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Average tax rate for a personal earning $20,000, 30,000, 40,000, 50,000, 60,000, 70,000 and etc.

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Average tax rate = Tax Liability / Taxable income

 

For an individual earning $20,000/year, the average tax rate would be: 15%*

For an individual earning $30,000/year, the average tax rate would be: 15%*

For an individual earning $40,000/year, the average tax rate would be: 15%*

For an individual earning $50,000/year, the average tax rate would be: 16.18%*

For an individual earning $60,000/year, the average tax rate would be: 17.15%*

For an individual earning $70,000/year, the average tax rate would be: 17.85%*

For an individual earning $80,000/year, the average tax rate would be: 18.36%*

For an individual earning $90,000/year, the average tax rate would be: 19.08%*

For an individual earning $100,000/year, the average tax rate would be: 19.77%*

For an individual earning $110,000/year, the average tax rate would be: 20.33%*

For an individual earning $120,000/year, the average tax rate would be: 20.81%*

For an individual earning $130,000/year, the average tax rate would be: 21.23%*

For an individual earning $200,000/year, the average tax rate would be: 23.95%*

For an individual earning $300,000/year, the average tax rate would be: 25.63%*

For an individual earning $500,000/year, the average tax rate would be: 26.98%*

For an individual earning $1,000,000/year, the average tax rate would be: 27.99%*

For an individual earning $2,000,000/year, the average tax rate would be: 28.50%*

 

*Note that provincial tax rate is excluded from the calculation

Home office costs

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The costs of home office can only be deductible when:

  • The place where individual principally performs the duties of the office or employment or
  • Used exclusively during the period in respect of which the amount relates for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment

If the home office is in rented property, the percentage of rent and any maintenance cost can be deductible only if it is related to the home office.

For an employee, the deductions of home office costs include maintenance costs such as fuel and electricity, light bulbs, cleaning materials and minor repairs. For a salesperson, he can deduct the maintenance cost in addition to property taxes and house insurance program.

Note that the deduction of home office is limited to the employment income. That means the home office cost cannot be used to create an employment loss. However, the excess amount can be carried forward to the following year.

Travel expenses and motor vehicle costs

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In order for an employee to deduct these expenses, the employee must meet the following:

  • Employee must be required to pay his own travel and motor vehicle costs and must have form T2200 signed by the employer to certify that this is the case
  • The person must be ordinarily required to carry on his duties away from the employer’s place of business
  • The person must not be in receipt of an allowance for travel costs that was not included in income

Items that can be deducted include accommodation, airline or rail tickets, taxi fares and meals. In terms of meals, only 50% of the cost can be deducted. Motor vehicle cost can also be deducted when an employee uses his own vehicle to carry out employment duties. There are no limitations for these deductions compared to the salesperson deduction which was limited by the commission.

Note that a salesperson can also claim these expenses for deductions. However, if he claims these expenses then he is not eligible to claim for salesperson expense deductions.

Salesperson expense

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Individual employees who are involved with the selling of property or the negotiating of contracts are permitted to deduct all expenses that can be considered necessary to the performance of their duties. In order for a salesperson to be eligible to deduct these expenses, the sales person must meet the following:

  • The salesperson must be required to pay his own expenses. The employer must sign Form T2200 certifying that this is the case.
  • The salesperson must be ordinarily required to carry on his duties away from the employer’s place of business
  • The salesperson must not be in receipt of an expense allowance that was not included in income
  • The salesperson must receive at least part of his remuneration in the form of commissions or by reference to the volume of sales

The items that the salesperson can deduct include:

  • Advertising and promotion
  • Meals and entertainment (50%)
  • Lodging
  • Motor vehicle cost
  • Parking
  • Work space in the home costs (maintenance, property taxes and insurance)
  • Supplies
  • Licenses
  • Bonding and liability insurance premiums
  • Salary to assistant or substitute
  • Office rent
  • Training costs
  • Transportation costs
  • Computers and office equipment (lease only)

 

Note that the maximum amount that can be deducted is limited to the person’s commissions received during the year. Also, in order for the sales person to deduct 50% of the cost for meal and entertainment, the salesperson must be away from municipality or metropolitan area where the employer’s establishment is located for at least 12 hours.

Legal Expense

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Employees are allowed to deduct any legal costs paid to collect or establish the right to salary or wages owed by an employer or former employer. Also deductible are legal costs incurred to recover benefits, such as health insurance that are not paid by an employer or former employer but that are required to be included in employment income when received.

Disability Insurance

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Employees paying premiums on the disability insurance are not deductible by the employee at the time they are made. They can only be deducted later when the claim has being made. This also depends on if the employer has made any contributions to the plan. If the employer has made any contributions to the plan, benefits received by an employee must be included in employment income. However, the cumulative contributions made by the employee to the plan that is paying the benefits can be used deducted. On the other hand, if the employer did not make any contribution to the plan, the premiums paid by the employee are not taxable.

 

Employment benefits/expenses

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According to the income tax act, employment is defined as the position of an individual in the service of some other person.

 

Bonus

Bonus is taxable to the employee as the employee receives it not when it is declared. However, employer can deduct this amount when it is declared if the bonus is paid within 180 days of the business year end. If it is paid after the 180 days after it is declared but before 3 years after the year end, then the employer can deduct the bonus amount when it is paid. However, if the bonus is paid after 3 years after the year end, the employer deducts it when it is earned. The table below summarizes the tax consequences of different types of bonus received by employees.

 

Types of Bonus Tax Consequences
Standard Bonus (Paid within 180 days of business year end) The employer deducts when declaredThe employee includes when received
Other Bonus (Paid more than 180 days after the employer’s year end, but prior to three years after the end of the year in which the bonus was earned) The employer deducts when paidThe employee includes when received
Salary Deferral Arrangement (Paid more than three years after the end of the year in which it was earned) The employer deducts when earnedThe employee includes when earned

Age Credit

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The age credit is eligible for individuals who has attained the age of 65 years before the end of the year. However, this credit is reduced by the individual’s 15% of excess net income over the threshold amount ($32,961)

 

For example, an individual above the age of 65 earns a net income of $45,000. Then the tax credit available to this individual is:

Age tax credit base                                                                                 6537

Less: Base reduction of lesser of:

–          Credit base                                                                    6537

–          Taxable income minus threshold 15%(45,000 – 32,961)     1806

Lesser amount                                                                                        1806

Net tax credit base                                                                                  4731

Tax credit (15%)                                                                                                  710

 

Note that the age credit is transferrable to a spouse or partner.

Caregiver credit for in-home care of relative

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Individuals are entitled to credit of up to $4,282 for residing with an providing in-home care for an adult relative. For this purpose, the relatives include the individual’s child or grandchild or the spouse’s parents, grandparent, brother, sister, aunt, uncle, nephew or niece. A parent or grandparent must either have attained the age of 65 years or be dependent because of physical or mental infirmity. All other dependent relatives must have attained the age of 18 and be dependent because of mental or physical infirmity.

This credit amount is reduced by the dependent’s net income in excess of $14,624. This means that this tax credit is not available once the dependent’s net income reaches more than $18,906. (14,624+4,282)

 

Equivalent-to-married (ETM) status for wholly dependent person credit:

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A tax credit base equal to the tax credit base for married status is provided for a wholly dependent person where the taxpayer is not entitled to a married credit. This credit might apply to an individual who, at any time in the year, was single, divorced, separated, widowed and who supported a dependent who is:

–          Related to the individual by blood, marriage, adoption or common-law relationship

–          Under 18 at any time during the year, or the individual’s parent or grandparent, or mentally or physically infirm;

–          Living with the individual in a home that the individual maintains and

–          Residing in Canada

Note that only 1 ETM credit may be claimed in one year.

Married Status Credit

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How to compute?

 

Basic personal tax credit base in 2011                                                       10527

Spouse’s tax credit base in 2011                                       10527

Less spouse’s net income                                                 XXX

Net amount                                                                    XXX                 XXX

Tax credit (15%)                                                                                                XXX

 

If a taxpayer has multiple spouse or common law partners, he can only claim one spousal credit.

Infirm Credit (Disability Credit)

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The disability tax credit is available to taxpayers who have a severe and prolonged impairment in physical or mental function that has been certified by a medical doctor.

An additional supplement amount can be claimed for each disabled child under 18 years of age at the end of the year. However, this amount may be reduced by particular child expense and attendant care expense.

Transferring disability credit

All or part of the credit may be transferred to a spouse or a supporting person who claimed the disabled individual as a dependent under the eligible dependent provision or as a disabled dependent over 17.

Available transferees include:

  • Parents
  • Grandparents
  • Children
  • Grandchildren
  • Brothers
  • Sisters
  • Aunts
  • Uncles
  • Nieces
  • Nephews

Textbook Credit

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Students are eligible for textbook credit for each month in which the student is entitled to claim the education credit.

–          65 dollar credit base for full time student

–          20 dollar credit base for part time student

 

Carryforward and Transfer of Tuition Credit

The tuition credits may be transferred to a spouse, parent or grandparent of the student. The student must specify in writing the amount that will be transferred.

 

The amount that can be transferred is computed as follows:

The lesser of:

a)       The amount determined by A-B

  • Where A is the lesser of
    • Student’s tuition credit and education credit for the year
    • Current year’s tax rate multiply by 5000
  • Where B is the amount of the student’s Part I tax payable after deducting credits for personal, age, pension, mental or physical impairment, EI, CPP, unused tuition and education

b)      The amount specify for transfer by the student

Note that unused credits are carryforward indefinitely

Education Credit

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Students are eligible for a tuition credit if the student is enrolled as a full time student in a qualifying educational program at a designated educational institution. An alternative credit may be available to students if they attend a specified educational program.

st1:country-region w:st=”on”>Canada provides 15% tax credit for tuition fees paid in the year to a Canadian college, university or other educational institution that provides courses at a post secondary level or a non-credit course in a certified educational institution inCanada which provides students with occupational skills training. Note that student union or association fees are not included. Also note that the above applies to Canadian universities. For University outside ofCanada, please consult a tax professional.

 

Tuition Credit

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Canada provides 15% tax credit for tuition fees paid in the year to a Canadian college, university or other educational institution that provides courses at a post secondary level or a non-credit course in a certified educational institution in Canada which provides students with occupational skills training. Note that student union or association fees are not included. Also note that the above applies to Canadian universities. For University outside of Canada, please consult a tax professional.

Charitable donation tax credit:

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What qualifies as a charitable gift?

Charitable gifts include:

  • Canadian registered charities
  • Registered Canadian amateur athletic associations
  • Prescribed universities outside of Canada
  • Certain tax –free housing organization in Canada
  • Canadian municipalities
  • The United Nations or its agencies
  • Charities outside of Canada to which the Government of Canada has made a donation in the year or preceding year
  • Crown gifts
  • Cultural gifts
  • Ecological gifts

 

How to compute?

(AxB) + C(D-B)

A = 15% (Current federal tax credit rate for the year)

B = First 200 dollars of the total gift

C = 29% (Highest federal tax bracket for the year)

D = Individuals total gift

 

Limitations and carry forwards

This credit is only limit to 75% of the taxpayer’s net income. If the eligible donation in one year exceeds the taxpayer’s 75% of net income, then the excess amount is carried forward to the next 5 years. The carried forward amount is then claimed first before any additional amounts can be claimed.

 

Dependent credit.

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What are the conditions that must be met in order to claim this credit?

A dependant is classified as a child, grandchild, parent, grandparent, brother, sister, uncle, aunt, niece, nephew or spouse. In order for the taxpayer to claim this credit, the dependant of the taxpayer must have attained the age of 18 before the end of the year and be dependent on the taxpayer because of mental or physical infirmity.

 

How to compute?

Dependant’s tax credit base                                                                                              4282

Less dependant’s Division B income                                                         XXX

Minus: Threshold income (2011)                                                              6076                 XXX

Tax credit base                                                                                                               XXX

Tax credit (15%)                                                                                                                        XXX

 

Note that if the dependant’s net income is greater than $10358, then this credit is not available to the taxpayer

 

Personal Tax Credits.

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Medical expenses qualification (by frank and need to confirm)

  •  For other dependent(grandparents, niece, nephew), up to $10,000. schedule 5, as long as medical expenses paid by tax payer. (Yes)
  •  Medical expenses incurred in oversea such as U.S, China also qualify (Yes, as long they are eligible medical expense)
  • Medical expenses incurred in Canada for my visitor mother’s medical expenses. Not qualify in tax law, can be done in practice

 A tax payer can claim medical expense credit as long as the expense is paid by the taxpayer or his/her common law and these expenses must be used for the taxpayer, taxpayer’s spouse, child below the age of 18 of the taxpayer or a dependent of the taxpayer. If the expense are reimbursed by an insurance company, then the reimbursed portion cannot be use to claim the credit; only the non-reimbursed portion can be used.

The medical expenses must be proven by filing receipts and must be paid within any 12-month period ending in the year unless the individual dies in the year. Where the individual dies in the year, the medical expenses must be paid by the claimant for the deceased person within any period of 24 months that includes the date of death

For a list of eligible medical expense, please refer to IT-519R2 from the CRA.

 

How to compute?

A[(B-C)+D]

A = The percentage for the taxation year

B = Total of an individual’s medical expenses for himself, his spouse and his children who have not reached 18 years of age at the end of the year

C = The lesser of 3% of the individuals net income and $2052

D = The total of all amounts for the dependents of the taxpayer; the lesser of $10,000 and the amount of E-F. Where E is the total medical expense of the dependant. F is the lesser of 3% of the dependent’s net income and $2052

Summary of Loss Applications.

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Summary of Loss Applications    
Type of Loss Application rules Limit to annual deduction
Allowable business investment loss (ABIL) Any unapplied portion of an ABIL incurred in 2006 or future years becomes a non-capital loss that can be carried back three years and forward ten years.

 

Also, the unapplied portion of this non-capital loss becomes a net capital loss that can be used to reduce taxable capital gains in the tenth year or any year after.

 No limit

 

 

 

 

 

 

Limited to taxable capital gains in the year
Net capital loss Carry back 3 years

Carry forward indefinitely

 Limited to taxable capital gains in the year
Non-capital loss Carry back 3 years

Carry forward 20 years

 No limit
Listed personal property (LPP) loss Carry back 3 years

Carry forward 7 years

 Limited to net gains from LPP in the year
Personal-use property (PUP) loss No loss allowed Not applicable

Available Business Loss

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Business investment loss includes capital losses arising from the disposition of shares and debts of a small business corporation (SBC). SBC is a Canadian controlled private company in which 90% of its fair market value of its assets is business asset and 50% of the business must be carried in Canada. One half of this loss would be available as allowable business investment loss (ABIL). This loss is considered non-capital so this loss can offset any taxable income. However, this can only be carry back 3 years and forward for 10 years. After the tenth year, the losses not yet offset are converted to capital loss. Therefore, after the tenth year, the remaining losses can only offset capital gains.

Note that non-capital loss can be carry back three years and carry forward twenty years. This loss may be use to deduct any types of gain.

Listed Personal Property.

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Listed personal property (LPP) is a special subset of PUP. Therefore, the rules that apply to PUP also applies to LPP except for the fact that capital losses arising on the disposition of LPP can be use for deduction. LPP loss may also be carried back three years and can carry forward seven years. However, this loss may only be deducted against the net gains of LPP. LPP is very specific and only certain items are qualified. LPP includes:

  • Print, etching, drawing, painting, sculpture, or other similar work of art
  • Jewelry
  • Rare folio, rare manuscript or rare book
  • Stamp
  • Coin

If the item is not in this list then it is not considered a LPP.

Losses can be carry forward or backward through taxation years.

All capital loss can be carry back three years and carry forward indefinitely. However, these losses may only be able to use to offset capital gains. Any excess losses still available after the offset are carried forward again to another taxation year where they are needed.

Personal use property.

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Note that this does not apply to personal use property (PUP). Gains from this property are subjected to tax but the loss however, is not deductible. The loss from this property is recognized as personal or living expense. The cost used to calculate gain/loss of PUP is the cost resulted from the transaction of PUP which is the greater of the cost and $1000. Similarly, the proceeds of the transaction are deemed to be the greater of the actual proceed and $1000.

For example, if a PUP costs $800 and is sold at $1200 then the PUP gain for this transaction would be (1200-1000) $200.

However, if a PUP costs $1300 and is sold for $700, then there will be a PUP loss of $300 (1300-1000).

How long will it take to process your claim?

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It may take up to 365 calendar days to process the claim. Some claims may take shorter amount of time and others make take longer depending on the type of claim.

Refundable claims – up to 120 calendar days to process
Non refundable claims – up to 365 calendar days to process.
Claimant-requested to refundable claim – up to 240 calendar days to process.
Claimant-requested to non-refundable claim – up to 365 calendar days to process.

How do businesses apply for the tax credit?

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For businesses, complete Form T661 and Schedule T2SCH31. For individuals, complete Form T661 and Form T2038 (IND). These forms should be submitted with the T1 or T2 income tax return depending on your status (Individual or Corporation) or file it within 12 months of the income tax return due date for the year in which the research and development cost has incurred.

What kind of projects qualify?

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The project must relate to improving scientific technologies or relations and its understandings. It must also deal with uncertainties within the technological and scientific area. Also, a systematic investigation must be incorporated by a qualified personnel.

The following are examples of qualified projects:

  • Experimental development to create new products and services or improving existing products
  • Applied research to improve scientific knowledge with certain application
  • Basic research to improve scientific knowledge
  • Supporting the experimental development, applied research or basic research for the work in engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research

The following are examples of non-qualified work:

  • Social science and humanities research
  • Commercial production of a new or improved product or process
  • Style changes
  • Market research or sales promotion
  • Quality control
  • Routine testing
  • Routine data collection
  • Refining natural gas and minerals
  • Development based on design or routine engineering practice

Who Qualifies?

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A CCPC has the chance of getting an investment tax credit of 35% for the first 3 million dollars of expenditure in research and development in Canada. The CCPC can then earn 20% of the subsequent expenditure. Other types of companies such as corporations, proprietorship, partnerships and trusts are eligible for a tax credit of 20% for all the qualified expenditure they spent on research and development in Canada.

If a CCPC’ s taxable income does not exceed the qualifying income limit then they may receive a portion of the credit as tax refund after using the credits to reduce their taxable income. Proprietorship and certain trusts may also receive a partial refund for their credits after using the credits to reduce their taxable income. However, corporations other than CCPC may not receive a refund for the tax credit earned for research and development expenditure. They can only use the credits to reduce their taxable income.

What is the SR&ED Program?

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SR&ED Program is the Scientific Research and Experimental Development program. This program is designed for Canadian businesses to encourage them to participate in research and development which in hope that it will lead to advanced products and improved technologies. The federal government has made many contributions to this program and it is one of the largest supports for the industrial research and development.

Wages, materials, machinery, equipment, some overhead and SR&ED contracts can be used as tax credits.

Note: CRA is responsible for running the program and the Department of Finance is responsible for the legislation regarding the program