read paragraph 4-167 to 4-168.

Political Contributions Credit� Read paragraph 4-169 to 4-171.� Do Exercise Four-20 and check the solution on page S-69.� Do Self Study Problems Four-2 and Four-3 on page 171 - 172 and check the solutions on

page S-73 to S-76.

S - 46 Canadian Tax Principles 2010/2011 - Study Guide


Labour Sponsored Funds Credit� Read paragraph 4-172 to 4-174.� Do Exercise Four-21 and check the solution on page S-69.� Read paragraph 4-175 to 4-177.

Refundable GST Credit And Canada Child Tax Benefit� Read paragraph 4-178 to 4-190.

EI And OAS Repayment (Clawback)� Read paragraph 4-191 to 4-201.� Do Exercise Four-22 and check the solution on page S-69 and S-70.

Comprehensive Example� Read paragraph 4-202.� Do Self Study Problems Four-4 and Four-5 on page 173 - 175 and check the solutions on

page S-76 to S-79.

Sample Personal Tax Return For Chapter 4� Read the Sample Personal Tax Return For Chapter 4 found on page S-48 to S-58 of this

Study Guide. The complete sample tax return is available on the Student CD-ROMincluded with the text in two formats, a T1 ProFile return file and a .PDF file. To view thefiles, access your Student CD-ROM (not the ProFile Tax Suite CD-ROM) and under theheading “Textbook Support Files”, select the option “Tax Return Files”.

When the updated Intuit ProFile software is available in January, 2011, updated sampletax returns and updated Tax Software Problems, as well as instructions on how to install theupdated software program, will be available at:

www.pearsoned.ca/byrdchen/ctp2011

Tax Software Self Study Problem� Read the Suggestions For Working With ProFile Software found on page S-59 to S-61 of this

Study Guide.� Do Tax Software Self Study Problem - Chapter 4 using the ProFile T1 Software. The Self

Study Problem is on pages S-62 and S-63 of this Study Guide. The condensed solution ison page S-80 to S-83 of this Study Guide. The complete tax return is available on theStudent CD-ROM included with the text in two formats, a T1 ProFile return file and a .PDFfile.

This Self Study Case is extended in Self Study Problem Four-4, using 2010 rates and in TaxSoftware Self Study Problem - Chapter 11.

To Complete This Chapter� Review the Key Terms Used In This Chapter on page 168. Consult the Glossary for the

meaning of any key terms you do not know.� Review the Glossary Flashcards and complete the Key Terms Self-Test for the Chapter.

These features can be found in two places, on your Student CD-ROM under the heading"Key Term Practice" and on the web site.

� Review the Learning Objectives of the Chapter found on pages S-84 and S-85.� As a final review, we recommend that you view the PowerPoint Slides for Chapter 4 that are

on your Student CD-ROM. The PowerPoint Viewer program can be installed from theStudent CD-ROM.

Practice Examination� Write the Practice Examination for Chapter 4 that is on your Student CD-ROM. Mark your

examination using the Practice Examination Solution that is also on your StudentCD-ROM.



Sample Personal Tax Return For Chapter 4

The following example contains a T1 individual income tax return completed using theProFile T1 Personal Income Tax Program for 2008 tax returns from Intuit Canada. As softwarefor 2010 is not yet available, this example contains 2009 rates and credits.

When the updated Intuit ProFile software is available in January, 2011, the updated 2010version of this sample return, as well as instructions on how to install the updated softwareprogram, will be available on the textbook web site at:


This example is expanded in Chapter 11 to contain other components of Taxable Income andTax Payable. In the following example, the relevant T1 schedule or ProFile form name isprovided in square brackets to make it easier for users to find where the information is input.

Sample Files On Student CD-ROMThe complete sample tax return is available on the Student CD-ROM included with this bookin two versions, a T1 ProFile return file and a .PDF file.

Installation Of ProFile and Adobe ReaderIn order to view the ProFile return files, you must first install the ProFile program from theProFile Tax Suite CD-ROM (not the Student CD-ROM) that accompanies this book.

In order to view the complete return, including schedules, as a .PDF file, you must have theAdobe Reader program installed on your computer. If you do not have access to the AdobeReader program, it can be downloaded and installed for free from the Adobe website(http://www.adobe.com).

To View The Tax Return FilesInsert your Student CD-ROM (not the ProFile Tax Suite CD-ROM) and you should see a splashpage that allows you to access the contents of the Student CD-ROM.

Under the heading “Textbook Support Files”, is the option to view “Tax Return Files ”. Selectthis option and you will see two drop-down lists. To view the ProFile file, select the file“Sample - Chapter 4” from the ProFile drop-down list. To view the .PDF file, select the file“PDF Sample - Chapter 4” from the PDF drop-down list.

How To Increase The Benefits From Viewing The ProFile FilesA Quick Reference Guide in .PDF format is available on the following web site if you click onthe link to Student and General Resources:


When viewing the sample return file, we offer the following suggestions:

� Press <F1> on any ProFile form or field to display related information in the help system.In ProFile dialog boxes, click the [?] symbol in the top right corner, then click any elementfor help on that item.

� By pressing <F4> you will open the Form Explorer. In the categories of forms appearing inthe shaded box on the left, if you choose “A. Used” near the bottom of the column, all theforms that have calculations for the return will be shown. You can then double click on theform itself to view it.

� Right clicking on a number in a field shows a variety of options, including the form orschedule where the amount originated from.

� Clicking on “Show Auditor” under the “Audit” list will display any warnings or potentialerrors.



For students who would like more assistance in using the software, we have provided “Sugges-tions For Working With ProFile Software” in this Study Guide. The three pages of suggestionsand tips can be found following this example.

Sample Problem DataGeorge Kercher (SIN 527-000-145) is a married, semi-retired air force pilot living in Banff,Alberta. His wife, Deborah (SIN 130-692-544) was blinded three years ago when she fellwhile rock climbing.

They have been your clients for many years. George was born on February 24, 1958 andDeborah was born on April 10, 1962. They are both Canadian citizens.

After some discussion with George and Deborah, you confirm that they have never owned anyforeign property. As he has for many years, George authorizes the CRA to provide informationto Elections Canada and he authorizes you to e-file his return. They are currently living at 69Beaver Street in Banff, Alberta T0L 0C0. Their home phone number is (111) 111-1111.

George and Deborah have three children:

� Bryan (SIN 527-000-947) was born on March 12, 2002 and had no income during theyear.

� Janice (SIN 527-000-269) was born on June 6, 1996 and is in high school. She had incomefrom babysitting totalling $400 during 2009.

� Willa (SIN 527-000-228) was born on January 22, 1990 and is attending university inEdmonton. Willa had Net Income of $3,300 during 2009.

George loves flying and was hired in February to fly fire bombers June 1 to September 30 forthe provincial forest service fire control squad located in Banff.

George informs you that on February 12, 2009, he received $2 million from his mother’sestate. Using some of these funds, George bought a house in Banff. The remainder of thefunds were invested with his stockbroker, Bull & Bear Inc. In this Chapter 3 version of theexample, assume there is no investment income from these funds.

Deborah had no income during the year. Only George will be filing a tax return.

George brings you the following receipts and documents:

1. A T4 (included in this example).

2. A T2202A “Tuition And Education Amounts Certificate” for himself from AthabascaUniversity. It showed he was a part time student for 6 months and paid $591 in tuition for2009. [T2202]

3. A receipt for $1,000 from the Canadian Wildlife Federation dated December 3, 2009.[Donations]

4. A statement from the Banff Dental Clinic that he paid a total of $1,650 during 2009. Thisconsisted of $850 for himself on November 24, and $200 each for Deborah, Bryan, Willaand Janice on December 15. [Medical]

5. Twelve monthly bus passes that were purchased during 2009 by Janice for $30 per month.[OtherCredits]

6. One receipt for Bryan for a one week hockey camp in Edmonton. The registration fee of$650 includes $182 for accommodation and $193 for meals. A second receipt for Bryanof $200 for membership in the co-ed soccer club. This enabled Bryan to participate in theclub’s weekly games for four months of the year. [Dependants]

7. An agreement of purchase and sale for a house at 69 Beaver St. in Banff. The purchaseprice was $800,000 and the invoice for legal fees totalled $1,200. The deal closed March31, 2009. George and his family had been living in a rented townhouse for the last 5 years.



Prior to that George had owned a house, but it went to his ex-wife in the divorce settle-ment. Deborah has never owned a principal residence. [OtherCredits for the First-TimeHome Buyers Amount.]

Required: With the objective of minimizing George’s Tax Payable, complete his 2009 taxreturn. Ignore any GST implications.

Notes To The Chapter 4 Return1. As Deborah has no income, her disability credit has been transferred to George.

2. Inheritances are not taxable.

3. Due to his nil Tax Payable, George’s $1,000 charitable donation and his educationrelated credits are all carried forward.

4. Since Willa is over 17 years of age, her medical expenses are reduced by 3 percent of herNet Income For Tax Purposes. Willa should file a return in order to receive the GST credit.

5. Due to his low Net Income For Tax Purposes, George is eligible for the refundable medicalexpense supplement and the working income tax benefit. Although George couldconsider carrying forward his medical expenses because his non-refundable tax creditsare greater than his tax payable, if he did so, he would not receive the refundable medicalexpense supplement.

6. Both the hockey camp and the soccer club receipts qualify for the child fitness credit.However, since accommodation and meals do not qualify for the credit, the total creditbase is $475 ($650 - $182 - $193 + $200), which is less than the annual maximum of$500.

7. The First-Time Home Buyer’s Tax Credit of $750 [(15%)($5,000)] is available sinceGeorge had been living in a rented town house for five years and neither he nor Deborahhad another principal residence. However, since George’s non-refundable tax creditsalready exceed his Tax Payable, he cannot take advantage of this credit and it cannot becarried forward.

Printed ReturnBelow and on the following pages you will find George’s T4, his T1 Summary, his T1 jacket andhis Schedule 1 (federal tax calculations). The complete return can be found on the StudentCD-ROM.



Alberta Fire ControlEmployer's name - Nom de l'employeur Canada Revenue Agence du revenu

Agency du Canada T4YearAnnée

2009

STATEMENT OF REMUNERATION PAIDÉTAT DE LA RÉMUNÉRATION PAYÉE

Employment Income - line 101 Income tax deducted - line 437Revenus d'emploi - ligne 101 Impôt sur le revenu retenu - ligne 437

19,000 00 2,000 00 14 22

Payroll Account Number (15 characters) Province of employment Employee's CPP contributions - line 308 EI insurable earningsNuméro de compte de retenues (15 caractères) Province d'emploi Cotisations de l'employé au RPC - ligne 308 Gains assurables d'AE

_____ ____ RP ____ 54 AB 10 767 25 16 24

Social insurance number Exempt - Exemption Employment code Employee's QPP contributions - line 308 CPP/QPP pensionable earningsNuméro d'assurance sociale CPP/QPP EI PPIP Code d'emploi Cotisations de l'employé au RRQ - ligne 308 Gains ouvrant droit à pension - RPC/RRQ

527 000 145 12 28 29 17 26

RPC/RRQ AE RPAP Employee's EI premiums - line 312 Union Dues - line 212

Kercher George

69 Beaver Street

Banff AB CAN T0L 0C0

Employee's name and address - Nom et adresse de l'employé

Last name - Nom de famille First name - Prénom Initials - Initiales

Cotisations de l'employé à l'AE - ligne 312 Cotisations syndicales - ligne 212

328 70 18 110 00 44

RPP contributions - line 207 Charitable donationsCotisations à un RPA - ligne 207 Dons de bienfaisance

900 00 20 46

Pension adjustment - line 206 RPP or DPSP registration numberFacteur d'équivalence - ligne 206 No d'agrément d'un RPA ou d'un RPDB

1,800 00 52 _______ 50

Employee's PPIP premiums PPIP insurable earningsCotisations de l'employé au RPAP Gains assurables du RPAP

55 56

Kercher, George-Chapter 4 Example SIN: 527 000 145 Printed: 2010-04-21 16:45 Summary 2009 Tax Summary (Federal)

101 19,000113114115116117119120121122125126127128129130135

Workers' compensation andsocial assistance 147

150 19,000

207 900208210212 110213214215217219220221222224229235231236 17,990

244248249250251254255256260 17,990

756 008,030 001,600 00

George-Chapter 4 ExampleTotal income Employment *Old Age SecurityCPP/QPP benefitsOther pensionsSplit-pension amountUniversal Child Care BenefitEmployment InsuranceTaxable dividendsInterestLimited partnershipRDSPRentalTaxable capital gainsSupport paymentsRRSPOtherSelf-employment *

Total income

Net income RPPRRSP *Split-Pension DeductionUnion and professional duesUCCB repaymentChild care expensesDisability supports deductionBusiness investment lossMoving expensesSupport paymentsCarrying charges and interestCPP/QPP/PIPP *Exploration and developmentEmployment expensesSocial benefits repaymentOther deductions *

Net income Taxable income Canadian Forces personnelHome relocation loanSecurity options deductionsOther payments deductionLosses of other years *Capital gains deductionNorthern residentsAdditional deductions

Taxable income

2010 Estimated George-Chapter 4 ExampleGST/HST creditChild Tax BenefitRRSP contribution limit* More than one line is considered

300 10,320301303 10,320367 4,178306308 1,096363 1,044364 360365 475368 5,000313314316318 7,196319323332 1,011335 41,000338 6,150349350 6,150

404 2,699350 6,150425426429

405406410414417415418420421422428435

437 2,000440448452 253453 1,067454457476479482 3,319

(3,319)

(3,319)

George-Chapter 4 ExampleNon-refundable tax credits Basic personal amountAge amountSpouse / eligible dependant *Amount for childrenInfirm/caregiver *CPP/QPP/PPIP/EI *Canada employment amountPublic transit passes amountChildren's fitness amountHome renovation/Home buyers *Adoption expensesPension income amountDisability amountTransfers *Interest on student loansTuition / educationMedical expenses

Subtotal Credit at 15% Donations and gifts

Non-refundable tax credits Total payableFederal taxNon-refundable tax creditsDividend tax creditMin. tax carry-over/other *

Basic federal tax Non resident surtaxForeign tax credits / other

Federal tax Political/inv. tax credit *Labour-sponsored tax creditAlternative minimum taxWITB Prepayment (RC210)Additional tax on RESP

Net federal tax CPP contributions payableSocial benefits repaymentProvincial/territorial tax

Total payable Total credits Income tax deducted *QC or YT abatement *CPP/EI overpayment *Medical expense supplementWITB (Schedule 6)Other credits *

GST/HST rebateInstalmentsProvincial tax credits

Total credits

Balance owing (refund)

Combined balance (refund)

Page 1 of 1

Kercher, George-Chapter 4 Example SIN: 527 000 145 Printed: 2010-04-21 16:45

T1-2009 Federal Tax Schedule 1

300 10,320 00

Age amount (if you were born in 1944 or earlier) (use federal worksheet) (maximum $6,408) 301

10,320 0 00Spouse or common-law partner amount: (if negative, enter "0")

$ minus ( his or her net income from page 1 of your return) 303 10,320 00

10,320 0 00Amount for an eligible dependant (attach schedule 5) (if negative, enter "0")

$ minus ( his or her net income) 305366 2Amount for children born in 1992 or later Number of children x $2,089 =367 4,178 00

Amount for infirm dependants age 18 or older (use federal worksheet and attach Schedule 5) 306CPP or QPP contributions:

through employment from box 16 and box 17 on all T4 slips (maximum $2,118.60) 308 767 25310312 328 70

Canada employment amount(if you reported employment income on line 101 or line 104, see line 363 in the guide) (maximum $1,044) 363 1,044 00

364 360 00365 475 00368369 5,000 00313314315316

Disability amount transferred from a dependant (use federal worksheet) 318

319323324326 7,196 00

330 1,450 00539 70910 30

Allowable amount of medical expenses for other dependants(see the calculation at line 331 in the guide and attach Schedule 5) 331 101 00

1,011 30 332 1,011 30335 41,000 25

338 6,150 04349

Total federal non-refundable tax credits: add lines 26 and 27. 350 6,150 04

Page 1 of 25000-S1

Complete Step 1 to claim your federal non-refundable tax credits, Step 2 to calculate your federal tax on taxable income,and Step 3 to calculate your net federal tax.

You must attach a copy of this schedule to your return.

Step 1 - Federal non-refundable tax credits (For details, read the related lines in the guide.)

Basic personal amount claim $10,320 1

2

= 3

= 4 5

6

7on self-employment and other earnings (attach Schedule 8) 8

Employment Insurance premiums from box 18 and box 55 on all T4 slips (maximum $731.79) 9

10Public transit amount 11Children's fitness amount 12Home renovation expenses (see line 368 in the guide and attach Schedule 12) 13Home buyers' amount (see line 369 in the guide) 14Adoption expenses 15Pension income amount (use federal worksheet) (maximum $2,000) 16Caregiver amount (use federal worksheet and attach Schedule 5) 17Disability amount (for self) (claim $7,196 or if you were under age 18, use federal worksheet) 18

19Interest paid on your student loans 20Tuition, education, and textbook amounts (attach Schedule 11) 21Tuition, education, and textbook amounts transferred from a child 22Amounts transferred from your spouse or common-law partner (attach Schedule 2) 23Medical expenses for self, spouse or common-law partner, and yourdependent children born in 1992 or later

Minus: $2,011 or 3% of line 236, whichever is lessSubtotal (if negative, enter "0") (A)

(B)Add lines (A) and (B). 24

Add lines 1 to 24. 25

Multiply the amount on line 25 by 15%. 26Donations and gifts (attach Schedule 9) 27

28


17,990 00

Use the amount on line 29 to determinewhich ONE of the following columns youhave to complete.

If line 29 is$40,726 or less

If line 29 is morethan $40,726 but

not more than$81,452



If line 29 is morethan $126,264

17,990 0040,726 00 81,452 00 126,264 00

17,990 00x 15 x 22 x 26 x 29

2,698 500 00 6,109 00 15,069 00 26,720 00

Add lines 34 and 35. 2,698 50

2,698 50424404 2,698 50 2,698 50350 6,150 04425426427

6,150 04 6,150 04

Basic federal tax: Line 39 minus line 44 (if negative, enter "0") 429

405

Federal tax: Line 45 minus line 46 (if negative, enter "0") 406 0 00

409 Federal political contribution tax credit (use federal worksheet) 410

412

413Labour-sponsored funds tax credit

Net cost Allowable credit 414416

Line 47 minus line 51 (if negative, enter "0") (if you have an amount on line 38 above, see Form T1206) 417

415418

Net federal tax: add lines 52 to 54.Enter this amount on line 420 of your return.

420 0 00

Page 2 of 25000-S1

Step 2 - Federal tax on taxable income

Enter your taxable income from line 260 of your return. 29

Enter the amount from line 29. 30Base amount 31Line 30 minus line 31 (cannot be negative) 32Rate % % % % 33Multiply line 32 by line 33. 34Tax on base amount 35

36

Step 3 - Net federal tax

Enter the amount from line 36 37Federal tax on split income (from line 5 of Form T1206) 38

Add lines 37 and 38. 39Enter your non-refundable tax credits from line 28. 40Federal dividend tax credit (see line 425 in the guide) 41Overseas employment tax credit (attach Form T626) 42Minimum tax carryover (attach Form T691) 43


45

Federal foreign tax credit (attach Form T2209) 46Federal logging tax credit

47

Total federal political contributions (attach receipts)

48Investment tax credit (attach Form T2038(IND)) 49

50Add lines 48 to 50. 51

52Working Income Tax Benefit (WITB) advance payments received (box 10 on the RC210 slip). 53Additional tax on RESP accumulated income payments (attach Form T1172) 54

55

Canada Revenue Agence du revenuAgency du Canada T1 GENERAL 2009

Income Tax and Benefit Return

George-Chapter 4 Example

Kercher

69 Beaver Street

Banff AB T0L 0C0

First name and initial

Last name

Care of

Mailing address: Apt No – Street No Street name

PO Box RR

City Prov./Terr. Postal Code

Information about your residence

Alberta

Alberta

Enter your province or territory ofresidence on December 31, 2009:

Enter the province or territory where you currently reside ifit is not the same as that shownabove for your mailing address:

If you were self-employed in 2009,enter the province or territory ofself-employment:

If you became or ceased to be a resident of Canada in 2009, give thedate of:

Month/Day Month/Dayentry or departure

Identification7

Information about you527 000 145

1958-02-24

X

Enter your social insurance number (SIN)

Year/Month/DayEnter your date of birth:

Your language of correspondence: English FrançaisVotre langue de correspondance :

Your marital status on December 31, 2009

X (see the "Marital status" section in the guide for details)1 Married 2 Living common-law 3 Widowed4 Divorced 5 Separated 6 Single

Information about your spouse orcommon-law partner (if you ticked box 1 or 2 above)

130 692 544

Deborah

Enter his or her social insurance number:

Enter his or her first name:

Enter his or her net income for 2009:

Enter the amount of UCCB included on line 117of his or her return:

Enter the amount of UCCB repayment includedon line 213 of his or her return

Tick this box if he or she was self-employed in 2009: 1

Person deceased in 2009

Do not use this area

If this return is for a deceased Year/Month/Dayperson, enter the date of death:

Do notuse this area 172 171

Complete all the sections that apply to you in order to benefit from amounts to which you are entitled.

X

X

Elections Canada (see the Elections Canada page in the tax guide for details or visit www.elections.ca)

A) Are you a Canadian citizen? Yes 1 No 2

Answer the following question only if you are a Canadian citizen.B) As a Canadian citizen, do you authorize the Canada Revenue Agency to give your name, address, date of

birth, and citizenship to Elections Canada for the National Register of Electors? Yes 1 No 2Your authorization is valid until you file your next return. Your information will only be used forpurposes permitted under the Canada Elections Act which includes sharing the informationwith provincial/territorial election agencies, Members of Parliament and registered politicalparties, as well as candidates at election time.

X

Goods and services tax/harmonized sales tax (GST/HST) credit applicationSee the guide for details.Are you applying for the GST/HST credit? Yes 1 No 2

X

Please answer the following questionDid you own or hold foreign property at any time in 2009 with a total cost of more thanCAN$100,000? (see the "Foreign income" section in the guide for details) 266 Yes 1 No 2If yes, attach a completed Form T1135.If you had dealings with a non-resident trust or corporation in 2009, see the "Foreign income" section in the guide.

2


101 19,000 00102

104Old Age Security pension (box 18 on the T4A(OAS) slip) 113CPP or QPP benefits (box 20 on the T4A(P) slip) 114

152115116117

Employment Insurance and other benefits (box 14 on the T4E slip) 119Taxable amount of dividends (eligible and other than eligible) from taxable Canadiancorporations (see the guide and attach Schedule 4) 120

180121

Net partnership income: limited or non-active partners only (attach Schedule 4) 122

125 Rental income 160 126

127 Support payments received 156 128

129130

162 135164 137166 139168 141170 143

144145

Net federal supplements (box 21 on the T4A(OAS) slip) 146

Add lines 144, 145, and 146 (see line 250 in the guide) 147Add lines 101, 104 to 143, and 147

This is your total income. 150 19,000 00

3Attach your Schedule 1 (federal tax) and Form 428 (provincial or territorial tax)here. Also attach here any other schedules, information slips, forms, receipts,and documents that you need to include with your return.

Your guide contains valuable information to help you complete your return.When you come to a line on the return that applies to you, look up the line number in the guide for more information.

As a Canadian resident, you have to report your income from all sources both inside and outside Canada.

Total incomeEmployment income (box 14 on all T4 slips)Commissions included on line 101 (box 42 on all T4 slips)Other employment income

Disability benefits included on line 114(box 16 on the T4A(P) slip)Other pensions or superannuationElected split-pension amount (see the guide and attach Form T1032)Universal Child Care Benefit (see the guide)

Taxable amount of dividends other than eligible dividends,included on line 120, from taxable Canadian corporationsInterest and other investment income (attach Schedule 4)

Registered disability savings plan income (from all T4A information slips)

Gross Net Taxable capital gains (attach Schedule 3)

Total Taxable amount RRSP income (from all T4RSP slips)Other income Specify:Self-employment income (see lines 135 to 143 in the guide)

Business income Gross Net Professional income Gross Net Commission income Gross Net Farming income Gross Net Fishing income Gross Net

Workers' compensation benefits (box 10 on the T5007 slip)Social assistance payments


150 19,000 00

206 1,800 00

207 900 00208209

Deduction for elected split-pension amount (see the guide and attach Form T1032) 210 Annual union, professional, or like dues (box 44 on all T4 slips, and receipts) 212 110 00 Universal Child Care Benefit repayment (box 12 on all RC62 slips) 213

214215

228 Business investment loss Gross Allowable deduction 217

219

230 Support payments made Total Allowable deduction 220

221Deduction for CPP or QPP contributions on self-employment and other earnings(attach Schedule 8) 222

224229231232233 1,010 00 1,010 00

234 17,990 00 Social benefits repayment (if you reported income on line 113, 119, or 146, see line 235 in the guide) 235Line 234 minus line 235 (if negative, enter "0"). If you have a spouse or common-law partner, see line 236 in the guide.

This is your net income. 236 17,990 00

244248249

Other payments deduction (if you reported income on line 147, see line 250 in the guide) 250

251252253254255256257

Line 236 minus line 257 (if negative, enter "0") This is your taxable income. 260 17,990 00

4Net incomeEnter your total income from line 150

Pension adjustment(box 52 on all T4 slips and box 34 on all T4A slips) Registered pension plan deduction (box 20 on all T4 slips and box 32 on all T4A slips)RRSP deduction (see Schedule 7 and attach receipts)Saskatchewan Pension Plan deduction (maximum $600)

Child care expenses (attach Form T778)Disability supports deduction

Moving expenses

Carrying charges and interest expenses (attach Schedule 4)

Exploration and development expenses (attach Form T1229)Other employment expensesClergy residence deductionOther deductions Specify:

Add lines 207 to 224, 229, 231, and 232. Line 150 minus line 233 (if negative, enter "0"). This is your net income before adjustments.

Taxable incomeCanadian Forces personnel and police deduction (box 43 on all T4 slips)Employee home relocation loan deduction (box 37 on all T4 slips)Security options deductions

Limited partnership losses of other yearsNon-capital losses of other yearsNet capital losses of other yearsCapital gains deductionNorthern residents deductions (attach Form T2222)Additional deductions Specify:

Add lines 244 to 256.

Use your taxable income to calculate your federal tax on Schedule 1 and your provincial orterritorial tax on Form 428.


420 0 00421422

Provincial or territorial tax (attach Form 428, even if the result is "0")

428Add lines 420 to 428

This is your total payable. 435 0 00

437 2,000 00440448450452 252 83453 1,066 50454456

Employee and partner GST/HST rebate (attach Form GST370) 457

476

Provincial or territorial credits (attach Form 479)

479Add lines 437 to 479.

These are your total credits. 482 3,319 33 3,319 33

Line 435 minus line 482 (3,319 33)

484 3,319 33 485

486Direct deposit - Start or change (see line 484 in the guide)

460 _____ 461 462 ____________ 463 491

You do not have to complete this area every year. Do not complete it this year if your direct depositinformation has not changed.

Refund, GST/HST credit, WITB advance payments, and any other deemed overpayment of tax - Tostart direct deposit or to change account information only, attach a "void" cheque or complete lines 460,461, and 462.

Note: To deposit your CCTB payments (including certain related provincial or territorial payments) into the same account, also tick box 463.To deposit your UCCB payments into the same account, also tick box 491.Branch Institutionnumber number Account number CCTB UCCB

(5 digits) (3 digits) (maximum 12 digits)

Attach to page 1 a chequeor money order payable tothe Receiver General. Yourpayment is due no laterthan April 30, 2010.

(111) 111-1111 2010-04-21

I certify that the information given on this return and in any documentsattached is correct, complete, and fully discloses all my income.

Sign hereIt is a serious offence to make a false return.

Telephone Date

490 X

(___) ___-____

For professional tax preparers onlyNameAddress

Telephone

Do not usethis area 487 488

Refund or Balance owing 5Net federal tax: enter the amount from line 55 of Schedule 1 (attach Schedule 1, even if the result is "0")CPP contributions payable on self-employment and other earnings (attach Schedule 8)Social benefits repayment (enter the amount from line 235)

Total income tax deducted (see the guide) Refundable Québec abatement CPP overpayment (enter your excess contributions) Employment Insurance overpayment (enter your excess contributions) Refundable medical expense supplement Working Income Tax Benefit (WITB) (attach Schedule 6) Refund of investment tax credit (attach Form T2038(IND)) Part XII.2 trust tax credit (box 38 on all T3 slips)

Tax paid by instalments

If the result is negative, you have a refund. If the result is positive, you have a balance owing.Enter the amount below on whichever line applies.

Generally, we do not charge or refund a difference of $2 or less.

Refund Balance owing (see line 485 in the guide)

Amount enclosed

RC-09-148

Suggestions For Working With ProFile Software

Before You StartTo get the maximum benefit from using the ProFile tax preparation software program, westrongly advise that you do the T1 tutorials “Getting Started” and “Using the Form Explorer”that are included with the program. The data in the sample tax returns can be used in the tuto-rial.

A Quick Reference Card is available on the ProFile Tax Suite CD-ROM in .PDF format.

Sample Tax ReturnsIncluded in this Study Guide are sample tax returns for Chapters 4 and 11. The tax returnscontain 2009 data as the 2010 version of the ProFile tax preparation software was not yetavailable. The ProFile software on the ProFile Tax Suite CD also contains the version for 2009returns. As a result, the 2009 credits and rates in the sample returns will not be the same as the2010 figures in the text which can cause confusion for some students.

When the updated Intuit ProFile software is available in January, 2011, the updated 2009versions of the sample returns, as well as instructions on how to install the updated softwareprogram, will be available on the Text Enrichment Site at:


Before completing the Tax Software Self Study Problem, you should review the ProFile files forthe sample tax returns and ensure that you are familiar with how the data was entered into theprogram.

Creating A New T1 ReturnTo provide some guidance on how to use ProFile to create a simple new personal tax return,we suggest the following approach.

1. Start the ProFile software. Open a new file. Ensure that you have chosen the a new file inthe correct software (T1) and year (2009 or 2010 if available).

2. By default, the software will open on the form “Info”. Fill in the highlighted cells andanswer all questions that are applicable. If you do not fill in the highlighted areas, ProFilewill generate an audit message, At a minimum, you will need to have the following infor-mation:

� Taxpayer’s Social Insurance Number (SIN)� Taxpayer’s first and last name� Address, city, province, and postal code� Telephone number� Taxpayer’s birth date

If applicable, you will also need to enter any relevant information for the spouse on the“Info” form. At a minimum, the following information will be necessary:

� Spouse’s Social Insurance Number (SIN)� Spouse’s first and last name� Address, city, province, and postal code� Telephone number� Spouse’s birth date



3. Using the Form Explorer (F4), go to the Dependant form and enter all relevant informationabout any dependants. At a minimum, the following information will be necessary:

� Dependant’s Social Insurance Number (SIN) if there is one� Dependant’s first and last name� Dependant’s relationship to the taxpayer� Dependant’s birth date� Dependant’s Net Income� Address, city, province, and postal code� Child fitness amount (if applicable)

Note that if there are child care expenses, the information will flow here from T778. If theDependant has tuition, education and textbook amounts and is not filing a tax return, theeducation related information should be entered on the Dependant form.

4. Using the Form Explorer (F4), open the relevant information slip form. Enter all relevantinformation in the appropriate forms. Some common information slip forms are:

� T3 - Statement of Trust Income� T4 - Statement of Remuneration Paid� T5 - Statement of Investment Income� T2202 - Tuition and Education Amounts� T4AOAS - Statement of Old Age Security

5. Enter any other relevant income information on the appropriate forms. These forms mayinclude the following:

� S3Details - Capital Gains Entry(this form, not Schedule 3, must be used to input details on capital dispositions)

� T2125 - Statement of Business Or Professional Activities� T2125Asset - T2125 Asset Details� T2125CCA - T2125 CCA Details� T776 - Statement of Real Estate Rentals� T776Asset - T776 Asset Details� T776CCA - T776 CCA Details

6. Enter any relevant deduction information on the appropriate forms. These forms mayinclude the following:

� RRSP - RRSP Deduction� T777 - Statement of Employment Expenses (Use the jump link to T777Details in upper

right hand corner of form if applicable)� T778 - Child Care Expense Deduction� Support - Support Payments� Auto - Motor Vehicle Expenses� S4 - Statement of Investment Income

(much of the information for this schedule will be carried forward from the T3, T5,and other information slips, but a few items such as carrying charges are entereddirectly on Schedule 4)

� LossNetCap - Net Capital Losses (carry forward information)� LossNonCap - Non-Capital Losses (carry forward information)

7. Enter any relevant tax credit information on the appropriate forms. These forms mayinclude the following:

� Donations - Charitable Donations� Medical - Medical Expenses



8. Enter any remaining relevant information in the appropriate schedule. These schedulesmay include the following:

� S2 - Federal Amounts Transferred From Your Spouse or Common-Law Partner(primarily used if spouse or common-law partner is not filing a tax return)

� T1032 - Joint Election To Split Pension Income

9. Use the function “Show Auditor” under the “Audit” list to check for warnings or potentialerrors.

Tips For Using ProFile Software

� Press the F5 key or choose Spouse from the Form menu to display the return of the spouse.

� If you cannot determine where a specific slip or other information should be input, oneway to search for the correct form is to open the Form Explorer (F4) and choose the “Key”mode icon in the top right corner of the menu. If you type a key word into the line abovethe listing of key words, the appropriate form may be found.

� Press the F4 key to view the Form Explorer. Choose the form “Summary” to see the taxdata of both spouses on the same one page summary. (Second column will be blank for asingle taxpayer.)

� If you want to print only the form you have on the screen, use the print icon identified with1 in the tool bar. The other print icon opens the print selection screen for printingcomplete returns. If you want to print just one copy of the return, deselect the print setslabelled 2 and 3 on the print selection screen. Before you print the return, review theforms that have been selected in the print set to ensure that you will not be printing formsyou do not require. If it is a coupled return, the print settings for the spouse should bereviewed before clicking on Print as both returns will be printed.

� Review marks can be used to flag information that should be reviewed. The cell with thereview mark will be listed when the Show Auditor feature is turned on.

� A memo and/or a tape can be attached to a cell to provide backup information.

� To see the effect of various changes such as province of residence or a change in an RRSPcontribution, you can use the “Snapshot/Variance” feature. Information on this feature isavailable from the Help menu. Note you must press the “Enter” key for the change to takeeffect. The data monitor at the bottom of the screen should show the newbalance/refund. The difference can also be seen on the “Summary” form. If you open theAuditor (F9) and select the Variance tab you will see a detailed analysis of the changes.



Tax Software Self Study Problem - Chapter 4

This problem is extended in Self Study Problem Four-4 (in the textbook) to use2010 rates. This Tax Software Self Study Problem is continued in Chapter 11.

Note The following problem contains 2009 (not 2010) information as software for2010 is not yet available. When the updated Intuit ProFile software is available inJanuary, 2011, the updated 2010 version of this problem, as well as instructions onhow to install the updated software program, will be available on the textbook website at:


This Tax Software Self Study Problem is expanded in Chapter 11 to contain othercomponents of Taxable Income and Tax Payable. A version of this problem, whichdoes not require tax software, has been updated for 2010 rates and credits and isavailable in your textbook as Self Study Problem Four-4.

Ms. Eleanor Trubey’s husband died two years ago. After her husband died, she moved fromher house in Prince George, B.C., to a rented house in Victoria, B.C.

Ms. Trubey’s widowed mother lives with Ms. Trubey and takes care of the house, Ms. Trubey’syounger daughter, Amy, and all of the household cooking. Marjorie has never filed a taxreturn and has no Social Insurance Number. She has a small income from her deceasedhusband’s life insurance policy.

Diane Trubey, Eleanor’s older daughter, is studying psychology at McGill University inMontreal. Her field is addiction research with a special emphasis on gambling. She doesvolunteer work at a gambling addiction treatment centre in Montreal in the summers. AsEleanor has paid for her tuition and living costs, Diane has agreed that any credits availableshould be transferred to her mother.

Diane has decided not to file a tax return this year as she is too busy with her studies and volun-teer work. Her income was earned driving for a client of the addiction treatment centre whohad lost his licence after being charged with impaired driving.

Information concerning Ms. Trubey for 2009 is given on the following pages.

Required: With the objective of minimizing Ms. Trubey’s Tax Payable, prepare the 2009income tax return of Eleanor Trubey using the ProFile tax software program. List any assump-tions you have made, and any notes and tax planning issues you feel should be discussed withMs. Trubey.

Personal Information

Title Ms.

First Name Eleanor

Last Name Trubey

SIN 527-000-087

Date of birth (Y/M/D) 1961-05-15

Marital Status Widowed

Canadian citizen? Yes

Provide information to Elections Canada? Yes

Own foreign property of more than $100,000 Canadian? No



Taxpayer’s Address

1415 Vancouver Street, Victoria, B.C. V8V 3W4

Phone number (250) 363-0120

Dependants Child 1 Child 2 Mother

First Name Diane Amy Marjorie

Last Name Trubey Trubey Toshiro

SIN 527-000-293 None None

Date of birth (Y/M/D) 1989-05-14 1997-10-11 1928-05-21

Net income $2,300 Nil $6,500

T2202A - (Diane) Box Amount

Tuition fees - for Diane Trubey (daughter) A 7,000

Number of months in school - part-time B 2

Number of months in school - full-time C 8

T4 Box Amount

Issuer - 1750 Canada Inc.

Employment income 14 60,201.80

Employee’s CPP contributions 16 2,118.60

Employee’s EI premiums 18 731.79

RPP contributions 20 2,406.16

Pension adjustment 52 7,829.00

Income tax deducted 22 11,408.00

Union dues 44 748.59

Charitable donations 46 175.00

Eleanor and her family had the following medical expenses, all of which Eleanor paid for:

Patient (Y/M/D) Medical Expenses Description Am’t

Eleanor 2009-08-15 Grace Hospital Ambulance charge 392

Eleanor 2009-08-18 Paramed Home Health Nursing care 1,350

Marjorie 2009-05-20 Dr. Zhang (Optometrist) Contact lenses 110

Marjorie 2009-07-06 Pharmacy Prescription 75

Diane 2009-09-01 Dr. Glassman Physiotherapist 100

Amy 2009-05-11 Walk Right Foot Clinic Orthotics 450

Amy 2009-01-23 Dr. Tamo Dental 1,120

Donor Charitable Donation Receipts Am’t

Eleanor Heart and Stroke 375

Eleanor Terry Fox Foundation 50

Diane Addiction Research Council of Canada 100



Solution to Chapter Four Exercises

Exercise Four - 1 SolutionThe net effect of this home relocation loan on Taxable Income would be as follows:

Taxable Benefit Under ITA 80.4(1)(a) - [(4%)($82,000)]* $3,280Reduction For Payments Under ITA 80.4(1)(c) - [(2%)($82,000)] ( 1,640)

Total ITA 80.4(1) Benefit $1,640ITA 110(1)(j) Deduction - Lesser Of:

• ITA 80.4(1) Benefit = $1,640• [(4%)($25,000)(4/4)]* = $1,000 ( 1,000)

Net Addition To Taxable Income $ 640

*Despite the fact that the prescribed rate has increased, the taxpayer can continue to usethe rate in effect at the time the loan was made. This can continue for a period of fiveyears. Note that the ITA 110(1)(j) deduction is also based on the rate in effect at the timethe loan was made.

Exercise Four - 2 SolutionThe required Tax Payable would be calculated as follows:

Tax Payable On First $40,970 At 20.05 Percent (15.00% + 5.05%) $8,214Tax Payable On Next $5,730 ($46,700 - $40,970)

At 31.15 Percent (22% + 9.15%) 1,785

Total Tax Payable Before Credits $9,999

Her average rate of tax is 21.4 percent ($9,999 ÷ $46,700).

Exercise Four - 3 SolutionThe required amount would be calculated as follows:

Basic Personal Amount $ 10,382Spousal Amount ($10,382 - $2,600) 7,782

Credit Base $18,164Rate 15%

Personal Tax Credits $ 2,725

Exercise Four - 4 SolutionJoan would be entitled to a caregiver tax credit in the amount of $457 {[15%][$4,223 -($15,600 - $14,422)]}.

Exercise Four - 5 SolutionHarold would be entitled to an infirm dependant over 17 tax credit in the amount of $392{[15%][$4,223 - ($7,600 - $5,992)]}. He could not claim the caregiver credit as his motherdoes not live with him. If his mother lived with him, Harold would be able to claim the fullcaregiver credit as his mother’s income is below the income threshold of the caregiver credit.

Exercise Four - 6 SolutionAs Mr. Litvak is entitled to claim his mother as an eligible dependant, he cannot take the care-giver tax credit for her. Given this he would first determine the amount of the eligibledependant credit as follows:



[(15%)($10,382 - $7,500)] = $432

As his mother’s income is below the $14,422 threshold for the caregiver credit, in the absenceof ITA 118(4)(c), he would have been eligible for $633, the full amount of the caregiver credit.This means that he will have an additional credit under ITA 118(1)(e) of $201 ($633 - $432).The combination of the eligible dependant credit and the ITA 118(1)(e) credit totals $633, themaximum caregiver credit.

Exercise Four - 7 SolutionITA 118(4)(d) indicates that, if a taxpayer is entitled to the caregiver credit for a particular indi-vidual, the taxpayer cannot claim the infirm dependant over 17 credit for that individual. Ashis investment income is below the income threshold for the caregiver tax credit, the care-giver tax credit for Suki’s son would be calculated as follows:

[(15%)($4,223 - Nil)] = $633

Exercise Four - 8 SolutionHer tax credits would be determined as follows:

Basic Personal Amount $ 10,382Eligible Dependant (Son) 10,382Child (Daughter) 2,101


Total Credits $ 3,430

As Ms. Forest is entitled to claim her son as an eligible dependant, she cannot take the care-giver or infirm dependant over 17 tax credit for him. She does not have the option to claim herdaughter as an eligible dependant and claim the caregiver credit for her son. Since she is enti-tled to claim him as an eligible dependant, she cannot claim the caregiver credit instead.

Exercise Four - 9 SolutionMr. Smythe's age credit would be $540 {[15%][$6,446 - (15%)($51,500 - $32,506)]}.

Exercise Four - 10 SolutionThe adoption expenses tax credit would be calculated as follows:

Cost Of Second China Trip $ 6,420Chinese Orphanage Fee 1,600Canadian Adoption Agency Fee 3,200Legal Fees 2,700

Total Eligible Expenses $13,920

The first trip to China is not eligible for the credit as it was incurred before the adop-tion period. While the additional medical expenses will likely be available for amedical expenses tax credit, they are not eligible for the adoption expenses credit.Since the $5,000 employer reimbursement is a taxable benefit and included inemployment income, it does not reduce the total eligible adoption expenses.

As the total eligible expenses exceed the maximum of $10,975, the credit is limited to $1,646[(15%)($10,975)].



Exercise Four - 11 SolutionThe credit base for 2010 would be limited to $48,750 [(75%)($65,000)]. However, shechooses to claim $10,000, leaving a carry forward of $90,000 ($100,000 - $10,000). Theresulting credit would be:

$200 At 15 Percent $ 30$9,800 ($10,000 - $200) At 29 Percent 2,842

Total Credit $2,872

As her income for 2011 is unchanged from 2010, the base for the maximum credit would bethe same limit of $48,750 [(75%)($65,000)]. Charitable donations can be carried forward forup to 5 years. As a result, the final year to claim any unused portion of her 2010 donationwould be 2015.

Exercise Four - 12 Solution

Amount B Qualifying Expenses ($4,330 + $4,600) $ 8,930Amount CLesser Of:

• [(3%)($150,000)] = $4,500• 2010 Threshold Amount = $2,024 ( 2,024)

Subtotal $ 6,906Amount DMax - Lesser Of:

• [$8,425 - (3%)($8,250)]* = $8,178• Absolute Limit = $10,000 8,178

Allowable Amount Of Medical Expenses $15,084Amount A The Appropriate Rate (Minimum Rate) 15%

Medical Expense Tax Credit $ 2,263

* [(3%)($8,250)] is less than $2,024.

Exercise Four - 13 SolutionThe regular medical expense credit would be calculated as follows:

Medical Expenses $6,250Lesser Of:

• [(3%)($26,400)] = $792• 2010 Threshold Amount = $2,024 ( 792)

Allowable Amount Of Medical Expenses $5,458

The refundable supplement would be calculated as follows:

Lesser Of:• $1,074 (2010 Maximum)• [(25%)($5,458)] = $1,365 $1,074

Reduction [(5%)($26,400 - $23,775)] ( 131)

Refundable Medical Expense Supplement $ 943

Ms. Brunt’s total Tax Payable would be calculated as follows:



Tax Payable Before Credits [(15%)($26,400)] $3,960Non-Refundable Credits:

Basic $ 10,382Common-Law Partner 10,382Allowable Medical Expenses 5,458

Total $26,222Rate 15% ( 3,933)

Tax Before Refundable Supplement $ 27Refundable Medical Expense Supplement ( 943)

Tax Payable (Refund) ($ 916)

Exercise Four - 14 SolutionJohn has sufficient other medical expenses to exceed the 3 percent threshold. His income istoo high to qualify for the refundable medical expense supplement. As Keith has no income,the regular disability credit can be transferred to John. However, as Keith is over 17, thedisability supplement is not available. In addition to the disability credit, John will be able totake the caregiver credit, as well as a credit for Keith’s medical expenses. Since the caregivercredit is claimed, the infirm dependant over 17 credit is not available.

Keith’s medical expense credit base is limited to the maximum of $10,000. The total creditsrelated to Keith would be as follows:

Disability - Regular Amount $ 7,239Caregiver 4,223Medical Expenses (Absolute Limit) 10,000

Total Credit Base $21,462Rate 15%

Total Credits Related To Keith $ 3,219

Exercise Four - 15 SolutionMs. Bright's education related tax credits would be calculated as follows:

Tuition Amount:Total (Including $1,000 Prepayment) $3,200Ineligible Ancillary Fees ($400 - $250) ( 150) $3,050

Education Amount:Full Time [(4)($400)] 1,600Part Time [(2)($120)] 240

Textbook Amount:Full Time [(4)($65)] 260Part Time [(2)($20)] 40

Interest On Student Loan 325

Total Credit Base $5,515Rate 15%

Total Available Credits $ 827



Exercise Four - 16 SolutionIncome Tax Act Approach The available education related credits for the year would becalculated as follows:

Tuition Amount $4,800Education Amount [(8)($400)] 3,200Textbook Amount [(8)($65)] 520

Education Related Amounts From Current Year $8,520Rate 15%

Education Related Credits From Current Year $1,278Carry Forward Credit 300

Total Available Education Related Credits $1,578

Tax Return Approach The alternative calculation approach that is used in the tax returnwould be as follows:

Education Related Amounts From Current Year(Preceding Calculation) $ 8,520

Carry Forward Amount 2,000

Total Available Education Related Amounts $10,520Rate 15%

Total Available Education Related Credits $ 1,578

Kerri’s Tax Payable before deducting education related credits would be $1,743[(15%)($22,000 - $10,382)]. This is more than sufficient to absorb the available educationrelated credits of $1,578 and, as a consequence, there would be no carry forward of credits.

Exercise Four - 17 SolutionThe available education related credits for the year would be calculated as follows:

Tuition Amount $23,500Education And Textbook Amounts [(11)($400 + $65)] 5,115

Available Education Related Amounts (Maximum Transfer = $5,000) $28,615Rate 15%

Available Education Related Credits (Maximum Transfer = $750) $ 4,292

Note that the transfer and carry forward amounts calculated in the following alternativeapproaches ignore his medical expense credit. If he is eligible for the refundable medicalexpense supplement, that supplement would also be ignored in the following calculations.

Income Tax Act Approach The $750 maximum transfer of education related creditsmust be reduced by Jerry ’s Tax Payable, before deducting his medical expense credit, of$130 [(15%)($11,250 - $10,382)]. This will leave a maximum transfer of $620 ($750 -$130) and a carry forward credit of $3,542 ($4,292 - $130 - $620).

Tax Return Approach The $5,000 maximum transfer of education related amountsmust be reduced by $868 ($11,250 - $10,382)], the excess of Jerry ’s Taxable Income overhis basic personal amount. This results in a maximum transfer of $4,132 ($5,000 - $868)and a carry forward amount of $23,615 ($28,615 - $868 - $4,132). Multiplying this by 15percent gives the same $3,542 that we calculated under the alternative approach.



Exercise Four - 18 SolutionHis tax credits would be calculated as follows:

Basic Personal Amount $ 10,382Spousal Amount ($10,382 - Nil) 10,382Age [$6,446 - (15%)($42,000 - $32,506)] 5,022Pension Income 2,000Spousal Age Transfer 6,446Spousal Tuition, Education, and Textbook Transfer - Lesser Of:

• [$2,200 + (4 Months)($400) + (4 Months)($65)] = $4,060• Maximum Transfer = $5,000 4,060


Total Credits $ 5,744

Exercise Four - 19 SolutionThe family working income totals $19,000 ($13,000 + $6,000). The working income taxbenefit for 2010 would be calculated as follows:

Lesser Of:• Maximum Benefit For Family = $1,680• [(25%)($19,000 - $3,000)] = $4,000 $1,680

Reduction [(15%)($19,000 - $14,500)] ( 675)

Working Income Tax Benefit $1,005

Exercise Four - 20 SolutionMs. Unger’s $487 credit would be calculated as follows:

Contributions Credit Rate Tax Credit

First $400 3/4 $300Next 350 1/2 175Remaining 35 1/3 12

Maximum Credit $785 $487

Exercise Four - 21 SolutionThe credit will be $450 [(15%)($3,000)]. As his acquisition is less than the $5,000 maximum,the full cost is eligible for the 15 percent federal credit.

Exercise Four - 22 SolutionMs. Jacobi's income before deducting either the EI or OAS repayments would be calculated asfollows:

Net Employment Income $60,000EI Benefits 10,000OAS Benefits 6,200

Income Before Deductions $76,200

Dealing first with the EI repayment, Ms. Jacobi would have to repay $3,000 [(30%)($10,000)],which is the lesser of 30 percent of the EI benefits received and $6,660 [(30%)($76,200 -$54,000)].



Using this deduction, the clawback of her OAS payments would be $970 [(15%)($76,200 -$3,000 - $66,733)]. As a result, her Net Income For Tax Purposes would be as follows:

Income Before Deductions $76,200ITA 60(v.1) Deduction (EI) ( 3,000)ITA 60(w) Deduction (OAS) ( 970)

Net Income For Tax Purposes $72,230

Solution to Self Study Problem Four - 1

Case A The solution for this Case would be as follows:

Net Income For Tax Purposes And Taxable Income $50,000

Tax [$6,146 + (22%)($50,000 - $40,970)] $8,133Basic Personal Amount ($10,382)EI ( 747)CPP ( 2,163)Canada Employment ( 1,051)

Credit Base ($14,343)Rate 15% ( 2,151)Political Contributions Tax Credit

[(3/4)($400) + (1/2)($350) + (1/3)($250)] ( 558)

Federal Tax Payable $ 5,424

Case B The solution for this Case is as follows:


Tax [$6,146 + (22%)($50,000 - $40,970)] $8,133Basic Personal Amount ($10,382)Spousal ($10,382 - $4,650) ( 5,732)Child - Eileen ( 2,101)EI ( 747)CPP ( 2,163)Canada Employment ( 1,051)Medical Expenses [$3,150 - (3%)($50,000)] ( 1,650)

Credit Base ($23,826)Rate 15% ( 3,574)


As family Net Income For Tax Purposes is greater than $45,255, Stanley Murphy is not eligiblefor the refundable medical expense supplement. Eileen’s income does not affect the child taxcredit or the medical expenses credit.

Case C The solution for this Case can be completed as follows:




Tax [$6,146 + (22%)($50,000 - $40,970)] $8,133Basic Personal Amount ($10,382)Spousal ($10,382 - $9,400) ( 982)Caregiver (Note 1) ( 4,223)Albert’s Disability ( 7,239)Medical Expenses (Note 2) ( 8,350)

Credit Base ($31,176)Rate 15% ( 4,676)

Federal Tax Payable $3,457

Note 1 ITA 118(4)(d) indicates that if a taxpayer is entitled to the caregiver credit for aparticular individual, that individual is deemed not to be a dependant and, therefore, noteligible for the infirm dependant over 17 credit.

Note 2 The base for the medical expense tax credit would be calculated as follows:

Expenses For Stanley And Helen $1,250Lesser Of:


Subtotal $ NilAlbert’s Medical Expenses - Lesser Of:

• [$8,350 - (3%)($Nil)] = $8,350• Absolute Limit = $10,000 8,350

Base For Medical Expense Credit $8,350

Case D The solution for this Case is as follows:

Net Income For Tax Purposes and Taxable Income $42,050

Tax [$6,146 + (22%)($42,050 - $40,970)] $ 6,384Basic Personal Amount ($10,382)Spousal ($10,382 - $6,900) ( 3,482)Age [$6,446 - (15%)($42,050 - $32,506)] ( 5,014)Pension ( 2,000)Spouse’s Age ( 6,446)Spouse’s Disability ( 7,239)Spouse’s Pension ( 450)

Credit Base ($35,013)Rate 15% ( 5,252)


The Old Age Security and Canada Pension Plan receipts are not eligible for the pensionincome credit. Helen’s Registered Pension Plan receipt is eligible. As Helen Murphy’sincome is below $32,506, there is no reduction in her age credit.

Case E The solution for this Case can be completed as follows:




Tax [$6,146 + (22%)($50,000 - $40,970)] $ 8,133Basic Personal Amount ($10,382)Common-Law Partner ($10,382 - $4,500) ( 5,882)Child [(2)($2,101)] ( 4,202)First Time Home Buyer (Maximum) ( 5,000)

Credit Base ($25,466)Rate 15% ( 3,820)


Case F The solution for this Case is as follows:


Tax [$6,146 + (22%)($50,000 - $40,970)] $8,133Basic Personal Amount ($10,382)Spousal ($10,382 - $5,050) ( 5,332)EI ( 747)CPP ( 2,163)Canada Employment ( 1,051)Transfer From Son (Note) ( 5,000)

Credit Base ($24,675)Rate 15% ( 3,701)


Note: The transfer from the son is as follows:

Tuition Fees $5,400Base For Education Credit [(8 Months)($400)] 3,200Base For Textbook Credit [(8 Months)($65)] 520

Total Amount Available $9,120Maximum Transfer ( 5,000)

Carry Forward (For Albert’s Use Only) $4,120

Albert’s Tax Payable is completely eliminated by his basic personal credit. He can transfer amaximum of $5,000 of his education, tuition and textbook amounts to his father. Theremaining $4,120 can be carried forward indefinitely, but must be used by Albert.

Case G The solution for this Case can be completed as follows:


Tax [$6,146 + (22%)($50,000 - $40,970)] $8,133Basic Personal Amount ($10,382)Spousal (Income Too High) NilCaregiver (Ahmed) ( 4,223)EI ( 747)CPP ( 2,163)Canada Employment ( 1,051)Interest On Student Loan ( 375)

Credit Base $ 18,941Rate 15% ( 2,841)




Stanley would claim the caregiver credit for Ahmed, since Helen would have no Tax Payableafter considering her basic personal, CPP, EI and employment income credit. There would beno credit available for Jaleh as she is not a parent of either Stanley or Helen and is not infirm.


Mr. Lane’s federal tax payable (refund) would be calculated as follows:


Tax On First $40,970 $ 6,146Tax On Next $29,030 At 22 Percent 6,387

Federal Tax Before Credits $12,533Basic Personal Amount ($10,382)Eligible Dependant (Note 1) ( 10,382)Child [(3)($2,101)] ( 6,303)EI ( 747)CPP (maximum) ( 2,163)Canada Employment ( 1,051)Public Transit Passes [(11)(2)($75)] ( 1,650)Child Fitness [(2)($425)] ( 850)Medical Expenses (Note 2) ( 2,376)

Credit Base ($35,904)Rate 15% ( 5,386)Federal Political Tax Credit [(3/4)($400) + (1/2)($50)] ( 325)

Federal Tax Payable $ 6,822CPP Overpayment ($2,198 - $2,163) ( 35)Federal Tax Withheld ( 10,100)

Federal Tax Payable (Refund) ($ 3,313)

Note 1 The eligible dependant amount can be claimed for either his 10 or 12 year oldchild. His 15 year old son would not be selected as he has Net Income For Tax Purposes of$8,200.

Note 2 Allowable medical expenses are as follows:

Minor Child’s Medical Expenses $4,400Lesser Of:


Allowable Medical Expenses $2,376

Since his 15 year old son is under 18 years of age, his allowable medical expenses are notaffected by his Net Income For Tax Purposes. If he was 18 or older, they would be.




Part AMarg has tuition, education and textbook amounts available totalling $10,020 [($400)(8Months) + ($65)(8 Months) + $6,300].

Her working income tax benefit would be calculated as follows:

Lesser Of:• Maximum Benefit = $925• [(25%)($13,400 - $3,000)] = $2,600 $925

Reduction [(15%)($13,400 - $10,500)] ( 435)

Refundable Working Income Tax Benefit $490

Her Tax Refund is $490, which can be calculated as follows:

Taxable Income $13,400Less:Basic Personal Amount ($10,382)EI ( 232)CPP ( 490)Canada Employment ( 1,051)Credit Base Before Education Related Amounts ($12,155)Tuition, Education And Textbook Amounts Claimed

($13,400 - $12,155) ( 1,245) ( 13,400)

Subtotal NilRate 15%

Federal Tax Payable Before Working Income Tax Benefit NilRefundable Working Income Tax Benefit 490

Federal Tax Payable (Refund) ($ 490)

Marg has an unused tuition, education and textbook amount of $8,775 ($10,020 - $1,245).She can transfer a maximum of $3,755 ($5,000 - $1,245) to her father. This leaves her with acarry forward amount of $5,020 ($10,020 - $1,245 - $3,755).

Note that since her medical expenses were paid for by her father, she cannot claim themherself and they must be transferred to her father. Even if she had paid for them herself andclaimed them, she would not increase the transfer to her father as she cannot deduct amedical expense credit prior to deducting her education related credits.

If she had paid for the medical expenses herself, she would have been eligible for the refund-able medical expense supplement.



Part BMr. Barth’s net employment income for the year would be calculated as follows:

Gross Salary $ 82,500Additions:

Bonus (Note One) $20,000Stock Option Benefit [($18 - $15)(1,000)] (Note Two) 3,000Automobile Benefit (Note Three) 7,340Counseling Benefit (Note Four) 1,500Imputed Interest Benefit (Note Five) 375 32,215

$114,715Deductions:

Registered Pension Plan Contributions ($3,200)Professional Dues ( 1,800) ( 5,000)

Net Employment Income $109,715

Note One As the bonus is not payable until more than three years after the end of theemployer’s taxation year, it is a salary deferral arrangement and must be included inincome under ITA 6(11).

Note Two Although Mr. Barth is eligible for the ITA 110(1)(d) deduction of one-half thestock option benefit, it is a deduction in the calculation of Taxable Income and will notaffect the amount of net employment income.

Note Three Since Mr. Barth’s employment related usage is not more than 50 percent,there is no reduction of the full standby charge. In addition, he cannot use the alternativecalculation of the operating cost benefit. Given this, the automobile benefit is calculatedas follows:

Standby Charge [(2%)($47,500)(10)] $9,500Operating Cost Benefit [(6,000)($0.24)] 1,440Payments Withheld ( 3,600)

Taxable Benefit $7,340

Note Four IT-470R indicates that counseling services, with the exception of those itemsspecified under ITA 6(1), are considered taxable benefits. The items specified under ITA6(1)(a)(iv) are counseling with respect to mental or physical health or with respect tore-employment or retirement. As a consequence, the counseling on personal finances is ataxable benefit.

Note Five The imputed interest benefit is calculated as follows:

Basic Benefit [($150,000)(2%)(3/12)] $750Interest Paid ( 375)

Taxable Benefit $375

Taxable IncomeThe adjusted cost base of the stock option shares is equal to their fair market value at the exer-cise date ($18 per share). Since they were sold for $18 per share, there is no capital gain orloss. As a result, Mr. Barth’s Taxable Income would be calculated as follows:

Net Income For Tax Purposes (Net Employment Income) $109,715Stock Option Deduction [(1/2)($3,000)] ( 1,500)

Taxable Income $108,215



Tax PayableMr. Barth’s Tax Payable would be calculated as follows:

Tax On First $81,941 $15,159Tax On Next $26,274 At 26 Percent 6,831

Federal Tax Before Credits $21,990Basic Personal Amount ($10,382)Spousal ($10,382 - $1,250) ( 9,132)Spouse’s Disability ( 7,239)EI ( 747)CPP ( 2,163)Canada Employment ( 1,051)Medical Expenses (Note Six) ( 2,044)Marg’s Education, Tuition And

Textbook Transfer (See Part A) ( 3,755)Credit Base ($36,513)Rate 15% ( 5,477)

Charitable Donations [(15%)($200) + (29%)($2,000 - $200)] ( 552)

Net Federal Tax $ 15,961Federal Income Tax Withheld During Year ( 16,000)

Federal Tax Payable (Refund) ($ 39)

Note Six Allowable medical expenses are as follows:

John And Spouse Medical Expenses ($200 + $3,550) $3,750Lesser Of:


Marg’s Medical Expenses - Lesser Of:• [$720 - (3%)($13,400)] = $318• Absolute Limit = $10,000 318



This is an extension of the Tax Software Self Study Problem found on page S-62. Ithas been updated for 2010 rates.

The required calculations for Ms. Trubey’s balance owing would be as follows:

Employment Income $ 60,202RPP Deduction ( 2,406)Union Dues ( 749)

Net And Taxable Income $ 57,047



Federal Tax On First $40,970 $6,146Federal Tax On Next $16,077 At 22 Percent 3,537

Gross Federal Tax $9,683Basic Personal Amount ($10,382)Eligible Dependant - Amy ( 10,382)Child - Amy ( 2,101)Caregiver - Marjorie ( 4,223)EI Premiums ( 747)CPP Contributions ( 2,163)Canada Employment ( 1,051)Transfer Of Tuition, Education And Textbook - Lesser Of:

• $5,000• [$7,000 + (8)($400) + (8)($65) + (2)($120)

+ (2)($20)] = $11,000 ( 5,000)Medical Expenses (Note One) ( 1,632)

Credit Base ($37,681)Rate 15% ( 5,652)

Charitable Donations [(15%)($200) +(29%)($175 + $375 + $50 - $200)] ( 146)


Note One Allowable medical expenses are as follows:

Eleanor And Minor Child (Amy) Medical Expenses($392 + $1,350 + $450 + $1,120) $3,312

Lesser Of:• [(3%)($57,047)] = $1,711• 2010 Threshold Amount = $2,024 ( 1,711)

Marjorie’s Medical Expenses - Lesser Of:• [($110 + $75) - (3%)($6,500)] = Nil• Absolute Limit = $10,000 Nil

Diane’s Medical Expense - Lesser Of:• [$100 - (3%)($2,300)] = $31• Absolute Limit = $10,000 31


Notes To Eleanor’s Tax Return

� Diane transfers the $5,000 maximum education related credits to Eleanor and carriesforward the remaining $6,000 [$7,000 + (8)($400) + (8)($65) + (2)($120) + (2)($20) -$5,000].

� Eleanor cannot claim the charitable donation made by Diane, but Diane can carry itforward for up to five years.

� Diane should file a tax return, otherwise she will not be eligible for the GST credit and shewill not benefit from the RRSP deduction room created during the year. Filing a tax returnwill also make her education related tax credits and charitable donation tax credit easierto keep track of for carry forward purposes.

� Marjorie should file a tax return in order to receive the GST credit. However, she willneed to obtain a Social Insurance Number to do so.



� Eleanor is eligible for the full caregiver tax credit for her mother as her income is wellbelow the threshold.

� Since Diane and Marjorie are over 17 years of age, their medical expenses are reduced by3 percent of their Net Income For Tax Purposes. This means that none of Marjorie’smedical expenses can be claimed by Eleanor.


Part AMs. Bradmore’s minimum Net Income For Tax Purposes would be calculated as follows:

Salary $250,000Additions:

Commissions 12,000Bonus (Note 1) 16,000Life Insurance Premiums (Employer’s Contribution) 460Automobile Benefit (Note 2) 2,847Gift (Cash Gifts Create A Taxable Benefit) 200Stock Option Benefit (Note 3) 55,000

Deductions:RPP Contributions ( 7,500)Employment Expenses (Note 4) ( 18,450)

Net Income For Tax Purposes $310,557

Note 1 Only the $16,000 [(1/2)($32,000)] of the bonus that was received in 2010 isincluded in her 2010 income. The remainder will be included in 2011.

Note 2 The standby charge would be calculated as follows:

[(2%)($47,460)(12)(5,000 ÷ 20,004)] = $2,847

There would be no operating cost benefit as Ms. Bradmore paid for all of the operatingcosts.

Note 3 With the March 4 elimination of the deferral option in the 2010 budget, thetotal employment income inclusion would be $55,000 [(2,500)($72 - $50)]. As theoption price was equal to the market price at the time the options were issued,one-half of this amount can be deducted in the determination of Taxable Income.

Note 4 Potentially deductible expenses are as follows:

Car Operating Costs [(48,000 ÷ 53,000)($7,950)] $ 7,200Meals [(50%)($4,500)] 2,250Hotels 9,000

Subtotal for ITA 8(1)(h) and (h.1) $18,450Advertising 11,000Entertainment [(50%)($5,000)] 2,500

Total for ITA 8(1)(f) - Limited To Commissions $31,950

All of these costs can be deducted under ITA 8(1)(f). However, the total deduction islimited to commission income which, for 2010, is only $12,000. Alternatively, the caroperating costs, meals, and hotels, can be deducted under ITA 8(1)(h) and (h.1). This



total would be $18,450 ($7,200 + $2,250 + $9,000). As Angelina cannot simulta-neously use ITA 8(1)(f) and the combination of ITA 8(1)(h) and (h.1), she will minimizeher Net Income For Tax Purposes by deducting under the latter provisions.

Part BMs. Bradmore’s minimum Taxable Income would be calculated as follows:

Net Income For Tax Purposes $310,557Stock Option Deduction [(1/2)($55,000)] ( 27,500)

Taxable Income $283,057

Part CBased on the Taxable Income calculated in Part B, Ms. Bradmore’s federal Tax Payable wouldbe calculated as follows:

Tax On First $127,021 $26,880Tax On Next $156,036 ($283,057 - $127,021) At 29 Percent 45,250

Tax Before Credits $72,130

Credits:Basic Personal Amount ($10,382)Eligible Dependent (Daughter) ( 10,382)Children [(2)($2,101)] ( 4,202)Transfer Of Daughter’s Disability ( 7,239)Transfer Of Disability Supplement ( 4,223)EI Premiums ( 747)CPP Contributions ( 2,163)Canada Employment ( 1,051)Public Transit Passes ( 985)Child Fitness (Limited To $500) ( 500)Tuition ( 1,890)Education [(4)($120)] ( 480)Textbook [(4)($20)] ( 80)Medical Expenses (Note 5) ( 8,376)

Credit Base ($52,700)Rate 15% ( 7,905)

Charitable Donations[(15%)($200) + (29%)($5,000 + $1,200 - $200)] ( 1,770)

Federal Tax Payable $62,455

Note 5 The base for Ms. Bradmore’s medical expense credit can be calculated asfollows:

Eligible Medical Expenses $10,400Lesser Of:


Allowable Medical Costs $ 8,376



Solution to Tax Software Self Study Problem - Chapter 4

This solution includes selected schedules and worksheets from the ProFile T1 return.Note that the program can only be used to calculate 2009 (not 2010) tax returns, andthe problem and solution reflect this fact. The complete tax return is available on theStudent CD-ROM (not the ProFile Tax Suite CD-ROM).

Under the heading “Textbook Support Files”, is the option to view “Tax Return Files”.Select this option and you will see two drop-down lists.

� To view the ProFile file, select the file “Chapter 4 SS Software Problem” from theProFile drop-down list.

� To view the .PDF file, select the file “PDF Chapter 4 SS Software Problem” fromthe PDF drop-down list.

For more information on how to use your Student CD-ROM and the ProFile taxprogram, refer to the sample tax returns in this Study Guide.

Notes to tax return

� Diane transfers the $5,000 maximum education related credits to Eleanor and carriesforward the remaining $6,000 [$7,000 + (8)($400) + (8)($65) + (2)($120) + (2)($20) -$5,000].

� Eleanor cannot claim the charitable donation made by Diane, but Diane can carry itforward for up to five years.

� Diane should file a tax return, otherwise she will not be eligible for the GST credit and shewill not benefit from the RRSP deduction room created during the year. Filing a tax returnwill also make her education related tax credits and charitable donation tax credit easierto keep track of for carry forward purposes.

� Marjorie should file a tax return in order to receive the GST credit. However, she willneed to obtain a Social Insurance Number to do so.

� Eleanor is eligible for the full caregiver tax credit for her mother as her income is wellbelow the threshold.

� Since Diane and Marjorie are over 17 years of age, their medical expenses are reduced by3 percent of their Net Income For Tax Purposes. This means that none of Marjorie’smedical expenses can be claimed by Eleanor.


Solution to Tax Software Self Study Problem - Chapter 4

Trubey, Eleanor-Chapter 4 SS Problem SIN: 527 000 087 Printed: 2010-04-21 19:14 Summary 2009 Tax Summary (Federal)

101 60,202113114115116117119120121122125126127128129130135

Workers' compensation andsocial assistance 147

150 60,202

207 2,406208210212 749213214215217219220221222224229235231236 57,047

244248249250251254255256260 57,047

1,026 002,872 00

Eleanor-Chapter 4 SS ProblemTotal income Employment *Old Age SecurityCPP/QPP benefitsOther pensionsSplit-pension amountUniversal Child Care BenefitEmployment InsuranceTaxable dividendsInterestLimited partnershipRDSPRentalTaxable capital gainsSupport paymentsRRSPOtherSelf-employment *

Total income

Net income RPPRRSP *Split-Pension DeductionUnion and professional duesUCCB repaymentChild care expensesDisability supports deductionBusiness investment lossMoving expensesSupport paymentsCarrying charges and interestCPP/QPP/PIPP *Exploration and developmentEmployment expensesSocial benefits repaymentOther deductions *

Net income Taxable income Canadian Forces personnelHome relocation loanSecurity options deductionsOther payments deductionLosses of other years *Capital gains deductionNorthern residentsAdditional deductions

Taxable income

2010 Estimated Eleanor-Chapter 4 SS ProblemGST/HST creditChild Tax BenefitRRSP contribution limit* More than one line is considered

300 10,320301303 10,320367 2,089306 4,198308 2,850363 1,044364365368313314316318 5,000319323332 1,632335 37,453338 5,618349 146350 5,764

404 9,700350 5,764425426429 3,936

405406 3,936410414417415418420 3,936421422428 1,813435 5,749

437 11,408440448452453454457476479482 11,408

(5,659)

(5,659)

Eleanor-Chapter 4 SS ProblemNon-refundable tax credits Basic personal amountAge amountSpouse / eligible dependant *Amount for childrenInfirm/caregiver *CPP/QPP/PPIP/EI *Canada employment amountPublic transit passes amountChildren's fitness amountHome renovation/Home buyers *Adoption expensesPension income amountDisability amountTransfers *Interest on student loansTuition / educationMedical expenses

Subtotal Credit at 15% Donations and gifts

Non-refundable tax credits Total payableFederal taxNon-refundable tax creditsDividend tax creditMin. tax carry-over/other *

Basic federal tax Non resident surtaxForeign tax credits / other

Federal tax Political/inv. tax credit *Labour-sponsored tax creditAlternative minimum taxWITB Prepayment (RC210)Additional tax on RESP

Net federal tax CPP contributions payableSocial benefits repaymentProvincial/territorial tax

Total payable Total credits Income tax deducted *QC or YT abatement *CPP/EI overpayment *Medical expense supplementWITB (Schedule 6)Other credits *

GST/HST rebateInstalmentsProvincial tax credits

Total credits

Balance owing (refund)

Combined balance (refund)

Page 1 of 1

Trubey, Eleanor-Chapter 4 SS Problem SIN: 527 000 087 Printed: 2010-04-21 19:14

T1-2009 Federal Tax Schedule 1

300 10,320 00

Age amount (if you were born in 1944 or earlier) (use federal worksheet) (maximum $6,408) 301

10,320 0 00Spouse or common-law partner amount: (if negative, enter "0")

$ minus ( his or her net income from page 1 of your return) 303

10,320 0 00Amount for an eligible dependant (attach schedule 5) (if negative, enter "0")

$ minus ( his or her net income) 305 10,320 00366 1Amount for children born in 1992 or later Number of children x $2,089 =367 2,089 00

Amount for infirm dependants age 18 or older (use federal worksheet and attach Schedule 5) 306CPP or QPP contributions:

through employment from box 16 and box 17 on all T4 slips (maximum $2,118.60) 308 2,118 60310312 731 79

Canada employment amount(if you reported employment income on line 101 or line 104, see line 363 in the guide) (maximum $1,044) 363 1,044 00

364365368369313314315 4,198 00316

Disability amount transferred from a dependant (use federal worksheet) 318

319323324 5,000 00326

330 3,312 001,711 411,600 59

Allowable amount of medical expenses for other dependants(see the calculation at line 331 in the guide and attach Schedule 5) 331 31 00

1,631 59 332 1,631 59335 37,452 98

338 5,617 95349 146 00

Total federal non-refundable tax credits: add lines 26 and 27. 350 5,763 95

Page 1 of 25000-S1

Complete Step 1 to claim your federal non-refundable tax credits, Step 2 to calculate your federal tax on taxable income,and Step 3 to calculate your net federal tax.

You must attach a copy of this schedule to your return.

Step 1 - Federal non-refundable tax credits (For details, read the related lines in the guide.)

Basic personal amount claim $10,320 1

2

= 3

= 4 5

6

7on self-employment and other earnings (attach Schedule 8) 8

Employment Insurance premiums from box 18 and box 55 on all T4 slips (maximum $731.79) 9

10Public transit amount 11Children's fitness amount 12Home renovation expenses (see line 368 in the guide and attach Schedule 12) 13Home buyers' amount (see line 369 in the guide) 14Adoption expenses 15Pension income amount (use federal worksheet) (maximum $2,000) 16Caregiver amount (use federal worksheet and attach Schedule 5) 17Disability amount (for self) (claim $7,196 or if you were under age 18, use federal worksheet) 18

19Interest paid on your student loans 20Tuition, education, and textbook amounts (attach Schedule 11) 21Tuition, education, and textbook amounts transferred from a child 22Amounts transferred from your spouse or common-law partner (attach Schedule 2) 23Medical expenses for self, spouse or common-law partner, and yourdependent children born in 1992 or later

Minus: $2,011 or 3% of line 236, whichever is lessSubtotal (if negative, enter "0") (A)

(B)Add lines (A) and (B). 24


Multiply the amount on line 25 by 15%. 26Donations and gifts (attach Schedule 9) 27

28

Trubey, Eleanor-Chapter 4 SS Problem SIN: 527 000 087 Printed: 2010-04-21 19:14

57,047 05

Use the amount on line 29 to determinewhich ONE of the following columns youhave to complete.

If line 29 is$40,726 or less





If line 29 is morethan $126,264

57,047 0540,726 00 81,452 00 126,264 00

0 00 16,321 05x 15 x 22 x 26 x 29

3,590 630 00 6,109 00 15,069 00 26,720 00

Add lines 34 and 35. 9,699 63

9,699 63424404 9,699 63 9,699 63350 5,763 95425426427

5,763 95 5,763 95

Basic federal tax: Line 39 minus line 44 (if negative, enter "0") 429 3,935 68

405

Federal tax: Line 45 minus line 46 (if negative, enter "0") 406 3,935 68

409 Federal political contribution tax credit (use federal worksheet) 410

412

413Labour-sponsored funds tax credit

Net cost Allowable credit 414416

Line 47 minus line 51 (if negative, enter "0") (if you have an amount on line 38 above, see Form T1206) 417 3,935 68

415418

Net federal tax: add lines 52 to 54.Enter this amount on line 420 of your return.

420 3,935 68

Page 2 of 25000-S1

Step 2 - Federal tax on taxable income

Enter your taxable income from line 260 of your return. 29

Enter the amount from line 29. 30Base amount 31Line 30 minus line 31 (cannot be negative) 32Rate % % % % 33Multiply line 32 by line 33. 34Tax on base amount 35

36

Step 3 - Net federal tax

Enter the amount from line 36 37Federal tax on split income (from line 5 of Form T1206) 38

Add lines 37 and 38. 39Enter your non-refundable tax credits from line 28. 40Federal dividend tax credit (see line 425 in the guide) 41Overseas employment tax credit (attach Form T626) 42Minimum tax carryover (attach Form T691) 43


45

Federal foreign tax credit (attach Form T2209) 46Federal logging tax credit

47

Total federal political contributions (attach receipts)

48Investment tax credit (attach Form T2038(IND)) 49

50Add lines 48 to 50. 51

52Working Income Tax Benefit (WITB) advance payments received (box 10 on the RC210 slip). 53Additional tax on RESP accumulated income payments (attach Form T1172) 54

55

Chapter 4 Learning Objectives

Note Regarding Rates And CreditsA schedule of rates, brackets, credit amounts and other data is available at the beginning ofthe textbook (not this Study Guide). We expect you to refer to this information when calcu-lating the credits covered in this chapter (i.e., you are not expected to memorize the rates,brackets and credit bases).

After completing Chapter 4, you should be able to:

1. Calculate Taxable Income when an individual has basic deductions against Net IncomeFor Tax Purposes. (paragraphs 4-1 through 4-15).

2. Calculate federal Tax Payable before the consideration of any tax credits (paragraphs4-16 through 4-38).

3. Calculate the personal tax credits described in ITA 118(1) which includes the spousal,eligible dependant, child, basic, caregiver and infirm dependant over 17 credits (para-graphs 4-39 through 4-69).

4. Calculate the age tax credit (paragraphs 4-70 and 4-71).

5. Calculate the pension income tax credit (paragraphs 4-72 through 4-76).

6. Calculate the Canada employment tax credit (paragraphs 4-77 through 4-79).

7. Calculate the adoption expenses tax credit (paragraphs 4-80 through 4-84).

8. Calculate the public transit pass credit (paragraphs 4-85 through 4-89).

9. Calculate the child fitness tax credit (paragraphs 4-90g through 4-93).

10. Calculate the first time home buyer’s tax credit (paragraph 4-94 through 4-96).

11. Calculate the charitable donations tax credit when the donation is in the form of cash(paragraphs 4-97 through 4-107).

12. Calculate the medical expense tax credit (paragraphs 4-108 through 4-117).

13. Calculate the refundable medical expense supplement (paragraphs 4-118 through4-121).

14. Calculate the disability tax credit (paragraphs 4-122 through 4-133).

15. Calculate the tuition, education, textbook and student loan interest tax credits (para-graphs 4-134 through 4-142).

16. Calculate the amount of education related tax credits that can be carried forward or trans-ferred to another individual (paragraphs 4-143 through 4-151).

17. Calculate the Employment Insurance and Canada Pension Plan credits (paragraphs 4-152through 4-158).



18. List the types and amounts of tax credits that can be transferred to a spouse orcommon-law partner or that can be claimed by either individual (paragraphs 4-159through 4-160).

19. Calculate the working income tax benefit and WITB disability supplement (paragraphs4-161 through 4-166).

20. Calculate the new graduates working in designated areas tax credit (paragraph 4-167through 4-168).

21. Calculate the political contributions tax credit (paragraphs 4-169 through 4-171).

22. Calculate the labour sponsored funds tax credit (paragraphs 4-172 through 4-174).

23. Explain the basic provisions of the refundable GST credit and the Canada child tax benefitsystem (paragraphs 4-178 through 4-190).

24. Calculate the OAS and EI clawbacks (paragraphs 4-191 through 4-201).

25. Calculate the federal balance owing for an individual with employment income anddependants (paragraph 4-202).

26. Complete a simple personal tax return using the ProFile T1 tax preparation softwareprogram (page S-48 through S-61 in this Study Guide).



study guide chapter 4 - pearson · read paragraph 4-202. do self study problems four-4 and ......

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