CANADIAN INCOME TAX

An Introduction

FEDERAL TAX RATES FOR 2014 15% on the first $43,953 of taxable

income 22% on the next $43,954 of taxable

income (on the portion of taxable income between $43,954 and $87,907)

26%on the next $48,363 of taxable income (on the portion of taxable income between $87,908 and $136,270)

29% of taxable income over $136,270

A SIMPLIFIED EXAMPLE:Henry earns $162,000 in income for the tax year 2014. How much federal tax will he pay?

Total Tax Payable: $36,298.62

Category Calculation Tax Payable

15% of $43,953 0.15*$43,953 6592.95

22% of portion $43,954-$87,907

0.22* $43,954 9669.88

26% of portion$87,908-$136,270

0.26* $48,363 12574.38

29% on portion over $136,271

0.29* $25,729 7461.41

2015 TAXES http://

www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

FEDERAL TAX RATES FOR 2015 15% on the first $44,701 of taxable

income, + 22% on the next $44,700 of taxable

income (on the portion of taxable income over $44,701 up to $89,401),+

26% on the next $49,185 of taxable income (on the portion of taxable income over $89,401 up to $138,586), +

29% of taxable income over $138,586.

A SIMPLIFIED EXAMPLE:Henry earns $162,000 in income for the tax year 2015. How much federal tax will he pay?

Total Tax Payable: $36,117.31

Category Calculation Tax Payable

15% of $44,701 0.15*$44,701 6705.15

22% of portion $44,701-$89,401

0.22* $44,700 9834.00

26% of portion$89,401-$138,586

0.26* $49,185 12788.10

29% on portion over $138,586

0.29* $23,414 6790.06

WHAT ELSE NEEDS TO BE CONSIDERED?In Canada, our tax system is more complex, because we also have tax deductions and tax credits.Tax Deductions: Reduce an individual’s taxable income.

Examples: RRSP contributions, Child Care Expenses

Tax Credits: Reduces the amount of tax owing by an individual. Examples: Charitable Donations, Tuition Credits

WORD WALL statement of earnings (pay stub), net pay, gross pay, withholdings, social insurance number

YOUR FIRST JOB? – When you received your first pay, did

you notice if any amounts were deducted?

– Did you know what those deductions were for?

– How do you think the deductions were calculated?

TAX OBLIGATIONS OF A NEW EMPLOYEE 1) When you start a new job you must

provide your SIN to your employer and complete Form TD1.

2) When you get paid, you receive a statement of earnings (paystub) that shows any deductions your employer withheld from your pay.

3) After each calendar year, your employer will give you a T4 slip which you use to file your tax return.

STARTING A NEW JOB Social insurance number (SIN) – a

nine-digit number that you need to work in Canada or have access to government programs and benefits. You have to give your SIN to anyone who prepares a tax information slip for you, such as your employer or financial institution. However, your SIN is confidential and you should not give it out unless required. You can apply for a SIN at a Service Canada centre. For more information about applying for a SIN, go to www.servicecanada.gc.ca/sin.

STARTING A NEW JOB Form TD1, Personal Tax Credits

Return – must be completed by anyone who starts a new job. Your employer will provide you with the form which you will complete and return to them. Your employer will use the information from your completed form to determine how much tax they must deduct from your pay.

QUESTIONS What is a SIN used for? Do you remember completing Form TD1

when you started a new job?

2015 PERSONAL TAX CREDITS RETURN http://

www.cra-arc.gc.ca/E/pbg/tf/td1/td1-15e.pdf

UNDERSTANDING A STATEMENT OF EARNINGS (PAY STUB) Your employer has to calculate and

withhold Canada Pension Plan or Quebec Pension Plan contributions, employment insurance premiums, and income tax deductions based on your salary.

A pay stub shows the salary or wages you earned over a specified period and the deductions taken from your salary or wages for that period.

CANADA PENSION PLAN (CPP) AND QUEBEC PENSION PLAN (QPP) The CPP provides pensions and benefits

when contributors retire, become disabled, or die. With very few exceptions, every person who is 18 to 70 and works in Canada outside of Quebec must contribute to the CPP.

If you work in the province of Quebec, you contribute to the QPP.

EMPLOYMENT INSURANCE (EI) EI provides temporary financial

assistance to unemployed Canadians who have lost their job through no fault of their own, while they look for work or upgrade their skills. If you are sick, pregnant, or caring for a newborn or adopted child or seriously ill family member you may also be assisted by EI.

There is no age limit for paying EI premiums.

QUEBEC PARENTAL INSURANCE PLAN (QPIP) Maternity, parental, and adoption

benefits for residents of Quebec are administered by the province of Quebec under the QPIP. It replaces similar benefits that Quebec residents previously received under the Employment Insurance Act.

As a result, employees working in Quebec will pay QPIP premiums and reduced EI premiums.

INCOME TAX Income tax is a direct tax applied to

income. Your employer deducts income tax from your earnings based on your province or territory of employment and your completed Form TD1.

SAMPLE PAY STUB

T4, STATEMENT OF REMUNERATION PAID A T4 slip is a summary of your earnings

and deductions for the year. You need this information to complete your tax return. Your employer has to give you your T4 slip by the end of February following the calendar year to which it applies.

FILL OUT THE T4 SLIP AS IF YOU ARE AN EMPLOYER, USING THE FOLLOWING INFORMATION:

1) a fictitious business name2) a fictitious name and address for an employee3) 123 456 789 as the employee’s SIN4) the tax year and the province of employment5) employment income of $26,275.006) CPP or QPP contributions of $1,127.367) EI premiums of $493.978) union dues of $165.009) income tax of $2917.68

Reflect on your learning by completing an exit card that provides brief explanations of the forms an employer will use or give:

■ when an employee is first hired■ at the end of each pay period■ at the end of the year

CASE STUDY #1A High School Student who lives at home with her parents. She was born on November 13, 1997 and she works part time at Best Bookstore and Mario’s Pizzeria.

You are provided with a copy of her T4’s (Statement of Employment Income)

Last year, she earned $300.00 in tips (not included in her T4 slip from Mario’s Pizzeria

FORMS REQUIREDYou will need to fill out the following forms to complete this return:1. T1 General2. Schedule 1

THINK: Should this high school student apply for the GST/HST Credit? (Look at criteria from last day!)

SOME IMPORTANT DEDUCTIONS/CREDITS#1: RRSP – Registered Retirement Savings Plan

These are contributions made to an investment that is “locked in” until retirement.

Your contribution is considered a tax deduction (it reduces your taxable income).

RRSP contributions essentially delay paying the tax on this portion of your earnings.

Any unused “contribution room” is carried forward.

RULES FOR RRSP’S Your allowable RRSP contribution for the

current year is the lower of:18% of your earned income from the

previous year, orThe maximum annual contribution limit for

the taxation year, orThe remaining limit after any company

sponsored pension plan contributions.

Year Contribution limit

2011 $22,450

2012 $22,970

2013 $23,820

2014 $24,270

2015 $24,930

Maximum Annual RRSP Contribution Limits

RULES FOR RRSP’S You can contribute 18% of your income,

up to a maximum of $24,270 in 2014.

Example: Sally earned $63,200 in 2014, what is her RRSP limit? Answer: $11,376

Example 2: John earned $187,110 in 2013, what is his RRSP limit?Answer: $24,270

CHILD CARE EXPENSES Families with children are allowed to

deduct up to $7,000 per child for child care expenses (depending on their age).

Families with children under six qualify for the Universal Child Care Benefit (UCCB) which amounts to $100/child/month. (this is taxable!)

Families with children may qualify for the Canada Child Tax Benefit (depending on income)

TUITIONTuition Credits :You can claim the tuition amount paid to your post-secondary institution.

You can claim $400 per month you were a full-time post-secondary student.

All of this information is contained on a T2202A form issued by your university or college.

CASE STUDY #2Read the case of Sue Brown, a university student and use the following forms to complete her tax return:1. T1 General2. Schedule 13. Schedule 44. Schedule 11