Canada tax memo 2012

Canada Tax Memo 2012
2012 Income Tax Rates & Brackets 2012
Both the federal and provincial governments have imposed income taxes on individuals and the
federal government charges the bulk of income taxes with the provinces charging a somewhat
lower percentage. Income taxes throughout Canada are progressive with the high income
residents paying a higher percentage than the low income residents.

Income Tax Rates for the Year 2012:
15% on the first $42,707 of taxable income
22% on the next $42,707 of taxable income (on the portion of taxable income
between ($42,707 and $85,414)
26%on the next $85,414 of taxable income (on the portion of taxable income
between ($85,414 and $132,406)
29% of taxable income over $132,406
Canadian personal income tax can be deferred in a Registered Retirement Savings Plan (RRSP)
and tax sheltered savings accounts (which may include mutual funds and other financial
instruments) that are intended to help individuals save for their retirement.

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Canadian Tax Brackets 2012:
Listed below are the combined provincial and federal personal income tax rate brackets for the
Year 2012. Rates are subject to change in accordance with federal and provincial budgets.

Provincial / Federal Tax Rates (combined chart)
Taxable Income Tax Rate(s)
$20,000 – $40,000 9.9% on the first $20,000 of taxable income
13.3%on the first $30,000 of taxable income
15.2% on the first $40,000 of taxable income
28.2%on the first $105,000of taxable income
30.6%on the first $125,000of taxable income
$500,000 42.4% on the first $500,000 of taxable income

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CPP EI Rates, Contributions, Deductions 2012
If you reach the maximum CPP/EI in 2012, you will see an increase in the amount of your net
pay. Many employees reach their maximum level of CPP EI contributions sometime during the
year. If you reach the maximum level of CPP / EI, you will see an increase in the amount of your
net pay as there will no longer be CPP / EI deductions withheld. Beginning with the new year,
you will recommence paying CPP EI contributions until such time as you reach the maximum
CPP EI contribution level for 2012.Check out 2012 CPP EI Maximum Contributions below.
The maximum CPP contribution to the plan for 2012 will be increased by $89.10 to $2,306.70,
representing an increase of about 4% over the last year and the maximum self-employed CPP
contribution for 2012 will be $4,613.40. The CPP maximums for the Year 2011 were $2,217.60
and $4,435.20.
The CPP Rates, effective January 1, 2012, forecast to remain unchanged at 4.95% of pensionable
earnings. The basic exemption amount for 2012 expects to remain $3,500. Individuals who earn
less than that amount do not need to contribute to the CPP.

EI Maximum 2012
Your rate of EI premiums (excluding employees working in the province of Quebec), for the
2012 taxation year forecasts to remain at 1.73% of insurable earnings. The annual maximum
insurable earnings will be increasing from $44,200 to $45,900. The maximum EI contribution to
the plan for 2012 will be $839.97. The EI maximum for the Year 2011 was 786.76. Once you
reach the annual maximum premium deduction of your EI maximum in 2012, you will see an
increase in the amount of your net pay as there will no longer be EI deductions withheld from
your pay.

Maximum CPP Contribution 2012
At the beginning of the year 2012, the lowest rate of the two possible rates of contribution to the
public service pension plan is used until the maximum level of contribution for that rate is
reached. Then, the higher rate of contribution is used for the remainder of the year. Beginning
with the new year, public service pension plan contributions recommence at the low rate, until
such time as they reach the maximum level of the contributions for the low rate. Therefore, if
you are a contributor under the public service pension plan and you compare your last pay in
December to your first pay in January, you may see that you have paid a larger amount to the
plan in December than in January

Tax Deadline 2012
There are a number of tax deadline dates during the year 2012 when returns are due to be filed or
payments are due to be paid as follows.
Tax Return Filing Deadline for Personal Income Tax: Generally, your tax return for the Year
2011 has to be filled on or before April 30, 2012.
Tax Return Filing Deadline for Self-Employed Persons: If you or your spouse or common-law
partner carried on a business in 2011 (other than a business whose expenditures are primarily in
connection with a tax shelter), your return for 2011 has to be filed on or before June 15, 2012.
However, if you have a balance owing for 2011, you still have to pay it on or before April 30,
2012.

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The first day for using TELEFILE or NETFILE to electronically file your 2011 tax return with
CRA on February 11, 2012. For TELEFILE, call 1-800-959-1110
RRSP Deadline: You RRSP deadline for contributing to your RRSP for the 2011 tax year has to
be before March 01, 2012.
Last day for the electronic filing of your 2011 personal income tax and benefit return using
NETFILE: September 30, 2012

Quarterly installment due if you pay taxes to CRA by installments:
March 15, 2012- June 15, 2012-September 15, 2012- December 15, 2012
Note: We do not warrant the accuracy of the information and advise all users to consult Canada
Revenue Agency, your provincial / territorial government, and/or a taxation professional to
confirm all dates and deadlines as they pertain to your personal situation.

2012 RRSP Contribution Limit | RRSP Deduction Limits
How much can I contribute to my own RRSPs for the year 2012?
The maximum RRSP contribution limit 2012 is $22,970. However, if you did not use all of your
RRSP contribution limit for the years 1991-2011, you can carry forward the unused amount to
2012. Therefore, your RRSP contribution limit for 2012 may be more than $22,970.
The maximum RRSP contribution limit for subsequent years is as follows:
2012 maximum RRSP contribution limit: $22,970
2013 maximum RRSP contribution limit: $23,500 plus inflation index amount
2014 maximum RRSP contribution limit: Indexed to inflation
2015 maximum RRSP contribution limit: Indexed to inflation

Generally, the amount you can contribute to your own RRSPs or your spouse’s RRSPs, or your
common-law partner’s RRSPs for a given tax year without tax implications is determined by
your RRSP deduction limit. This is often called your “contribution room”. Amounts that you
contribute above this limit may be considered excess contributions. Your RRSP deduction limit
is shown on the latest Notice of Assessment, Notice of Reassessment, or on a T1028, Your
RRSP Information for 2012, that Canada Revenues Agency sent you after processing your 2012
return. You can also find out about your contribution room by registering for My Account. Once
you’ve registered and received your password, you can sign in and access your RRSP Deduction
Limit Statement online.

RRSP Deduction Limit 2012
The amount of RRSP contributions that you can deduct on your tax return for a given year is
determined by your RRSP deduction limit.
Your RRSP deduction limit can be found on the RRSP Deduction Limit Statement which
appears on your latest Notice of Assessment or Notice of Reassessment or on a T1028, Your
RRSP Information for 2012.
On your 2012 income tax return, you can deduct contributions you made to your RRSPs between
January 1, 1991, and February 29, 2012. You can deduct these contributions if you did not
deduct them for any other year and if they are not more than your RRSP deduction limit for
2012.

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If you can no longer contribute to your RRSPs in 2012 because of your age (the year after you
turn 69; beginning in 2012, under proposed legislation, the year after you turn 71) you can still
deduct the contributions you made in a previous year, up to your RRSP deduction limit.
Please note that repayments under the Home Buyers’ Plan (HBP) or Lifelong Learning Plan
(LLP) are not deductible on your return even though the RRSP issuer will give you an official
receipt for the contribution. You will record your repayments on Schedule 7, which you will file
with your tax return.
Please note that generally, amounts you transfer directly to your RRSP do not affect your RRSP
deduction limit. However, you may need to include an amount in income and claim an offsetting
deduction.
The maximum RRSP deduction limit for 2012 is $22,970. However, if you did not use your
entire RRSP deduction limit for the years 1991-2011, you can carry forward the unused amount
to 2012. Therefore, your RRSP deduction limit for 2012 may be more than $22,970.
The maximum RRSP deduction limit for subsequent years is as follows:
2012 maximum RRSP deduction limit: $22,970
RRSP Terms:
RRSP contribution – This is the amount you pay, in cash or in kind, at the time you
contribute to an RRSP.
RRSP deduction – Refers to the amount you indicate on line 208 when you file your
return.
RRSP deduction limit – This refers to the maximum amount you can deduct from
contributions you made to your RRSPs or to a spousal or common-law partner RRSP for a year.
The calculation is based, in part, on your previous year earned income (excluding transfers to
your RRSPs of certain types of qualifying income). Pension adjustments (PAs), past service
pension adjustments (PSPAs), pension adjustment reversals (PARs), and your unused RRSP
deduction room, are also used to calculate the limit.

RRSP Deadline and Contribution 2011
RRSP Contribution Deadline for 2011 Tax Year: February 29, 2012
Your RRSP deadline for contributing to your RRSP for the 2011 tax year has to be before
February 29, 2012.
The maximum RRSP contribution limit for 2011 is $22,450. However, if you did not use your
entire RRSP contribution limit for the years 1991-2009, you can carry forward the unused
amount to 2011. Therefore, your RRSP contribution limit for 2011 may be more than $22,450.
A Registered Retirement Savings Plan (RRSP) is a retirement investment plan registered with
the government to which you or your spouse can contribute through RRSP-eligible investments,
such as some stocks and mutual funds. For information on what investments are RRSP eligible,
please contact a financial advisor and/or your financial institution.
Deductible RRSP contributions can be used as a means to reduce your taxes. Amounts earned in
the RRSP investment is usually exempt from tax for the time the funds remain in the plan. When
you cash in or receive payments from the plan (typically at retirement) you will then pay tax on
those amounts.

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Some useful definition :
Accruals
When the accrual basis of accounting is used, accruals are done at the end of an accounting
period (usually monthly) to record costs which have been incurred but not paid for or previously
recorded, and to record revenue which has been earned but not received or previously recorded.
Canadian Controlled Private Corporation (CCPC)
A CCPC is a private corporation which is controlled by Canadian residents. A corporation will
not qualify as a CCPC if it is controlled directly or indirectly by a public corporation or non-
residents, or a combination of the two. A CCPC is eligible for the small business deduction,
which provides a reduction in corporate income tax on active business income. When the shares
of a qualifying CCPC are sold, the shareholder(s) may avoid capital gains tax by utilizing all or
part of the $750,000 lifetime capital gains deduction. This exemption was increased from
$500,000 to $750,000 by the 2007 Federal budget.

Canada Revenue Agency (CRA)
Canada Revenue Agency, formerly Canada Customs and Revenue Agency, and formerly
Revenue Canada Taxation. The CRA administers tax laws for the Government of Canada, and
for most provinces and territories. The CCRA became the CRA on December 12, 2003.

Capital Gain
A capital gain or loss is the gain or loss resulting from the sale of a capital asset, such as stocks,
bonds, art, stamp collections, and real estate. Some assets are considered personal-use property,
such as cottages, cars, boats, and furniture (unless these are business assets). Some personal-use
property is considered listed personal property (LPP), such as works of art, and stamp
collections. The gains and losses for personal-use property and LPP are calculated separately
from gains and losses on other capital assets. See our articles on Listed Personal Property and
Personal-use Property for more information. Currently 50.00% of realized capital gains are taxed
in Canada at an individual's tax rate. Some exceptions apply, such as selling one's primary
residence which may be exempt from taxation. Capital gains made by investments in a Tax-Free
Savings Account (TFSA) are not taxed.
For example, if your capital gains (profit) are $100, you are only taxed on $50 at your marginal
tax rate. That is, if you were in the top tax bracket, you would be taxed at approximately 43%. A
formula for this example using the top tax bracket would be as follows:
Capital gain x 50.00% x marginal tax rate = capital gain tax
= $100 x 50.00% x 43% = $50 x 43% = $21.50
In this example your capital gains tax on $100 is $21.50, leaving you with $78.50.
The formula is the same for capital losses and these can be carried forward indefinitely to offset
future years' capital gains; capital losses not used in the current year can also be carried back to
the previous three tax years to offset capital gains tax paid in those years.
For corporations as for individuals, only 50% of realized capital gains are taxable. The net
taxable capital gains (which can be calculated as 50% of total capital gains minus 50% of total
capital losses) are subject to income tax at normal corporate tax rates. If more than 50% of a
small business's income is derived from specified investment business activities (which include
income from capital gains) they are not even allowed to claim the small business deduction.
Capital gains earned on income in an RRSP are not taxed at the time the gain is realized (i.e.
when the holder sells a stock that has appreciated inside of their RRSP) but they are taxed when

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the funds are withdrawn from the registered plan (usually after converting to a registered income
fund.) These gains are then taxed at the individual's full marginal rate.
Capital gains earned on income in a TFSA are not taxed at the time the gain is realized. Any
money withdrawn from a TFSA, including capital gains, are also NOT taxed.
Unrealized capital gains are not taxed. An allowable capital loss is 50% of a capital loss. It can
only be used to reduce or eliminate taxable capital gains, except in the year of a taxpayer's death
or the immediately preceding year, when it can be used to reduce other income.
When allowable capital losses exceed taxable capital gains in a year, the difference is the net
capital loss for the year. Capital gains can be reduced, deferred, or eliminated by:
$750,000 capital gains exemption
Principal residence exemption
Donating capital property instead of cash can eliminate capital gains or increase your
donations limit
Capital gain reserve
Election to designate the amount of proceeds on donated capital property

Capital personal property
There are special rules for GST registrants for claiming input tax credits on the purchase of
capital personal property.
Capital personal property includes movable capital property, such as office furniture, computers,
photocopiers, movable machinery and equipment, and free-standing appliances. Built-in
appliances are fixtures, and are usually considered part of capital real property.
Capital property
Capital property includes fixed assets, and items which are purchased for investment purposes,
such as stocks and bonds. Any gain or loss on the sale of capital property is considered a capital
gain or loss for tax purposes.
Capital real property
Capital real property includes land and buildings, and any items which are installed in and
attached to the buildings or land. Capital cost allowance can be claimed on buildings and
attachments, but not on land. There are special rules for charging GST/HST and for claiming
GST/HST input tax credits on capital real property.

Consumer price index (CPI)
The consumer price index (CPI) is a measurement produced by Statistics Canada which is meant
to reflect the increase in the cost of living. Current and historical CPI data can be obtained from
the Bank of Canada and Statistics Canada web sites.

Dividend
An amount distributed out of a corporation's retained earnings (accumulated profits) to
shareholders. Dividends on preferred shares will usually be for a fixed amount. Dividends on
common shares may fluctuate depending on the profits of the company. Some companies pay
dividends on common shares, and some do not. See also dividend tax credit, and dividend tax
credit rates.

Dividend reinvestment plan (DRIP)
A DRIP is a dividend reinvestment plan, whereby when a dividend is issued to the shareholder, it
is used to purchase further shares of the company instead of paying out a cash dividend. These

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purchases are usually done with no brokerage fees. Shareholders can only participate in a DRIP
if they have shares registered in their own name, instead of in street name. The dividends that
are reinvested in more shares are still considered taxable dividend income.

Dividend tax credit
Starting in 2006, an enhanced dividend tax credit is available for dividends received after 2005
from:
public corporations resident in Canada
other corporations resident in Canada that are not Canadian-controlled private corporations
(CCPCs) and are subject to the general corporate tax rate
CCPCs resident in Canada to the extent that their income (other than investment income,
which is eligible for a special refundable tax) is subject to tax at the general corporate tax rate
With the enhanced dividend tax credit, 145% of the dividend received will be included in
income. The additional 45% is referred to as the gross-up. The tax credit is calculated as
11/18ths of the gross-up. The result is a federal tax credit of
18.97% of the taxable (grossed-up) dividend, or
27.5% of the actual dividend
For an individual with no income other than taxable Canadian dividends which are eligible for
the enhanced dividend tax credit, approximately $66,000 can be earned before any federal taxes
are payable.
See the page on federal and provincial dividend tax credit rates for regular dividend tax credit
rates and enhanced dividend tax credit rates.

Dividend yield
This is the % obtained by dividing the dividend per share by the current market price per share, x
100. Example: market value per share $37, annual dividend $1.85, yield = 1.85/37 x 100 = 5%

Management expense ratio (MER)
The MER is the percentage of the value of the assets of an investment company (eg mutual fund,
closed-end fund, unit investment trusts), that is deducted by the fund manager to cover the costs
of managing the fund. This is not part of the front end or back end fees paid to purchase the
mutual fund, and are not a cost that is seen by the investor. However, it reduces the return to the
investor. The MER is usually in the range of 1.5% to 3% per year.
A much lower MER is charged by Exchange Traded Funds, or ETFs. The MER rate can make a
huge difference in investment returns over a period of 20 years.

Margin
If you have securities at a brokerage in a margin account, the brokerage will allow you to borrow
a percentage of the value of your holdings. A higher percentage is allowed for large cap stocks,
and you cannot borrow anything against some small cap stocks.

Margin call
If you have bought stocks on margin, and the amount you have borrowed exceeds the margin
limit that the brokerage has allowed you, you will receive a call from the broker asking you to
either sell some stocks or transfer money into your account.

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Marginal tax rate
A person's marginal tax rate is the tax rate that will be applied to the next dollar he/she earns.
The marginal tax rates on capital gains and Canadian dividend income are lower than on other
types of income, because:
Only 50% of capital gains are included in taxable income
Either 125% or 145% of Canadian dividends are included in taxable income, but a
dividend tax credit is deducted from taxes payable. See the Dividend Tax Credit page for more
information.
To see the marginal tax rates for different types of income for each tax bracket, see the marginal
tax rate table for your province or territory.

Marked to Market
When an investment is marked to market, it is shown on the balance sheet at market value. This
results in changes in the market value being shown on the income statement as a profit or loss.

Mutual fund
Also known as an open-end fund, this is an investment company which pools the money of many
investors, and uses the money to invest in a variety of different securities. The securities may be
stocks, bonds, money market securities, or a combination of these. The mutual fund has a fund
manager to handle the buying and selling of securities. The fund company does the
recordkeeping for individual investors, providing reports which detail cost basis, dividend
income, capital gains, etc. For these services, the mutual fund company charges a management
fee, which is usually expressed as a percentage of the asset value of the fund. This is called the
management expense ratio (MER). This fee is taken from the fund by the fund manager to cover
the costs of managing the fund. Many mutual funds also charge fees when the funds are
purchased (front end fees or loads) or sold (back end fees or loads). The ones which do not
charge these fees are called no-load funds.

Over the counter (OTC)
An OTC security is any equity security which is not listed on the major stock exchanges.
OTC securities are not qualified investments for RRSPs.

Real estate investment trust (REIT)
An investment vehicle which allows people to invest in a portfolio of real estate holdings by
purchasing units of the trust. This gives the holders more diversity and liquidity than investing
directly in real estate. REITs are not taxed as corporations, but flow their income through to unit
holders.

Registered education savings plan (RESP)
An RESP is an education savings plan that has been registered with Canada Revenue Agency
(CRA). It is a method for parents to save for their children's post-secondary education. The
payments to an RESP are not tax deductible, but the earnings in the RESP grow on a tax-free
basis.

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Registered pension plan (RPP)
Registered pension plans are pension plans that are regulated by federal or provincial pension
legislation, and must be registered under the Income Tax Act. There are two types of registered
pension plans - defined benefit pension plans (DB), and defined contribution pension plans
(DC). Defined contribution plans are also known as money purchase RPPs.

Registered retirement income fund (RRIF)
Registered retirement savings plans (RRSPs) must cashed out (taxable) or converted to RRIFs
(tax-free) no later than the year in which the RRSP holder turns 71. The 2007 Federal budget
revised this age from 69 to 71, for both RRSPs and RPPs. See the article on conversion of RRSP
to RRIF, on the RRSPs/RRIFs page, for special rules for RRIF holders who turn 70 or 71 in
2007. Once the RRSP is converted to a RRIF, the holder must withdraw a minimum amount each
year, except in the first year. These withdrawals are taxable to the holder. The withdrawals
qualify as pension income for purposes of the pension income tax credit for taxpayers 65 and
over. Starting in 2007 the withdrawals may be split with a spouse (pension splitting).
It may be beneficial to convert at least a portion of an RRSP to a RRIF when the taxpayer turns
65, in order to generate income eligible for the pension tax credit, and for pension splitting.
The holder of the RRIF controls what investments are held in the account.

Registered Retirement Savings Plan (RRSP)
An RRSP, or Registered Retirement Savings Plan, is a savings or investment account which
allows you to defer paying tax on funds deposited to it. When you make a contribution to your
RRSP, you get a tax deduction for the amount contributed. The deduction reduces taxable
income, so the higher your marginal tax rate, the greater the tax savings will be.

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Canada tax memo 2012

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