CHAPTER NINE

1
CHAPTER NINE

• Other Income, Other Deductions, and Special Rules
  for Completing Net Income for Tax Purposes
• I. Other Sources of Income
• II. Other Deductions
• III. Registered Retirement Savings Plans

2
EXCLUSIONS

• Restrictive Covenants Page 428-429
• Attendant Care Expenses page 455
• Expenses of Residents absent from Canada Page 456

3
I. Other Sources of Income

• A catch-all category that captures taxable income
  which does not qualify as one of the primary
  sources.
• The items classified as other sources of income
  are all from a specific list found in sections 56
  through 59.1 of the Act.

4
Other Income Sources

• The major types of income that are taxable as
  other sources of income are as follows
• Benefits received from an RRSP
• Benefits received from a registered retirement
  income fund created from an RRSP
• Pension benefits received from an employers
  pension plan
• OAS, CPP, QPP
• DPSP benefits received
• Foreign pension benefits
• Retiring allowances
• EI benefits
• RESP income

5
Other Income (cont.)

• Scholarships, fellowships, or bursaries, to the
  extent that such payments exceed 3,000 (applies
  only to amounts received by a student enrolled in
  a program entitling the student to claim the
  education tax credit). Otherwise, such receipts,
  including prizes for achievement in a field of
  endeavour, are exempt only to the extent of 500
  annually.
• Research grants received in excess of expenses
  incurred to conduct the related research
  activity.
• Alimony or maintenance payments from a former
  spouse, provided that they are received as
  periodic payments and are pursuant to a court
  order or written agreement.

6
Death Benefits

• Payments in recognition of employees service in
  an office or employment
• 1st 10,000 is excluded from income

7
Support Payments

• Spousal Support fully taxable if you
• A) Live apart
• B) Periodic Basis
• C) Recipient can use as they want
• D) Spouse or former spouse
• E) Order or written agreement
• If taxable it is deductible by other party.

8
Child Support

• Agreement entered into prior to May 1 1997 then
  payments are taxable
• Agreements after are not taxable

9
Social Assistance/WCB

• Reportable as income
• Deduction provided by paragraph 110(1)(f) which
  effectively makes it non-taxable
• Amount comes into income but is then deducted to
  calculate taxable income

10
Aggregation Formula Revisited

• The total of a taxpayers other items of income
  is included in Segment A, along with employment
  income, business income, and property income.

11
What items are not subject to tax under the
Canadian tax system?

• Lottery winnings
• Receipt of a gift
• Receipt of an inheritance
• Life insurance proceeds on the death of an
  individual
• Profits from betting or gambling, when conducted
  for pleasure or enjoyment
• Proceeds from accident, disability, sickness, or
  income maintenance insurance policies (if the
  employee has paid all of the premiums).

12
II. Other Deductions

• A catch-all category that permits the deduction
  of items that do not qualify under the four
  primary sources of income.
• Deductions in this category must come from a
  specific list of items found in section 60
  through 66.8 of the Act.

13
Other Deductions

• The major items included in this category are as
  follows
• RRSP contributions
• Alimony or maintenance payments to a former
  spouse, provided that they are paid on a regular,
  periodic basis and are pursuant to a court order
  or written agreement.
• Amounts paid by a taxpayer as fees or expenses to
  conduct an objection or appeal in relation to an
  assessment under the Act.
• Moving expenses
• Child care expenses

14
Retirement Savings Vehicles

• RRSP - All Individuals
• RPP - Employees Only
• RRIF - All Individuals
• DPSP - Employees Only

15
Registered Retirement Savings Plans (RRSPs)

• Basic Concepts
• Deduct Contributions
• Tax Free Earnings
• Taxed On Withdrawal
• Registration
• Various Financial Institutions

16
Overview Of System

• RRSP Deduction Limit
• Pension Adjustments (PAs)
• Past Service Pension Adjustments (PSPAs)
• Pension Adjustment Reversals (PARs)

17
RRSP Deduction Limit ITA 146(1)

• Formula
• A B R C

• Where
• A Balance at end of last year
• B lesser of RRSP Dollar Limit and 18 percent of
  Earned Income for previous year, reduced by the
  PA of previous year
• R Pension Adjustment Reversal for the year
• C Past Service Pension Adjustment for the year

18
RRSP Dollar Limit
 
19
Earned Income - ITA 146(1)

• Employment Income
• Business Income (Loss)
• Disability Payments
• Royalties (Some)
• Net Rental Income (Loss)
• Net Research Grants Received
• Spousal Support Received (Paid)

20
Carry Over Provisions

• Undeducted Contributions
• Carry Over Until Death
• Why Not Deduct Immediately?
• Unused RRSP Deduction Room
• Meaning
• No Time Limit

21
Excess Contributions

• General Rules
• Penalty Of 1 Per Month
• Meaning Of Excess Contributions Contributions
  That Are More Than 2,000 Greater Than Unused
  Deduction Room

22
Excess Contributions

• Tax Planning
• If Withdrawn Within One Year After The Year
  Assessment Received For Year Of Contribution
  Can Deduct Under ITA 146(8.2)
• Otherwise Taxed When Withdrawn

23
Options At Retirement

• Age 69 - Must Collapse
• Lump Sum Withdrawal
• Annuities
• Life Annuity
• Fixed Term
• RRIF

24
Other Plan Terminations

• Departures From Canada
• Death
• Spousal Rollover?
• Termination at age 69

25
Spousal RRSPs

• Benefits
• Income Splitting
• Additional Pension Credits
• Attribution Rules
• The Problem
• The Rule
• In The Year Or The Two Following - ITA 146(8.3)
• Attributed To Contributor

26
Retiring Allowances

• Total Allowance In Income
• Rollover To RRSP (Maximum)
• 2,000 For Each Year Prior To 1996 (1995 Budget
  Change)
• 1,500 For Each Year Prior To 1989 (If No Vested
  Contributions To RPP Or DPSP By Employer)

27
Home Buyers Plan (HBP)

• General Rules
• How Much? Max 20,000
• Who Qualifies? 1st time Homebuyers or no home
  last 4 years
• When Must You Buy? Before Oct 1 of year following
  withdrawal
• Limit On RRSP Deductions- Must be contributed
  more than 90 days before withdrawal

28
Repayment

• When? 2nd year following withdrawal
• How Much?
• 1/15, 1/14, 1/13, etc.
• Amount Withdrawn  15,000
• Repayment (  1,000)
• Balance  14,000

29
Repayment

• Departures From Canada-repaid within 60 days of
  departure
• Death Of Registrant- remaining balance becomes
  income to deceased
• Tax Planning Aspects- 2 spouses 2 plans
• Provides extra funds for home purchase through
  refund

30
Lifelong Learning Plan (LLP)

• General Rules
• How Much?
• 10,000 In Any One Calendar Year
• 20,000 Maximum Over Four Calendar Years
• Who Qualifies?
• Full Time Enrollment - Qualifying Educational
  Program In Year Of Withdrawal
• Entitled To Enroll Prior To March Of Year
  Following Withdrawal

31
Lifelong Learning Plan (LLP)

• Limit On RRSP Deductions
• Same As Home Buyers Limit
• Repayment When?
• Must Begin Within Six Years
• Repay Over 10 Years Straight Line
• Like Home Buyers Plan

32
RESPs

• Earnings tax free
• No initial deduction
• Withdrawn amounts are income to beneficiary
• Max Contrib 4,000 annually 42,000 max.
• If accumulated income paid to subscriber extra
  tax of 20
• Can occur if each beneficiary over 21, ineligible
  to receive payments or deceased

33
RESPs continued

• Can elect to rollover to RRSP if room exists.
• Canada Education Savings Grant program
• 20 of 1st 2,000 RESP contribution
• Maximum grant of 7,200
• Refunded if child does not attend post secondary
• Canada Learning Bond- help low-middle income
  families ( 0-70,000 annual income)

34
Registered Pension Plans (RPPs)

• Registration Of The Plan
• Employer Contributions
• General Rules
• Limitation
• Employee Contributions
• Options At Retirement

35
Registered Retirement Income Funds (RRIFs)

• Establishment

• Withdrawals
• No Maximum
• Minimum (Under 69)
• FMV (90 - Age)
• Minimum (69)
• 7.38 At Age 71
• 20 At Age 94 And Subsequent

36
Registered Retirement Income Funds (RRIFs)

• Death Of Registrant

• Evaluation
• Continuing Tax Deferral
• Flexibility

37
Moving Expenses

• Deductible moving expenses are those incurred by
  an individual for relocation to commence a
  business or employment in another part of Canada,
  or to attend a university or other post-secondary
  school, to the extent of income earned in the new
  location.

38
Moving Expenses include

• Deductible moving expenses include
• Travel costs
• Transportation and storage of belongings
• Temporary board and lodging near the new or old
  residence (up to 15 days)
• Costs of cancelling a lease for the old residence
• Selling costs of the old residence
• Legal fees and land transfer taxes for the
  purchase of a new residence if an old residence
  is sold
• Cost of maintaining a vacant former residence for
  a period of three months to a maximum of 5,000
• Cost of revising legal documents to reflect a
  change of address, replacing drivers licences,
  and obtaining utility connections and
  disconnections.

39
Limitations to moving expenses

• Moving expenses are eligible for a deduction only
  if the new residence location is at least 40
  kilometres closer to the new work location than
  the previous residence.
• If all or a portion of the expenses cannot be
  deduction in the year of the move because of
  insufficient income at the new location, the
  unclaimed portion can be carried forward and
  deducted in the following year.

40
Child Care Expenses

• Deductible child care expenses include the cost
  of babysitting, day care, or lodging at a
  boarding school, for children 16 years of age or
  less, provided that the expenses were incurred so
  that the taxpayer could pursue employment,
  business, or research activities.
• Actual child care expenses are deductible only to
  the extent that they do not exceed 4,000 per
  child (7,000 if the child is under seven years
  of age at year end), or 2/3 of the taxpayers
  earned income for the year.
• If more than one person supports a child, the
  deduction usually must be claimed by the person
  with the least amount of income for tax purposes.

41
Child Care (cont)

• Limit for Boarding School or camp
• 175/week if under 7
• 100/week otherwise
• If lower income spouse in school, infirm or in
  prison
• Then higher income spouse can claim within normal
  amounts except an additional limit of 175/week
  for children under 7 and 100/week otherwise