Canada's Tax System

Prepared By:
ShahnamTaheri
FinancialAnalyst and Consultant
Sh_taheri@hotmail.com
March2014

 Canada’s tax system
 Rights and responsibilities
 General information about personal income
tax return
 How to fill personal income tax return(T1)
SHAHNAMTAHERI SH_TAHERI@HOTMAIL.COM 2

 Federal Revenues
$263.80 Billion – 2013
 Personal Income
(49.9%)
 Corporate Income
(13.1%)
 EI Contributions (8.3%)
 GST (11.3%)
 Other tax revenue
(6.2%)
 Non-Tax revenue(9.7%)
SH_TAHERI@HOTMAIL.COM 3SHAHNAMTAHERI

PERSONAL INCOME TAX
50%
CORPORATE INCOME TAX
13%
EMPLOYMENT INSURANCE
CONTRIBUTION
8%
GOODS AND SERVICE TAX
11%
CUSTOMS IMPORT
DUTIES
2%
OTHER REVENUE INCOME
6% NON-TAX REVENUE
10%
PERCENT(%)

 Individuals
 Corporations
 Trusts

 A tax system is defined by six characteristics:
 Who pays the tax
 The tax base
 The rates to be applied to the base
 General exemption
 General deductions
 Other measures(for example, how tax is to
be paid)

 Fairness :To ensure that all taxpayers share the tax
burden equally.
 Stability:The federal government needs a stable and
dependable source of tax revenue so it can manage
the country’s economy.
 Canadian priorities :The tax system helps meet the
national /provincial/territorial and economic needs are
priorities for most Canadians.
 Consultation:The federal government is committed
to consulting before making final legislative proposal
for tax amendments.

 The federal Minister of Finance proposes
changes in the Government of Canada’s tax
policy by submitting budgets to parliaments.
 Parliament debates and approves the
proposed legislation and then it becomes law.
 The Department of Finance initiates tax
policy, and Parliament passes laws.
 The Canadian Revenue Agency(CRA)
administers these laws.

 Administers CanadianTax laws and supporting
Canada’s social and economic progress.
 Overseeing tax credit and benefits programs and
collecting federal and provincial(except in
Quebec), and territorial income taxes.
 Collects GST/HST(except for Quebec), Canada
Pension Plan, and employment insurance(EI)
premium.
 Administers Canada’s International tax
agreements with other countries.

 Fairness
 Simplicity
 Stability
 Balance Between Sectors
 Social And Economic Goals
 International Competitiveness

 Canada bases its tax system on the principle
of self – assessment.
 Self – assessment means Canadian residents
and non-Canadian residents with Canadian
income are responsible for making sure they
have paid their taxes according to the Income
Tax Act.

 Filing an income tax and benefit return by
the deadline.
Paying the correct amount of tax
Giving CRA the necessary information to
assess their return
Giving CRA up-to-dated information to
receive accurate benefits and to avoid
unnecessary delays in sending the benefits.

DIRECTTAXES
 INCOMETAX
 PROPERTYTAX
 CORPORATETAX
 ESTATETAX
INDIRECTTAXES
 SALESTAX
 GST/HSTTAX
 FUELTAX
 CIGARETTETAX

 The goods and service tax (GST) is a 5% tax
that applies to most goods and services in
Canada.
 In some provinces, there are two taxes: the
GST and a provincial sales tax(PST)
 In Ontario, the GST and PST combined to
form the harmonized sales tax(HST)

We pay GST/HST on most what we purchase,
except:
 Basic groceries
 Prescription drugs and medical devices
 Most healthcare, medical, and dental services
 Residential rents, university residents
 Local or municipal bus and passenger ferry
services
 Legal aid service
 Most banking services
 Most educational services including tuition fees.

Mistake 1: Not earned money therefore not file
tax return
 Remember : Even if you don’t have any tax
liabilities , its better to file your tax return
because of the GST/HST tax credit,Child tax
benefit for children under 18 years,student
tution credits which can be applied to lower
their future taxes or applied to their parents

 Mistake#2: If I moved to Canada within the
calender year,I have to claim income earned
in my home country
 You only need to claim the income you
earned while in Canada from your arrival date
Mistake #3: I have enough time to file my tax
return until April 30 so I will file it on April29
 It is better to have enough time to review
your slips and have ready to file in advance.

You are eligible to receive the GST/HST CREDIT
if you are a resident in Canada and at least
one of the following applies:
 19 years of age or older
 Have (or previously had) a spouse or common
law partner
 Parent and live with your child.
Receive of payments in July, October, January,
andApril

HIRING
 SIN ( SOCIAL INSURANCE NUMBER) GIVEN
TO EMPLOYER ANDTAX PREPARER
 SIN was introduced by Parliament in 1964 to
register people with Canada’s Employment
insurance program and Canada Pension Plan.
 The SIN is not an ID.
www.servicecanada.gc.ca

 Anyone who has a new employer or payer has
to complete the federal formTD1.
 The employer will deduct taxes on the basic
personal amount only.
 If you expect your total income for the year to
be less than the total claim amount on Form
TD1, you can ask you’re your employer not to
deduct tax from your earnings.

 BASIC PAY
 NET PAY
 GROSS PAY
 CPP/QPP
 EI
 INCOMETAX DEDUCTIONS

CPP
 18YEARSTO 70YEARS
 Employer should deduct
CPP contribution and
sending to the CRA.
 Employer contributes a
matching amount of CPP
and sends both
contributions to the CRA
through payroll
remittances.
EMPLOYMENT INSURANCE(EI)
PREMIUM
EI is a temporary financial
assistance given to
unemployed and looking
for job. EI also helps
workers who:
 Become sick
 Are pregnant
 Are parents caring for a
newborn child
 Must care for a family who
is seriously ill

 EI deductions are percentage of the insurable
earnings(generally gross pay)
 The employee’s EI rate and maximum
premium for the year may change year to
year
 There is no age limit for deducting EI
premium
 Employer should also pay a share of
EI(normally 1.4 times of employee’s EI share)

 Employer deducts income tax at source from
earnings of employees.
 No age limit for paying income tax
 Employer calculates how much income tax to
deduct by referring to the total claim amount
on FormTD1

 The employer’s name
 The year in which the income was earned by
employee.
 The name and address of the employee
 The province of employment which the
income was earned (box10)
 The social insurance number of the
employee(box12)

employee(box 12)
 The employment income(box 14)
 The CPP contribution(box 16)
 The QPP contribution (box 17) in Quebec
 The EI premium( box 18)
 The income tax deducted from the
employment income ( box 22)

 Box 28 will be marked “X” if the employee is less than 18 and
exempt from paying CPP contribution during the past year.
In this case box 16 and box 17 will be blank.
 The PPIP premium ( box 55) Definition of 'Provincial Parental
Insurance Plan - PPIP'

A Canadian tax deduction relating to taxes that are paid or
payable on regular or self-employed income.The Provincial
Parental Insurance Plan (PPIP) gives maternity, paternity,
parental and adoption benefits to qualified persons.This aid
is to support and encourage parents staying home with their
children for the first year of the child's life.

 Employers have to provide aT4 information
slip to employees by the end of February
following the calendar year which it applies.
 Tax return should be filed by April 30.
 T4 slip shows :
 Employment income in a given year
 CPP /QPP contributions and EI premium
 Income tax deducted

 Select General IncomeTax and Benefit
package for your province
 Begin withT1 General and the Schedule 1
FederalTax

Taxable Income
Division C
Deductions
Employment
Income
Business And
Property Income
Net Taxable
Capital Gains
Other Sources
Of Income
Other Deductions
From Income

The return is setup in an easy-to- follow format
with clearly defined areas called:
 Identification
 Election Canada
 GST/HST credit application
 Total income
 Net Income
 Taxable Income
 Refund or balance owing
2014-05-06 sh_taheri@hotmail.com 31

 Employee Stock Options (Chapter 3)
 Deductions For Payments
 Home Relocation Loan
 Lump Sum Payments
 LifetimeCapitalGains Deduction (Chapter 11)
 Northern Residents Deductions
 Loss Carry Overs (Chapter 11)

The return is setup in an easy-to- follow format
with clearly defined areas called:
 Identification
 Election Canada
 Total income
 Net Income
 Taxable Income
 Refund or balance owing

 Your information slips( such as all
T4,T5,T2202- A slips)
 Information relating to any income not
reported on an information slips(Tips,…)
 Receipts for deductions and credits that you
can claim
 GuideT4055 : Newcomers to Canada
 Tax preparation software

 The year in which the income was earned
 Name and address
 SIN(Box 12)
 Employment Income (Box 14)
 Employment Insurance premium
deducted(Box18)
 IncomeTax deducted(Box22)
 Canadian Pension Plan premium(Box28)(if a
person is under 18 years old this box is blank)

 Identification
 Information about your residence(province
you lived on Dec31,…)
 Information about yourself(SIN, date of Birth,
language, martial status)
 Election Canada
 Foreign Property

 LINE 101: BOX 14 OFT4
 LINE 104:OTHER EMPLOYMENT INCOME
 LINE 113: OLD AGE SECURITY(OAS)(T4A)
 LINE 114: CPP BENEFITS
 LINE 155: OTHER PENSION(T4A)
 LINE 116:ELECTED SPLIT-PENSION AMOOUNT
 LINE 117: UNIVERSAL CHILD CARE BENEFIT(UCCB)
 LINE119: EI AND OTHER BENEFITS
 LINE 120:TAXABLE AMOUNT OF
DIVIDENDS(T5)(T4P)(T3)(T5013)
 LINE121:INTEREST AND OTHER INVESTMENTS(T5)(T3)
 LINE122: NET PARTNERSHIP INCOME
 LINE 125: REGISTERED DISABILITY SAVING PLAN(RDSP)
INCOME(T4A)

 Line 126 : Rental Income
 Line 127:Taxable CapitalGains
 Line 128: Support payments received
 Line 129: RRSP income (T4RSP) ,HBP
 Line 130: Other income (scholarship, bursaries, grants, lump-sum
payments,…)
 Line 135 to 143 – Self-employment income(fill the formT1139,…)
 Line 144: Workers' compensation(T5007)
 Line 145: Social assistance payments(box11 ,T5007)
 Line 146: Net Federal Supplements(box21,T$A(OAS)
 LINE 150:TOTAL INCOME
 LINE 234:TOTAL OF DEDUCTIONS(RRP, RRSP, PRPP, HBP, Union dues,
child care expenses, disability supports deduction, capital loss, moving
expenses, carrying charges and interest expenses,…)
 LINE 236: NET INCOME
 LINE 260:TAXABLE INCOME(is used to calculate federal tax on
schedule1 and provincial tax on form428)

 NET INCOME is used for certain calculation
such as :
 Canada child tax benefit
 GST / HST
 CertainTax credits
 Note: if the amount of NI is negative ,you
may have a non-capital loss.(use formT1A
Request for Loss Carryback)

 Use schedule 1 to calculate your federal tax.
 Schedule 1 is divided in to three parts:
 STEP1 : Federal non-refundableTax Credit
 Line300 – Basic personal
amount($11,038)
 Line312 – EI premium(Box18,T4)
 Line363 – Canada Employment
amount(maximum $1,117)
 Line 364 – PublicTransit amount

Step2 – FederalTax onTaxable income
 Line 38 : the amount from line 260 on his/her
return
 Line 39
 Line 43 and 45
Step3 – Net FederalTax

These credits reduce your federal tax.
If the total of these credits is more than your
federal tax, you won’t get credit for the
difference.

 Line 300 :Basic Personal Amount: Claim
$11,038
 Line 301 : Age Amount ;65 years or older and
your net income (line 226) is less than
$80,256.
 Line 303 :You can claim at any time of the
year if your spouse or common law partner’s
net income is less than $11,038.

 You can now receive your 2014 Ontario
trillium in one Payment in June 2015.
 The Ontario child benefit(OCB) is a non-
taxable amount paid to help low to
moderate-income families provide for their
children. OCB and CCTB payments are being
delivered together each month.

 Step 1: Ontario non-refundable tax credits
 Line 5804 – Basic personal income: $9,574.
 Line 5808 – Age amount; Age>65+ years and
your income < $65,958.If your income is equal
or less than $34,798 ,enter $4,674 on line
5808.

 The year in which the income was earned by
employee.
 The name and address of the employee
 The province of employment which the
income was earned (box10)
employee(box12)

employee(box 12)
 The employment income(box 14)
 The CPP contribution(box 16)
 The QPP contribution (box 17) in Quebec
 The EI premium( box 18)
 The income tax deducted from the
employment income ( box 22)

 Box 28 will be marked “X” if the employee is less than 18 and
exempt from paying CPP contribution during the past year.
In this case box 16 and box 17 will be blank.
 The PPIP premium ( box 55) Definition of 'Provincial Parental
Insurance Plan - PPIP'

A Canadian tax deduction relating to taxes that are paid or
payable on regular or self-employed income.The Provincial
Parental Insurance Plan (PPIP) gives maternity, paternity,
parental and adoption benefits to qualified persons.This aid
is to support and encourage parents staying home with their
children for the first year of the child's life.

 Employers have to provide aT4 information
slip to employees by the end of February
following the calendar year which it applies.
 Tax return should be filed by April 30.
 T4 slip shows :
 Employment income in a given year
 CPP /QPP contributions and EI premium
 Income tax deducted

 Basic
 $1,433/Year For Each Qualified Dependant
 +$100/Year For Each Dependant OverTwo
 Eroded when family income exceeds $43,561
 Supplement
 $2,221/Year for 1st child
 $1,964/Year for 2nd
 $1,869/Year for 3rd and subsequent
 Eroded when family income exceeds $25,356

 2013 Rates
 1st $43,561 @ 15%
 $43,562 to $87,123 @ 22%
 $87,124 to $135,054 @ 26%
 Over $135,054 @ 29%
 Full Indexing EachYear

 Spouse Or Common-Law Partner –
ITA 118(1)(a)
 Includes common-law and same sex
 (15%)($11,038 – Net Income Of Spouse)
 GetsThe $2,040 Family Caregiver Amount if
infirm
 Maximum = $1,656 or $1,962 (If FCA)

 ChildTax Credit
– ITA 118(1)(b.1)
▪ [(15%)($2,234)] = $335
 GetsThe $2,040 Family Caregiver Amount if infirm
▪ [(15%)($4,274)] = $641
 For each child under 18 at end of year
 No income threshold
 Can take eligible dependant and this credit for the same
child.
 If eligible dependant, take family caregiver only for child
credit

 Reach 65 InTheYear
 $1,028 = [(15%)($6,854)]
 Reduction
 15% Of Income > $34,562
 $80,255 - $34,562 = $45,693
 [($45,693)(15%)] = $ 6,854

 15% of cost
 Individual
 Spouse and children under 19
 Qualifying pass
▪ Unlimited travel for 28 days
▪ 5 day passes if they cover 20 out of 28 days
▪ Electronic cards with at least 32 one-way trips.

 15% of up to $500 of costs
 Maximum $75
 Child under 16
 Eligible expenses
 Does not include
▪ travel, food, or lodging
▪ child care costs
 Additional $75 [(15%)($500)] for child eligible for the disability tax
credit

 15% of up to $500 of costs
 Maximum $75
 Child under 16
 Eligible expenses
 Does not include
▪ travel, food, or lodging
▪ child care costs
 Additional $75 [(15%)($500)] for child eligible for
the disability tax credit

 $750 [(15%)($5,000)]
 Can be claimed by individual or spouse
 No home purchase in preceding four years

 General Rules
 15% (1st $200) + 29% Of Excess
 Super Credit For First-Time Donors
 40% (1st $200) + 54% (next $800) + 29% of
additional
 One time only
 Any year prior to 2018 for 2013 contributions only

 If under 18 at end of year:
 15% Of $4,490 = $674
 Combined Provides $1,828 [(15%)($7,697 + $4,490)]
 The $4,490 is reduced by
▪ Child care costs deducted;
▪ Amounts deducted under the disability supports deduction;
and
▪ Attendant care amounts claimed for the medical expense tax
credit

 Tuition
 15% Of Actual
 Post-Secondary
 Cost > $100
 No Upper Limit

 Education
 15% of $400 per month of FullTime attendance
($60)
 15% of $120 per month of PartTime attendance
($18)
 Unlimited carry forward by student

 Child care expenses: You can deduct
daycare,baby sitter cost :$7000 for the child
under 7 and $4000 for the child older than 7
and below 16 years old
 Moving expenses of relocation because of
your job workplace at least 40 KM.
 Medical expenses, public transit, children
fitness,art club,charitable donation
 RRSP,RRP

 Department of Finance: www.fin.gc.ca
 CRA : www.cra.gc.ca
 Tax Court of Canada: http://decision.tcc.gc.ca
 IncomeTax Act

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