Selected parts of Chapters 1, 3 and 21
Web links are included to provide more information to those who are interested to learn more about particular topics
Recommended exercises and self-study problems in chapter 3: Exercises 1-3, 8-9, 11-12, 14-16,
Self-Study Problem 3-10: As you are not responsible for the standby charge (and the operating cost benefit, if any), you can assume that the standby charge is $4,871 (before taking into account any payments made by Ms. Firth to her employer)
2 Residency [ch. 1]
2.1 ITA 2 is the charging provision [1-77 to 1-90]
It defines who the taxpayer is and what the base is = who is liable for tax on what taxable income
For residents of Canada for tax purposes
The base is worldwide taxable income in Division C of the Act
For non-residents of Canada for tax purposes (you can't tax non-residents on worldwide income obviously because they are not Canadian.)
The base is certain Canadian source taxable income in Division D of the Act if they were : employed in Canada, carried on a business in Canada, or disposed of a taxable Canadian property (e.g., Canadian real estate) at any time in the year or a previous year
Read ITA 2(1), 2(2), 2(3)
2.2 Definitions [1-78]
Person = individuals, corporations, and trusts
Resident – unless an individual severs all significant residential ties with Canada upon leaving Canada
You will be a resident of a country where you have the most residential ties (like 5 year contract as a teacher in Canada, so it is where your normal norm is, and where your family lives).
Canadian residents are liable for Canadian income tax, without regard to their citizenship.
In some cases you have multiple homes in different countries, and then you will have to go to court and decide which one is your norm home.
Significant residential ties include: having a spouse or minor child in Canada; and having a home in Canada
See also http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html
2.3 Computation of Income [1-100 to 1-105]
You don't have to memorize the subdivisions.
2.3.1 Division B of Part I of the Act- Computation of Net Income for Tax Purposes
Taxable income = Net income for tax purposes minus Division C deductions
Division B has subdivisions for each source of income: a = employment b = business or property c = taxable capital gains/allowable capital losses ---> In Canada only one half of capital gains are taxed, and only one half of capital losses are deductible.
d = other income (e.g. spousal support received, pension income) e = other deductions (e.g. RRSP contributions, moving expenses, spousal support paid, child care expenses)
If an amount received does not fall into one of these categories it is not part of net income for tax purposes. So it wouldn't be subject to federal income tax. 2.3.2 Computation of Income ITA 3 [1-106 to 1-126]
See Fig 1-3 page 24
ITA 3 brings together all the different sources of income to form Net Income for Tax Purposes
Taxable capital gain (TCG) = 1/2 of a capital gain
Allowable capital loss (ACL) = 1/2 of a capital loss
One key point in ITA 3 is that if allowable capital losses are greater than taxable capital gains, the allowable capital losses deducted in computing net income is limited to the taxable capital gains for the year
Excess ACLs are available for deduction in other years (“carried over"). They can be carried back to the preceding three years and deducted against TCGs in those years (if any) and/or carried forward indefinitely and deducted against future TCGs. If not deducted before death, they can be deducted in the year of death (and the immediately preceding year) against any type of income
See Example at 1-125 page 26 3 Income or Loss from Employment [ch. 3]
3.1 General Rules [3-1 to 3-6] ITA calculates income by source , so each source separately.
For example, employment income is computed separately from business and property income and…