The Calculation of the Federal Non-Refundable Tax Credit - Assignment Example

The Calculation of the Federal Non-Refundable Tax Credit Samantha M Camille 2-vines Avenue Ontario Toronto-H3Z42Y Tel; 569-689-7946 Dear Camille, We are deeply contented to notify you that your monthly tax for July is eventually out. With your total income of $116,000, your total payable is $10530.18 and you have a balance owing of $1200. Consequently, your taxable income is $95800. Your total federal non-refundable tax credits amounted to $15381.52 while the net federal tax is $1673.51. RRSP contribution $1500+charitable contribution $8672=$10172. Tax saved as a result of using RRSP is $1525.8. Sincerely, John McCone Manager, NIC Company. My client in this case is Samantha M Camille. Her social insurance number (SIN) is 991320130. She was born in 1975. She was originally married but later on divorced due to domestic violence. She is a Canadian citizen who lives in Ontario province, Toronto city 2 vines Avenue. She is blessed with four children born in 1990, 1993, 1997 and 2001 respectively. As per now, the client does not pay the family caregiving amount. She earns a basic employment income of $100000 with the following deductions: $3000 for elected split- pension, $4000 for annual union for professionals as he is in a union of accountants union and $8700 for her children expenses. She has credits such as $4468 for two children whom he don’t claim for the family caregiver, $8548 for other two children who claim for family care giver and $5120 for CPP contribution through payment from box 16 and box 17 of all T4 slips, $891.12 for employment premiums. He however, pays $1117 for being a Canadian employer, $2500 for public transit, $3000 for children fitness, $1500 for children’s arts, $3500 for home buyer’s, $5200 for medical expenses for herself and her children. The client has got two more types of income which is interest on bond and dividends. The maximum RRSP contribution for the year 2013 The client earns income of $100000 since Canadian registered retirement savings plans deducts 18%. This income is the contribution limit for the year. The calculation is subject to specific rules The items considered when calculating the income is summarized below Include Deduct Exclude Business revenue Business loss The pension income (including CPP/QPP and QAS) The taxable allowance received Deductible allowance payments The amounts received from RRIF and RRSP The net rental revenue from real assets Rent loss from real assets Retiring alimony and chargeable DPSP payments Either CPP or QPP disability welfares The union and professional dues. The death welfares. In the case study the client earns a salary of $100000 in 2012 and was not a member of DPSP and RPP so he is entitled to contribute (18%*100000) = $18000 as contribution limit but he contributed $1500 to a spousal RRSP in 2013. His earned income is sufficient for maximum $24270 as deduction in year 2013. He will contribute and deduct up to $16500 in 2013 (18000+ {18000-1500}) the RRSP contribution is recorded in line 129 Assumptions made when calculating RRSP I have assumed 2013 tax rates for all years. I have assumed a max RRSP deposit is set to be $20000. The assumption will change in future. The deposits are not indexed in any way I have assumed a no carry forward and some future indexed RRSPs over a number of years in future 2013 approx. values for age tax credit and OAS have been factored in. in this case the GIS has not I have assumed that the client want his retirement income paid at start of each month while the inflation is indexed at the start of each year. Another assumption is that all the savings are sheltered as some people save beyond the employer plans. Capital gains: in April 2013, the client owned 500MBF (1000 board) of wooden boards that lasted for more than a year. It had a depletion of $60 per MBF. She is a calendar year taxpayer. On January 1, 2013, the boards had a fair market value of $45 per MBF. She sold all of them in April. On her 2013 tax return, she elected to treat the cutting of timber as exchange. We report the difference between client’s fair market value and her adjusted basis for depletion as a capital gain. This amount is therefore reported in Form 4797 alongside with his section 1231 gains. Her gain was calculated as follows: FMV of timber January 1, 2013 (500*45) =$ 22500 Minus: adjusted basis for depletion (500*60) =$ 30000 Section 1231 gain =$7500 This capital gain is recorded in (schedule 9 on form T1-2013) The fair market value of her boards is his basis and when she later sold timber together with any by product resulted to ordinary business income. The sale of boards by the owner qualifies to be taxable capital gains in addition to other types of income. Charitable contribution: Samantha M Camille makes an annual charity contribution of $12500 to a registered Canadian gym association called Association Cycling Association. Registration number 13015711662001 In addition to that, she makes contributions to the Aga canadian Foundation, in Switzerland of $5000. The total eligible amount of charitable donations and government gifts amounts to $25000. After considering the allowable charitable donations and government gifts and the percentage taxes, donation and gifts totals to $8672. (On line 349 of schedule 1) The provincial tax Tax for the first bracket (5.05%*$39723) = $2006.01 Next taxable for the second bracket ($79448-$39723) = $39725 Tax for second (9.15%*$39725) = $3634.84 Taxable income for the third bracket ($95800-$79448) = $16352 Tax for the third bracket (11.16%*$16352) = $1896.83 Total tax $2006.01+$3634.84+$1896.83 = $7537.68 Samantha issued a 6 months bond that dated 1st January 2013 with a face value of $50000. She charged an interest rate of 10% p.a as the benefit for lending out the bond. At the end of the maturity period, the interest accumulated is calculated as follows: 1/2 (10%*$50000) = $2500. This is recorded in (form T1-2013 line 153). The total federal non- refundable tax credit is calculated as follows You take the basic personal amount which in this case is $11038 Add unclaimed family caregiver amount which is (2*$2234) $4488 Add claimed family caregiver amount for two children (2*$4274) $8548 Add CPP contribution $5120 Add employment insurance premium $ 891.12 Add employment amount $1117 Add public transit, $2500 Children fitness amount $3000 Children arts $1500 Home buyers amount $3500 Total $ 41702.12 15%*$ 41702.12 = $6255.32 + donations and gifts $8672 $14927.32 RRSP contribution 1500+ charitable contribution 8672 =$ 10172 tax saved 15%*10172 = $1525.8 saved. Read More