study guide chapter 4 - pearson · ... study guide how to work through chapter 4. ... this self...

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 4-12 (in the textbook).� Do Exercise Four-1 (in the textbook) and check the solution on page S-63 (in the Study

Guide).� Read paragraph 4-13.

Federal And Provincial Tax Payable Before Credits� Read paragraph 4-14 to 4-26.� Do Exercise Four-2 and check the solution on page S-63.� Read paragraph 4-27 to 4-31.

Credits Against Tax Payable - Calculating The Amount� Read paragraph 4-32 to 4-36.

Tax Credits - Spousal, Eligible Dependant, Child And Basic Personal� Read paragraph 4-37 to 4-40.� Do Exercise Four-3 and check the solution on page S-63.� Read paragraph 4-41 to 4-50.

Tax Credits - Caregiver, Infirm Dependant Over 17 And Family Caregiver� Read paragraph 4-56 to 4-53.� Do Exercise Four-4 and check the solution on page S-63.� Read paragraph 4-54 to 4-59.� Do Exercise Four-5 and check the solution on page S-63.� Read paragraph 4-60 to 4-62.

Eligible Dependant vs. Caregiver vs. Infirm Dependant Over 17 Credits� Read paragraph 4-63 to 4-66.� Do Exercise Four-6 and check the solution on page S-63 and S-64.� Read paragraph 4-67 to 4-70.� Do Exercises Four-7 and Four-8 and check the solutions on page S-64.

Age And Pension Income Credits� Read paragraph 4-71 to 4-72.� Do Exercise Four-9 and check the solution on page S-64.� Read paragraph 4-73 to 4-77.

Canada Employment Credit� Read paragraph 4-78 to 4-80.

Canadian Tax Principles 2010/2011 - Study Guide S - 43

STUDY GUIDEChapter 4

Adoption Expenses Credit� Read paragraph 4-81 to 4-85.� Do Exercise Four-10 and check the solution on page S-64.

Public Transit Passes Credit� Read paragraph 4-86 to 4-90.

Child Fitness And Children’s Arts Credits� Read paragraph 4-91 to 4-99.

First Time Home Buyer’s And Volunteer Firefighters Credits� Read paragraph 4-100 to 4-104.

Charitable Donations Credit� Read paragraph 4-105 to 4-115.� Do Exercise Four-11 and check the solution on page S-65.

Medical Expense Credit And Refundable Medical Expense Supplement� Read paragraph 4-116 to 4-125.� Do Exercise Four-12 and check the solution on page S-65.� Read paragraph 4-126 to 4-129.� Do Exercise Four-13 and check the solution on page S-65 and S-66.

Disability Credit� Read paragraph 4-130 to 4-137.� Do Exercise Four-14 and check the solution on page S-66.� Read paragraph 4-138 to 4-141.

Education Related Credits� Read paragraph 4-142 to 4-152.� Do Exercise Four-15 and check the solution on page S-66.

Carry Forward And Transfers Of Tuition, Education And Textbook Credits� Read paragraph 4-153 to 4-161.� Do Exercises Four-16 and Four-17 and check the solutions on page S-67.

Employment Insurance And Canada Pension Plan Credits� Read paragraph 4-162 to 4-168.

Credit Transfers To A Spouse Or Common-Law Partner� Read paragraph 4-169 to 4-170.� Do Exercise Four-18 and check the solution on page S-68.� Do Self Study Problem Four-1 on page 172 - 173 and check the solution on page S-69 to

S-72.

New Graduates Working In Designated Areas� Read paragraph 4-171 to 4-172.

Political Contributions Credit� Read paragraph 4-173 to 4-175.� Do Exercise Four-19 and check the solution on page S-68.� Do Self Study Problems Four-2 and Four-3 on page 173 - 174 and check the solutions on

page S-72 to S-75.

Labour Sponsored Funds Credit� Read paragraph 4-176 to 4-178.� Do Exercise Four-20 and check the solution on page S-68.� Read paragraph 4-179 to 4-181.

S - 44 Canadian Tax Principles 2010/2011 - Study Guide


Refundable Credits - GST, Working Income Tax Benefit, Canada Child Tax Benefit� Read paragraph 4-182 to 4-195.� Do Exercise Four-21 and check the solution on page S-68.� Read paragraph 4-196 to 4-200.

EI And OAS Repayment (Clawback)� Read paragraph 4-201 to 4-211.� Do Exercise Four-22 and check the solution on page S-68 and S-69.

Comprehensive Example� Read paragraph 4-212.� Do Self Study Problems Four-4 and Four-5 on page 175 - 177 and check the solutions on

page S-75 to S-78.

Sample Personal Tax Return For Chapter 4� Read the Sample Personal Tax Return For Chapter 4 found on page S-46 to S-57 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 and under the heading “Textbook Support Files”,select the option “Tax Return Files”.

When the updated Intuit ProFile software is available in January, 2012, updated sampletax returns and updated Tax Software Problems, as well as instructions on how to install theupdated software program, will be available at:

www.pearsoncanada.ca/byrdchen/ctp2012

Tax Software Self Study Problem� Read the Suggestions For Working With ProFile Software found on page S-58 to S-60 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-61 and S-62 of this Study Guide. The condensed solution ison page S-79 to S-82 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 2011 rates and in TaxSoftware Self Study Problem - Chapter 11.

To Complete This Chapter� Review the Key Terms Used In This Chapter on page 170. 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-83 and S-84.� 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 2010 tax returns from Intuit Canada. As softwarefor 2011 is not yet available, this example contains 2010 rates and credits.

When the updated Intuit ProFile software is available in January, 2012, the updated 2011version 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 theStudent 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(www.adobe.com).

To View The Tax Return FilesInsert your Student CD-ROM and you should see a splash page that allows you to access thecontents 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, 1959 andDeborah was born on April 10, 1963. 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, 2003 and had no income during theyear.

� Janice (SIN 527-000-269) was born on June 6, 1997 and is in high school. She had incomefrom babysitting totalling $400 during 2010.

� Willa (SIN 527-000-228) was born on January 22, 1991 and is attending university inEdmonton. Willa had Net Income of $3,300 during 2010.

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, 2010, 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 4 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 for2010. [T2202]

3. A receipt for $1,000 from the Canadian Wildlife Federation dated December 3, 2010.[Donations]

4. A statement from the Banff Dental Clinic that he paid a total of $1,650 during 2010. Thisconsisted of $850 for himself on November 24, and $200 each for Deborah, Bryan, Willaand Janice on December 15. [Medical]

5. 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]

6. Twelve monthly bus passes that were purchased during 2010 by Janice for $30 per month.[OtherCredits]



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, 2010. 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 Buyer’s Credit.]

8. An instalment statement for 2010 that showed that George had paid the CRA instalmentsof $1,500 on September 15 and December 15 ($3,000 in total). These were the instal-ments requested by the CRA for the year due to his self-employed income in the previousyear. [OtherCredits]

Required: With the objective of minimizing George’s Tax Payable, complete his 2010 taxreturn. Ignore any GST implications.



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

Agency du Canada T4YearAnnée

2010

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

1

RC-10-599

Other Information

AutresrenseignementsT4 (10)

N/A N/A N/A

N/A N/A N/ABox-Case Amount-Montant Box-Case Amount-Montant Box-Case Amount-Montant

Box-Case Amount-Montant Box-Case Amount-Montant Box-Case Amount-Montant

Privacy Act, Personal Information Bank number CRA PPU 005, 150 and 125. Loi sur la protection des renseignements personnels, Fichier de renseignements personnels numéro ARC PPU 005, 150 et 125.

Notes To The Chapter 4 Return

1. 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.

8. George has paid installments based on the CRA’s Instalment Reminders. Given theamount of his refund, they were unnecessary. George should review his estimated net taxowing periodically in the future to determine whether instalments should be paid.

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



Kercher, George-Chapter 4 Example SIN: 527 000 145 Summary 2010 Tax Summary (Federal)

101 19,000113114115116117119120121122125126127128129130135

Workers' compensation andsocial assistance 147

150 19,000

207 900208210212 110213214215217219220221222224229235231236 17,990

244248249250251254255256260 17,990

772 008,086 001,600 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

2011 Estimated George-Chapter 4 ExampleGST/HST creditChild Tax BenefitRRSP contribution limit* More than one line is considered

300 10,382301303 10,382367 4,202306308 1,096363 1,051364 360365 475369 5,000313314316318 7,239319323332 1,011335 41,198338 6,180349350 6,180

404 2,699350 6,180425426429

405406410414417415418420421430422428435

437 2,000440448452 253453 1,089454457476 3,000479482 6,342

(6,342)

(6,342)

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 buyers/Home renovation *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/other *Labour-sponsored tax creditAlternative minimum taxWITB Prepayment (RC210)Additional tax on RESP

Net federal tax CPP contributions payableEI self-employmentSocial 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

T1-2010 Federal Tax Schedule 1

300 10,382 00

Age amount (if you were born in 1945 or earlier) (use federal worksheet) (maximum $6,446) 301

10,382 0 00Spouse or common-law partner amount: (if negative, enter "0")

$ minus ( his or her net income from page 1 of your return) 303 10,382 00

10,382 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 1993 or later Number of children x $2,101 =367 4,202 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 $2,163.15) 308 767 25310

312 328 70317

Canada employment amount(if you reported employment income on line 101 or line 104, see line 363 in the guide) (maximum $1,051) 363 1,051 00

364 360 00365 475 00369 5,000 00313314315316

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

319323324326 7,239 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 41,198 25

338 6,179 74349

Add lines 26 and 27.Enter this amount on line 40. Total federal non-refundable tax credits 350 6,179 74

Page 1 of 2

Complete this schedule, and attach a copy to your return.

For more information, see the related line in the guide.

Step 1 - Federal non-refundable tax credits

Basic personal amount claim $10,382 1

2

= 3

= 4 5

6

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

Employment Insurance premiums:through employment from box 18 and box 55 on all T4 slips (maximum $747.36) 9on self-employment and other eligible earnings (attach Schedule 13) 10

11Public transit amount 12Children's fitness amount 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 $7,239 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 1993 or later

Minus: $2,024 or 3% of line 236, whichever is lessSubtotal (if negative, enter "0") (A)

(B)Add lines (A) and (B). 24Add 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$40,970 or less

If line 29 is morethan $40,970 but

not more than$81,941



If line 29 is morethan $127,021

17,990 0040,970 00 81,941 00 127,021 00

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

2,698 500 00 6,146 00 15,159 00 26,880 00

Add lines 34 and 35. 2,698 50

2,698 50424404 2,698 50 2,698 50

350 6,179 74425426427

6,179 74 6,179 74 Line 39 minus line 44 (if negative, enter "0"). Basic federal tax 429

405

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

Add lines 52, 53, and 54.Enter this amount on line 420 of your return. Net federal tax 420 0 00

Page 2 of 2Privacy Act, Personal Information Bank number CRA PPU 005

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) 38Add lines 37 and 38. 39

Enter 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) 43Add lines 40 to 43. 44

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, 49 and 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 2010

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, 2010:

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 2010,enter the province or territory ofself-employment:

If you became or ceased to be a resident of Canada in 2010, give the date of: Month/Day Month/Day

entry or departure

Identification7

Information about you527 000 145

1959-02-24

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, 2010

X (see the "Marital status" section in the guide for details)

1 Married 2 Living common-law 3 Widowed

4 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 2010:

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 2010: 1

Person deceased in 2010

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 to update the National Register of Electors? Yes 1 No 2Your authorization is valid until you file your next return. Your information will only be used for purposespermitted under the Canada Elections Act which includes sharing the information with provincial/territorialelection agencies, Members of Parliament and registered political parties, as well as candidates at electiontime.

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 2010 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 2010, 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

185Employment 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) 146Add lines 144, 145, and 146(see line 250 in the guide). 147 Add lines 101, 104 to 143, and 147 This is your total income. 150 19,000 00

3Your 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)UCCB amount designated to a dependant

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

4Attach your Schedule 1 (federal tax) here.Also attach here any other schedules, information slips, forms, receipts, and documents that youneed to include with your return.

Net incomeEnter your total income from line 150

Pension adjustment(box 52 on all T4 slips and box 034 on all T4A slips) Registered pension plan deduction (box 20 on all T4 slips and box 032 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 or territorial tax on Form428.


420 0 00421430422

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

428Add lines 420, 421, 430, 422, and 428. This is your total payable. 435 0 00

437 2,000 00440448450452 252 83453 1,089 00454456

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

476 3,000 00

Provincial or territorial credits (attach Form 479)

479Add lines 437 to 479. These are your total credits. 482 6,341 83 6,341 83 Line 435 minus line 482 This is your refund or balance owing. (6,341 83)

484 6,341 83 485

486

Direct 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 deposit information has not changed. Income taxrefund, GST/HST credit, WITB advance payments, and any other deemed overpayment of tax – To start direct deposit or to change accountinformation, complete lines 460, 461, and 462 below.

Notes: 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)

(111) 111-1111 2011-05-09

I certify that the information given on this return and in any documents attached iscorrect, 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 use thisarea 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)Employment Insurance premiums payable on self-employment and other eligible earnings (attach Schedule 13)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 Attach to page 1 a cheque or money order payable to the Receiver General, or make your payment

online (go to www.cra.gc.ca/mypayment). Your payment is due no later than April 30, 2011.

Privacy Act, Personal Information Bank number CRA PPU 005RC-10-148

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 Student CD-ROM in .PDF format.

Sample Tax ReturnsIncluded in this Study Guide are sample tax returns for Chapters 4 and 11. The tax returnscontain 2010 data as the 2011 version of the ProFile tax preparation software was not yetavailable. The ProFile software on the Student CD also contains the version for 2010 returns.As a result, the 2010 credits and rates in the sample returns will not be the same as the 2011figures in the text which can cause confusion for some students.

When the updated Intuit ProFile software is available in January, 2012, the updated 2011versions of the sample returns, as well as instructions on how to install the updated softwareprogram, will be available on the textbook web 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 (2010 or 2011 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

Note The following problem contains 2010 (not 2011) information as software for2011 is not yet available. When the updated Intuit ProFile software is available inJanuary, 2012, the updated 2011 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 2011 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, Marjorie Toshiro lives with Ms. Trubey and takes care of thehouse, Ms. Trubey’s younger daughter, Amy, and all of the household cooking. In addition toOAS benefits, Marjorie has a small income from her deceased husband’s life insurance policy.She has never filed a tax return.

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.

Late in December, 2010, Eleanor was notified that she had inherited $500,000 from an aunt.Eleanor loves her work and though she plans to travel more, she has no plans to retire.

Information concerning Ms. Trubey for 2010 is given on the following pages.

Required: With the objective of minimizing Ms. Trubey’s Tax Payable, prepare the 2010income 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) 1962-05-15

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 527-000-483

Date of birth (Y/M/D) 1990-05-14 1998-10-11 1929-05-21

Net income $2,300 Nil $8,000

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 2,163.15

Employee’s EI premiums 18 747.36

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 2010-08-15 Grace Hospital Ambulance charge 392

Eleanor 2010-08-18 Paramed Home Health Nursing care 1,350

Marjorie 2010-05-20 Dr. Zhang (Optometrist) Contact lenses 110

Marjorie 2010-07-06 Pharmacy Prescription 75

Diane 2010-09-01 Dr. Glassman Physiotherapist 100

Amy 2010-05-11 Walk Right Foot Clinic Orthotics 450

Amy 2010-01-23 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) - Lesser Of:• [(4%)(2/4)($82,000) + (5%)(2/4)($82,000)] = $3,690• [(4%)(4/4)($82,000)]* = $3,280 $3,280

Reduction 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%)(4/4)($25,000)]* = $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 $41,544 At 20.05 Percent (15.00% + 5.05%) $8,330Tax Payable On Next $5,156 ($46,700 - $41,544)

At 31.15 Percent (22% + 9.15%) 1,606

Total Tax Payable Before Credits $9,936

Her average rate of tax is 21.3 percent ($9,936 ÷ $46,700).

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

Basic Personal Amount $ 10,527Spousal Amount ($10,527 - $2,600) 7,927

Credit Base $18,454Rate 15%

Personal Tax Credits $ 2,768

Exercise Four - 4 SolutionJoan would be entitled to a caregiver tax credit in the amount of $496 {[15%][$4,282 -($15,600 - $14,624)]}.

Exercise Four - 5 SolutionHarold would be entitled to an infirm dependant over 17 tax credit in the amount of $414{[15%][$4,282 - ($7,600 - $6,076)]}. 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%)($10,527 - $7,500)] = $454

As his mother’s income is below the $14,624 threshold for the caregiver credit, in the absenceof ITA 118(4)(c), he would have been eligible for $642, the full amount of the caregiver credit.This means that he will have an additional credit under ITA 118(1)(e) of $188 ($642 - $454).The combination of the eligible dependant credit and the ITA 118(1)(e) credit totals $642, 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%)($4,282 - Nil)] = $642

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

Basic Personal Amount $ 10,527Eligible Dependant (Son) 10,527Child (Daughter) 2,131


Total Credits $ 3,478

As Ms. Forest’s son qualifies as an eligible dependant, she cannot take the caregiver or infirmdependant over 17 tax credit for him. She does not have the option to claim her daughter asan eligible dependant and claim the caregiver credit for her son. Since she is entitled to claimhim as an eligible dependant, she cannot claim the caregiver credit instead.

Exercise Four - 9 SolutionMr. Smythe's age credit would be $563 {[15%][$6,537 - (15%)($51,500 - $32,961)]}.

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 adoptionperiod. While the additional medical expenses will likely be available for a medical expensestax credit, they are not eligible for the adoption expenses credit. Since the $5,000 employerreimbursement is a taxable benefit and included in employment income, it does not reducethe total eligible adoption expenses.

As the total eligible expenses exceed the maximum of $11,128, the credit is limited to $1,669[(15%)($11,128)].



Exercise Four - 11 SolutionThe credit base for 2011 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 2012 is unchanged from 2011, 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 2011 donationwould be 2016.

Exercise Four - 12 Solution

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

• [(3%)($150,000)] = $4,500• 2011 Threshold Amount = $2,052 ( 2,052)

Subtotal $ 6,878Amount DMax’s Medical Expenses $8,425Reduced By The Lesser Of:

• $2,052• [(3%)($8,250)] = $248 ( 248) 8,178

Allowable Amount Of Medical Expenses $15,056Amount A The Appropriate Rate (Minimum Rate) 15%

Medical Expense Tax Credit $ 2,258

Prior to 2011, a taxpayer’s claim for an adult dependant’s medical expenses waslimited to an absolute amount of $10,000. The March 22, 2011 budget proposes theelimination of this constraint.

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

Medical Expenses $6,250Lesser Of:

• [(3%)($26,400)] = $792• 2011 Threshold Amount = $2,052 ( 792)

Allowable Amount Of Medical Expenses $5,458

The refundable supplement would be calculated as follows:

Lesser Of:• $1,089 (2011 Maximum)• [(25%)($5,458)] = $1,365 $1,089

Reduction [(5%)($26,400 - $24,108)] ( 115)

Refundable Medical Expense Supplement $ 974

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



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

Basic $ 10,527Common-Law Partner 10,527Allowable Medical Expenses 5,458

Total $26,512Rate 15% ( 3,977)

Tax Before Refundable Supplement $ NilRefundable Medical Expense Supplement ( 974)

Tax Payable (Refund) ($ 974)

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.

The total credits related to Keith would be as follows:

Transfer Of Keith’s Disability - Regular Amount $ 7,341Caregiver 4,282Keith’s Medical Expenses $16,240Reduced By The Lesser Of:

• $2,052• [(3%)(Nil)] = Nil Nil 16,240

Total Credit Base $27,863Rate 15%

Total Credits Related To Keith $ 4,179

Prior to 2011, a taxpayer’s claim for an adult dependant’s medical expenses waslimited to an absolute amount of $10,000. The March 22, 2011 budget proposes theelimination of this constraint.

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 $1,721[(15%)($22,000 - $10,527)]. 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$108 [(15%)($11,250 - $10,527)]. This will leave a maximum transfer of $642 ($750 -$108) and a carry forward credit of $3,542 ($4,292 - $108 - $642).

Tax Return Approach The $5,000 maximum transfer of education related amountsmust be reduced by $723 ($11,250 - $10,527)], the excess of Jerry ’s Taxable Income overhis basic personal amount. This results in a maximum transfer of $4,277 ($5,000 - $723)and a carry forward amount of $23,615 ($28,615 - $723 - $4,277). 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 $ 10,527Spousal Amount ($10,527 - Nil) 10,527Age [$6,537 - (15%)($42,000 - $32,961)] 5,181Pension Income* 2,000Spousal Age Transfer 6,537Spousal 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 $ 5,825

* A payment from a life annuity purchased with funds in an RRSP is eligible pensionincome.

Exercise Four - 19 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 - 20 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 - 21 SolutionThe family working income totals $19,000 ($13,000 + $6,000). The working income taxbenefit for 2011 would be calculated as follows:

Lesser Of:• Maximum Benefit For Family = $1,690• [(25%)($19,000 - $3,000)] = $4,000 $1,690

Reduction [(15%)($19,000 - $14,587)] ( 662)

Working Income Tax Benefit $1,028

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 6,300

Income Before Deductions $76,300

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 $6,315 [(30%)($76,300 -$55,250)].



Using this deduction, the clawback of her OAS payments would be $845 [(15%)($76,300 -$3,000 - $67,668)]. As a result, her Net Income For Tax Purposes would be as follows:

Income Before Deductions $76,300ITA 60(v.1) Deduction (EI) ( 3,000)ITA 60(w) Deduction (OAS) ( 845)

Net Income For Tax Purposes $72,455

Self Study Solution Four - 1

Case AThe solution for this Case would be as follows:

Tax [$6,232 + (22%)($50,000 - $41,544)] $8,092Basic Personal Amount ($10,527)EI ( 787)CPP ( 2,218)Canada Employment ( 1,065)

Credit Base ($14,597)Rate 15% ( 2,190)Political Contributions Tax Credit

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

Federal Tax Payable $ 5,344

Case BThe solution for this Case is as follows:

Tax [$6,232 + (22%)($50,000 - $41,544)] $8,092Basic Personal Amount ($10,527)Spousal ($10,527 - $4,650) ( 5,877)Child - Eileen ( 2,131)EI ( 787)CPP ( 2,218)Canada Employment ( 1,065)Medical Expenses [$3,150 - (3%)($50,000)] ( 1,650)

Credit Base ($24,255)Rate 15% ( 3,638)


As family Net Income For Tax Purposes is greater than $45,888, 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 CThe solution for this Case can be completed as follows:



Tax [$6,232 + (22%)($50,000 - $41,544)] $8,092Basic Personal Amount ($10,527)Spousal ($10,527 - $9,400) ( 1,127)Caregiver (Note 1) ( 4,282)Albert’s Disability ( 7,341)Medical Expenses (Note 2) ( 8,350)

Credit Base ($31,627)Rate 15% ( 4,744)

Federal Tax Payable $3,348

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 (Note 3) $8,350Reduced By The Lesser Of:

• [(3%)(Nil)] = Nil• 2011 Threshold Amount = $2,052 Nil 8,350

Base For Medical Expense Credit $8,350

Note 3 Prior to 2011, there would have been an absolute limit on Albert’s expensesof $10,000. Proposals contained in the March 22, 2011 budget would eliminate thisconstraint.

Case DThe solution for this Case is as follows:

Tax [$6,232 + (22%)($42,150 - $41,544)] $ 6,365Basic Personal Amount ($10,527)Spousal ($10,527 - $7,000) ( 3,527)Age [$6,537 - (15%)($42,150 - $32,961)] ( 5,159)Pension ( 2,000)Spouse’s Age ( 6,537)Spouse’s Disability ( 7,341)Spouse’s Pension ( 450)

Credit Base ($35,541)Rate 15% ( 5,331)


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 $32,961, there is no reduction in her age credit.

Case EThe solution for this Case can be completed as follows:



Tax [$6,232 + (22%)($50,000 - $41,544)] $8,092Basic Personal Amount ($10,527)Common-Law Partner ($10,527 - $4,500) ( 6,027)Child [(2)($2,131)] ( 4,262)EI ( 787)CPP ( 2,218)Canada Employment ( 1,065)First Time Home Buyer (Maximum) ( 5,000)

Credit Base ($29,886)Rate 15% ( 4,483)


Case FThe solution for this Case is as follows:

Tax [$6,232 + (22%)($50,000 - $41,544)] $8,092Basic Personal Amount ($10,527)Spousal ($10,527 - $5,050) ( 5,477)EI ( 787)CPP ( 2,218)Canada Employment ( 1,065)Transfer From Son (Note) ( 5,000)

Credit Base ($25,074)Rate 15% ( 3,761)


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 GThe solution for this Case can be completed as follows:

Tax [$6,232 + (22%)($50,000 - $41,544)] $8,092Basic Personal Amount ($10,527)Spousal (Income Too High) NilCaregiver (Ahmed) ( 4,282)EI ( 787)CPP ( 2,218)Canada Employment ( 1,065)Interest On Student Loan ( 375)

Credit Base $ 19,254Rate 15% ( 2,888)




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:

Net Income For Tax Purposes And Taxable Income $70,000

Tax On First $41,544 $ 6,232Tax On Next $28,456 ($70,000 - $41,544) At 22 Percent 6,260

Federal Tax Before Credits $12,492Basic Personal Amount ($10,527)Eligible Dependant (Note 1) ( 10,527)Child [(3)($2,131)] ( 6,393)EI ( 787)CPP (maximum) ( 2,218)Canada Employment ( 1,065)Public Transit Passes [(11)(2)($75)] ( 1,650)Child Fitness [(2)($425)] ( 850)Medical Expenses (Note 2) ( 2,348)

Credit Base ($36,365)Rate 15% ( 5,455)Federal Political Tax Credit [(3/4)($400) + (1/2)($50)] ( 325)

Federal Tax Payable $ 6,712CPP Overpayment ($2,253 - $2,218) ( 35)Federal Tax Withheld ( 10,100)

Federal Tax Payable (Refund) ($ 3,423)

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 $2,348

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 AThe required Tax Payable calculation is as follows:

Taxable Income $13,400Less:Basic Personal Amount ($10,527)EI ( 239)CPP ( 490)Canada Employment ( 1,065)Credit Base Before Education Related Amounts ($12,321)Tuition, Education And Textbook Amounts Claimed

(Note 1) ( 1,079) ( 13,400)

Subtotal NilRate 15%

Federal Tax Payable (Refund) Nil

Note 1 Marg has tuition, education and textbook amounts available totalling $10,020[($400)(8 Months) + ($65)(8 Months) + $6,300]. Of this total, she will use $1,079 toreduce her current Tax Payable to nil. This leaves an unused amount of $8,941 ($10,020 -$1,079). Of this amount, $3,921 ($5,000 - $1,079) can be transferred to her father. Thiswill leave her with a carry forward amount of $5,020 ($10,020 - $1,079 - $3,921).

Since her medical expenses were paid for by her father, she cannot claim them herself andthey must be transferred to her father. Even if she had paid for them herself and claimed them,she would not increase the transfer to her father as the medical expense tax credit is not takeninto consideration in determining the amount of education credits that can be transferred.

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 alternative



calculation 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 $83,088 $15,371Tax On Next $25,127 ($108,215 - $83,088) At 26 Percent 6,533

Federal Tax Before Credits $21,904Basic Personal Amount ($10,527)Spousal ($10,527 - $1,250) ( 9,277)Spouse’s Disability ( 7,341)EI ( 787)CPP ( 2,218)Canada Employment ( 1,065)Medical Expenses (Note Six) ( 2,016)Marg’s Education, Tuition And

Textbook Transfer (See Part A) ( 3,921)Credit Base ($37,152)Rate 15% ( 5,573)

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

Net Federal Tax $ 15,779Federal Income Tax Withheld During Year ( 16,000)

Federal Tax Payable (Refund) ($ 221)



Note Six Allowable medical expenses are as follows:

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


Marg’s Medical Expenses $720Reduced By The Lesser Of:

• [(3%)($13,400)] = $402• 2011 Threshold Amount = $2,052 ( 402) 318


Prior to 2011, there was an absolute limit of $10,000 with respect to the amount ofMarg’s expenses that could be included in this credit base. The March 22, 2011budget removed this constraint.


This is an extension of the Tax Software Self Study Problem found on page S-61. Ithas been updated for 2011 rates.

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

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

Net And Taxable Income $ 57,047

Federal Tax On First $41,544 $6,232Federal Tax On Next $15,503 ($57,047 - $41,544) At 22 Percent 3,411

Gross Federal Tax $9,643Basic Personal Amount ($10,527)Eligible Dependant - Amy ( 10,527)Child - Amy ( 2,131)Caregiver - Marjorie ( 4,282)EI Premiums ( 787)CPP Contributions ( 2,218)Canada Employment ( 1,065)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 ($38,169)Rate 15% ( 5,725)

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• 2011 Threshold Amount = $2,052 ( 1,711)

Balance Before Dependants 18 And Over 1,601

Marjorie’s Medical Expenses ($110 + $75) $185Reduced By The Lesser Of:

• $2,052• [(3%)($6,500)] = $195 ( 195) Nil

Diane’s Medical Expenses $100Reduced By The Lesser Of:

• $2,052• [(3%)($2,300)] = $69 ( 69) 31


Prior to 2011, medical expenses claimed for an adult dependant were limited to anabsolute amount of $10,000. The March 22, 2011 budget proposes the eliminationof this constraint.

Notes To Eleanor’s Tax Return

� Diane transfers the $5,000 maximum education related credits to Eleanor and carriesforward the remaining $6,000 ($11,000 - $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.

� Since Marjorie is not wholly dependent on Eleanor, Eleanor cannot claim the eligibledependant credit for her. As a result, Eleanor claimed the full caregiver credit for Marjorieas her income is well below the income threshold. Since Amy is under 18 and whollydependent, Eleanor can claim the eligible dependant credit for Amy.

� 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 AMr. Strong’s minimum Net Income For Tax Purposes would be calculated as follows:

Salary $72,000Additions:

Employer’s Disability Contribution(Not A Taxable Benefit) Nil

Automobile Benefit (Note 1) 7,580Tuition For Chants Course (Note 2) 600Travel Costs (Note 3) NilHome Relocation Loan (Note 4) 1,500

Deductions:RPP Contributions ( 4,200)Cost Of Tools (Note 5) ( 500)

Net Income For Tax Purposes $76,980

Note 1 The automobile benefit would be calculated as follows:

Standby Charge [(2/3)(12)($565 - $40)(10/12)] $3,500Operating Cost Benefit [($0.24)(17,000)] 4,080

Total Benefits $7,580

As Mr. Strong’s employment related use was less than 50 percent, there is no reduc-tion in the standby charge and he cannot use the alternative calculation of theoperating cost benefit.

Note 2 Employer paid tuition is a taxable benefit unless it is for the benefit of thatemployer. While the spoken French course appears to be for the benefit of theemployer, it would be difficult to argue that the employer would benefit from a coursein 16th century liturgical chants.

Note 3 As the travel costs were reimbursed, there is no deduction. As long as thecosts were reasonable, there would be no benefit from the reimbursement.

Note 4 The ITA 80.4(1) loan benefit would be calculated as follows:

[($150,000)(2% - Nil)(1/4) + ($150,000)(1% - Nil)(2/4)] = $1,500

Note 5 Mr. Strong can deduct the cost of tradesperson’s tools that cost more than$1,065. However, the overall limit for this deduction is $500 per year.

Part BMr. Strong’s minimum Taxable Income would be calculated as follows:

Net Income For Tax Purposes $76,980Home Relocation Loan Deduction (Note 6) ( 250)

Taxable Income $76,730

Note 6 The deduction would be calculated as follows:

[($25,000)(2%)(1/4) + ($25,000)(1%)(2/4)] = $250



Part CBased on the Taxable Income calculated in Part B, Mr. Strong’s Tax Payable would be calcu-lated as follows:

Tax On First $41,544 $ 6,232Tax On Next $35,186 ($76,730 - $41,544) At 22 Percent 7,741

Tax Before Credits $13,973

Credits:Basic Personal Amount ($10,527)Spousal ($10,527 - $5,600) ( 4,927)Child [(2)($2,131)] ( 4,262)Caregiver (Note 7) ( 4,282)EI Premiums ( 787)CPP Contributions ( 2,218)Canada Employment ( 1,065)Monthly Transit Passes [($60)(2)(10)] ( 1,200)Tuition (Note 8) ( 600)Education And Textbook (Note 8) NilMedical Expenses (Note 9) ( 4,098)

Credit Base ($33,966)Rate 15% ( 5,095)

Charitable Donations (Note 10) ( 320)


Note 7 His mother’s income is below the threshold for the caregiver credit. Thismeans that Mr. Strong can claim the full amount of the caregiver credit.

Note 8 When an employer reimburses tuition costs, the tuition credit can beclaimed if the reimbursement is included in the employee’s income. However, whenthere is employer reimbursement, without regard to whether the amount is includedin income, none of the other education related credits can be claimed by theemployee.

Note 9 The base for Mr. Strong’s medical expense credit can be calculated asfollows:

Mr. Strong, His Spouse, And Minor Children($1,250 + $2,300 + $850) $4,400

Lesser Of:• [(3%)($76,980)] = $2,309• 2011 Threshold Amount = $2,052 ( 2,052)

Mother’s Medical Expenses $1,960Reduced By The Lesser Of:

• $2,052• [(3%)($7,000)] = $210 ( 210) 1,750

Allowable Medical Costs $4,098

Prior to 2011, there was a $10,000 limit on claiming the medical expenses of an adultdependant. The March 22, 2011 budget proposes the elimination of this constraint.

Note 10 The donations credit is equal to $320 [(15%)($200) + (29%)($1,200 -$200)]. Mr. Strong cannot claim a credit for the $1,500 of donated services.

Note 11 Mr. Strong cannot claim the First Time Home Buyers’ Credit as he owned ahouse prior to purchasing the heritage home.



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 2010 (not 2011) tax returns, andthe problem and solution reflect this fact. The complete tax return is available on theStudent 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]. The carry forward can only be used by Diane.

� 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.

� Since Marjorie is not wholly dependent on Eleanor, Eleanor cannot claim the eligibledependant credit for her. As a result, Eleanor claimed the full caregiver credit for Marjorieas her income is well below the income threshold. Since Amy is under 18 and whollydependent, Eleanor could claim the eligible dependant credit for Amy.

� 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 Summary 2010 Tax Summary (Federal)

101 60,202113114115116117119120121122125126127128129130135

Workers' compensation andsocial assistance 147

150 60,202

207 2,406208210212 749213214215217219220221222224229235231236 57,047

244248249250251254255256260 57,047

1,057 005,744 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

2011 Estimated Eleanor-Chapter 4 SS ProblemGST/HST creditChild Tax BenefitRRSP contribution limit* More than one line is considered

300 10,382301303 10,382367 2,101306 4,223308 2,911363 1,051364365369313314316318 5,000319323332 1,632335 37,681338 5,652349 146350 5,798

404 9,683350 5,798425426429 3,885

405406 3,885410414417415418420 3,885421430422428 1,640435 5,525

437 11,408440448452453454457476479482 11,408

(5,883)

(5,883)

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 buyers/Home renovation *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/other *Labour-sponsored tax creditAlternative minimum taxWITB Prepayment (RC210)Additional tax on RESP

Net federal tax CPP contributions payableEI self-employmentSocial 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

T1-2010 Federal Tax Schedule 1

300 10,382 00

Age amount (if you were born in 1945 or earlier) (use federal worksheet) (maximum $6,446) 301

10,382 0 00Spouse or common-law partner amount: (if negative, enter "0")

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

10,382 0 00Amount for an eligible dependant (attach schedule 5) (if negative, enter "0")

$ minus ( his or her net income) 305 10,382 00366 1Amount for children born in 1993 or later Number of children x $2,101 =367 2,101 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 $2,163.15) 308 2,163 15310

312 747 36317

Canada employment amount(if you reported employment income on line 101 or line 104, see line 363 in the guide) (maximum $1,051) 363 1,051 00

364365369313314315 4,223 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 37,681 10

338 5,652 17349 146 00

Add lines 26 and 27.Enter this amount on line 40. Total federal non-refundable tax credits 350 5,798 17

Page 1 of 2

Complete this schedule, and attach a copy to your return.

For more information, see the related line in the guide.

Step 1 - Federal non-refundable tax credits

Basic personal amount claim $10,382 1

2

= 3

= 4 5

6

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

Employment Insurance premiums:through employment from box 18 and box 55 on all T4 slips (maximum $747.36) 9on self-employment and other eligible earnings (attach Schedule 13) 10

11Public transit amount 12Children's fitness amount 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 $7,239 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 1993 or later

Minus: $2,024 or 3% of line 236, whichever is lessSubtotal (if negative, enter "0") (A)

(B)Add lines (A) and (B). 24Add lines 1 to 24. 25

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

57,047 05

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

If line 29 is$40,970 or less





If line 29 is morethan $127,021

57,047 0540,970 00 81,941 00 127,021 00

0 00 16,077 05x 15 x 22 x 26 x 29

3,536 950 00 6,146 00 15,159 00 26,880 00

Add lines 34 and 35. 9,682 95

9,682 95424404 9,682 95 9,682 95

350 5,798 17425426427

5,798 17 5,798 17 Line 39 minus line 44 (if negative, enter "0"). Basic federal tax 429 3,884 78

405

Line 45 minus line 46 (if negative, enter "0") Federal tax 406 3,884 78

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 3,884 78

415418

Add lines 52, 53, and 54.Enter this amount on line 420 of your return. Net federal tax 420 3,884 78

Page 2 of 2Privacy Act, Personal Information Bank number CRA PPU 005

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) 38Add lines 37 and 38. 39

Enter 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) 43Add lines 40 to 43. 44

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, 49 and 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 ofboth Volumes of this textbook (but not this Study Guide). We expect you to refer to this infor-mation when calculating the credits covered in this chapter (i.e., you are not expected tomemorize 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 4-13).

2. Calculate federal and provincial Tax Payable before the consideration of any tax credits(paragraphs 4-14 through 4-31).

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 4-32 through 4-70).

4. Calculate the age tax credit (paragraphs 4-71 and 4-72).

5. Calculate the pension income tax credit (paragraphs 4-73 through 4-77).

6. Calculate the Canada employment tax credit (paragraphs 4-78 through 4-80).

7. Calculate the adoption expenses tax credit (paragraphs 4-81 through 4-85).

8. Calculate the public transit passes tax credit (paragraphs 4-86 through 4-90).

9. Calculate the child fitness tax credit (paragraphs 4-91 through 4-95).

10. Calculate the children’s arts tax credit (paragraph 4-96 through 4-99).

11. Calculate the first time home buyer’s tax credit (paragraph 4-100 through 4-102).

12. Calculate the volunteer firefighters tax credit (paragraph 4-103 and 4-104).

13. Calculate the charitable donations tax credit when the donation is in the form of cash(paragraphs 4-105 through 4-115).

14. Calculate the medical expense tax credit (paragraphs 4-116 through 4-125).

15. Calculate the refundable medical expense supplement (paragraphs 4-126 through4-129).

16. Calculate the disability tax credit (paragraphs 4-130 through 4-141).

17. Calculate the education related tax credits including tuition, ancillary fees, examinationfees, education, textbook and student loan interest tax credits (paragraphs 4-142 through4-152).

18. Calculate the amount of education related tax credits that can be carried forward or trans-ferred to another individual (paragraphs 4-153 through 4-161).



19. Calculate the Employment Insurance and Canada Pension Plan credits (paragraphs 4-162through 4-168).

20. List the types and amounts of tax credits that can be transferred to a spouse orcommon-law partner (paragraphs 4-169 through 4-170).

21. Calculate the new graduates working in designated areas tax credit (paragraph 4-171through 4-172).

22. Calculate the political contributions tax credit (paragraphs 4-173 through 4-175).

23. Calculate the labour sponsored funds tax credit (paragraphs 4-176 through 4-178).

24. Explain the basic provisions of the refundable GST credit (paragraphs 4-182 through4-189).

25. Calculate the working income tax benefit and WITB disability supplement (paragraphs4-190 through 4-195).

26. Calculate the Canada child tax benefit (paragraph 4-196 through 4-200).

27. Calculate the OAS and EI clawbacks (paragraphs 4-201 through 4-211).

28. Complete a simple personal tax return using the ProFile T1 tax preparation softwareprogram (page S-46 through S-60 in this Study Guide).



study guide chapter 4 - pearson · ... study guide how to work through chapter 4. ... this self...

Documents