BU352 Lecture Notes - Canada Pension Plan, Old Age Security, Tax Deduction
CHAPTER NINE - OTHER INCOME AND DEDUCTIONS (Div B, Subdiv d,e,g, S56-66,
81, 146-8)
OTHER SOURCES OF INCOME S56 - This includes miscellaneous taxable amounts not
attributable to sources previously studied:
Benefits in the nature of pensions: Old Age Security benefits, Canada Pension Plan benefits,
Death Benefits (received from former employer on or after death of employee; $10,000
exemption), Employment Insurance Act benefits.
Pension Income Splitting with a spouse who is in a lower tax bracket (for tax reduction):
1. CPP – 50% of combined CPP benefits may be paid to a spouse (some additional
restrictions) – this requires application to HRDC.
2. Pension Income which qualifies for the pension tax credit – effective 2007, where both
parties agree, up to 50% of eligible pension income may be allocated to a spouse.
Retiring allowances and other payments on termination of employment which are not included in
employment income under S6(3), are generally taxable as a retiring allowance. This includes
payments in recognition of long service or compensation for loss of office, including court-
awarded damages. Specific exclusions include amounts such as pensions, death benefits, and
other amounts otherwise required to be included in income under other sections of the ITA.
(Note the possibility to “rollover” qualifying amounts of a Retiring Allowance to an RRSP, to
defer the income tax consequences.)
Family support payments resulting from marital splits are taxable to the recipient only if the
payments are deductible to the payor.
Pre-April 30, 1997 agreements: both spousal and child support are taxable to the recipient (and
deductible by the payor).
Post-April 30 1997 agreements (new or revised): spousal support (if specifically identified in the
agreement) remains taxable to the recipient (and deductible by the payor), but child support is no
longer taxable (or deductible). (Result of Thibaudeau v The Queen decision by Supreme Court)
Annuity payments are included in other income when received. An offsetting deduction for the
principal portion of the annuity payment is available under S60 below, where the annuity was
acquired with after-tax funds rather than with funds from deferred income plans.
Receipts from deferred income plans (RRSP, RRIF, DPSP,) are generally included in income
100%, whether the amounts are lump sums or periodic payments, since neither the original
contributions nor the income earned has been subjected to taxation. RESP benefits representing
income and CESG grants are taxable on receipt, usually by the student. The capital portion is
returned tax free, since no deduction was allowed on the contribution. (See par 9025)
Education assistance payments including scholarships, bursaries, fellowships and research grants
(in excess of research costs) are taxable, subject to an annual exemption for scholarships,
bursaries and fellowships if the student qualifies for an education tax credit with respect to the
course of study. Effective 2010, the exemption will only apply if the program of study leads to a
diploma or degree (College, CEGEP, University).
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Other inclusions: Legal costs awarded by a court are included in income if these costs are
deductible under other sections of the Act. Social assistance payments (welfare) are included in
the income of the spouse with the higher income. WSIB benefits are included in income of the
recipient. (NOTE: Offsetting deductions for welfare and WSIB benefits are available under DIV
C. The purpose is to include these amounts in DIV B only, to limit the personal tax credits
available to supporting persons. See Chapter 10.)
The principle of Constructive Receipt may be used to attribute Indirect Payments which have
been directed to another related taxpayer with the objective of minimizing tax. These indirect
payments would be included in Other Income under S56. (eg. Dividend Sprinkling, where high
income taxpayer waives dividends to benefit lower income related taxpayer.)
Restrictive Covenants: Amounts received or receivable after Oct 7, 2003 on account of
“restrictive covenants” are included in other income (S56.4) unless they are already included in
Div B income under other provisions. (Employment income, Proceeds on sale of Eligible Capital
Property, Proceeds on sale of Eligible Interest capital property.)
S81 provides a small list of specific receipts which are not taxable under the ITA. (Amounts
exempted by other federal statutes...Indian Act exempts incomes of native peoples residing on a
Reserve...expense allowances of members of federal legislature; expense allowances of elected
municipal officers and members of provincial legislatures; certain pensions related to war
services, etc.)
Tax Free Savings Account: Effective 2009, individuals > 18 years can earn investment income
tax free using such a registered account. The maximum cumulative contribution allowed
increases annually from the latter of 2009 or the year the individual turned 18. The annual limit
increases are $5,000 (2009–12), $5,500 (2013-14), $10,000 for 2015, $5,500 for 2016 and
onward. The rules are similar to those for RRSPs, except contributions are not tax deductible and
there are no attribution rules.
OTHER DEDUCTIONS S60 - 64 - This includes miscellaneous deductions which are allowed by
law but are not attributable to specific sources of income, and hence need not be “incurred in
order to earn income”:
Capital Element of Annuity is deductible where the full annuity amount is included in income
above, but the investment was acquired with non-registered funds. (Note that the computation of
the tax-free capital portion by Regulation 300 is favourable to the taxpayer. A straight-line
amortization is applied rather than the effective-interest method.)
Support Payments are deductible by the payor in situations where these same amounts are taxable
to the recipient (see above). IT-99R5 describes other conditions relating to deductible support
payments including the requirements that they be periodic, pursuant to a court order or written
agreement between the former spouses and the requirement that the former spouses be living
apart.
Legal fees paid to obtain or revise spousal support under government legislation or to enforce a
prior support agreement are also deductible by the payee spouse.
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Document Summary
Chapter nine - other income and deductions (div b, subdiv d,e,g, s56-66, Other sources of income s56 - this includes miscellaneous taxable amounts not attributable to sources previously studied: Benefits in the nature of pensions: old age security benefits, canada pension plan benefits, Death benefits (received from former employer on or after death of employee; ,000 exemption), employment insurance act benefits. Retiring allowances and other payments on termination of employment which are not included in employment income under s6(3), are generally taxable as a retiring allowance. This includes payments in recognition of long service or compensation for loss of office, including court- awarded damages. Family support payments resulting from marital splits are taxable to the recipient only if the payments are deductible to the payor. Pre-april 30, 1997 agreements: both spousal and child support are taxable to the recipient (and deductible by the payor). Annuity payments are included in other income when received.
