ADMS 3520 Lecture Notes - Lecture 2: Disability Insurance, Business Travel, Basket Weaving
1 Lecture 2: Residency and Employment income
▪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, 5, 8-12, 14-16
▪Self-Study Problem 3-11: 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 [1-76 to 1-132]
▪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
▪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 [1-81]
▪Person = individuals, corporations, and trusts
▪Resident – unless an individual severs all significant residential ties with Canada upon leaving
Canada
▪Significant residential ties include: having a spouse or minor child in Canada; and having a
home in Canada
▪See also h
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.cra-arc.gc.ca/tx/nnrsdnts/c mm
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2.3 Computation of Income [1-142 to 1-147]
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:
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▪a = employment
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▪b = business or property
▪c = taxable capital gains/allowable capital losses
▪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)
2.3.2 Computation of Income ITA 3 [1-148 to 1-124]
▪See Fig 1-3
▪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 1-166
3 Income or Loss from Employment [ch. 3]
3.1 General Rules [3-1 to 3-6]
▪ITA calculates income by source
▪For example, employment income is computed separately from business and property income
and separately from capital gains/capital losses [ITA section 4]. Only deductions permitted
under the Act are allowed for each source (i.e., employment income, business and property
income, and capital gains/losses)
▪Rules for computing employment income are in ITA 5, 6, 7 and 8 of subdivision a of Division
B of Part I of ITA
▪ITA 5 = salary, wages, other remuneration, including gratuities received (gratuities = tips)
▪ITA 6 = taxable benefits
▪ITA 7 = stock option benefits
▪ITA 8 = deductions
▪It is possible to have an employment income loss but it is very rare
▪Read ITA 5(1)
3.2 Bonus Arrangements [3-7 to 3-11]
▪ITA 5 taxes employment income on a "received" or "cash" basis rather than an accrual basis
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