Income Tax Preparation and Tax Software Training Manual

Transcription

1 0 Income Tax Preparation and Tax Software Training Manual Prepared by: Earl Boone, B.Ed., BSc. Revised Nov 14, 2014

2 The Tax Shelter Training 1 To the Student Most of the material in this manual is based on the 2011 T1 tax return and the 2011 Cantax program. However, some of the examples shown may be from a previous year and have not been updated because the form has not substantially changed from the year the example was written. The manual is continually being updated to reflect any significant changes to the Cantax program and the T1 return. The 2011 program has changed only slightly from previous versions. Also the 2012 program has changed only slightly from the 2011 program. Thus when you complete the course using the 2011 program, you will be quite able to complete 2012 and 2013 returns using the Cantax program for that year. The main purpose of the manual is to show the preparer how and where to interpret and enter data into the Cantax program. It does not replace the CRA tax guide, pamphlets, or any on-line sources of tax information. The Canada Revenue Agency (CRA) web site gives a wealth of information about the T1 return (you might say they wrote the book on taxes). Research and read information from that site as you proceed through the training. Good luck with the course. You will find that it is quite demanding and will require a lot of study and research on your part. The type of business you will be entering demands that each return is correct. One little error can, in some cases, lead to big problems for the client and embarrassment for us. So each quiz will be strictly graded. Take your time and do it right the first time. As you proceed through the course, there will be questions for which you cannot find the answer in course material, at the CRA web site or with the Help feature in Cantax. Good Luck

3 The Tax Shelter Training 2 Setting Options in CanTax Install and run the Cantax program on your computer. After it is installed, you will need to set certain preferences to be able to use it to do the assignments. On the Toolbar click on Options, Preferences and select General. Since the Social Insurance Numbers and Cities in the examples and exercises are fictitious, be sure to uncheck the Validate SIN and Validate City check boxes. In addition, make sure there is a check mark in all the Diagnostic Types section.

4 The Tax Shelter Training 3 Next select Display and put a check mark in the Use Multi-line form tabs and Default Index Open check boxes as shown below. To run the full version of the Cantax program, use the following activation key: 846F GB3A C5G9 C23H

5 The Tax Shelter Training 4 Objectives: Tax Shelter Training Program Upon completion of The Tax Shelter Training Program, the student will be knowledgeable in, and able to apply the following to the Tax Preparation Business: 1) The Canadian tax laws for individuals 2) Types of income that are taxable in Canada 3) The eligibility requirements for most of the allowable Deductions and Credits 4) The Use of the CanTax program to prepare returns involving many different sources of income and deductions 5) The eligibility criteria for discounting a refund 6) Electronically filing returns 7) The Tax Shelter operating policies and procedures Parts of the Course The Course in divided into 9 parts. Part 9 is completed only by those who become an agent or employee of the Tax Shelter. Part 1 Cantax Basics and Income Slips Part 2 Non-Refundable Tax Credits Part 3 Deductions to Arrive at Net Income Part 4 Taxable Income, Medical and Charitable Part 5 Employment and Other Expenses Part 6 Rental Income and Expenses Part 7 Business Income and Expenses Part 8 Capital Gains and Losses Part 9 Tax Shelter Discounting and Tax Prep Policies and Procedures

6 The Tax Shelter Training 5 PART I BASICS OF CANTAX Start a New Return To start a new return for a first time client, point and click on File and then New The screen will look like this if this is the first return after installing the program. The frame on the left hand side (Index of Information) is not used in this course so we shall hide it. To hide the Index of Information frame, click on View and then click on Index of Information Now the screen will look like this

7 The Tax Shelter Training 6 Save the Return After all the personal information has been entered, the return(s) should be saved. To save the return(s) on the hard drive of your computer click on File and then Save. A screen similar to the one below will appear. Click on Save. Save Open a Saved Return The return will be saved in the Returns directory on the hard drive of your computer If you have already entered information on a client for this year and saved it, you can recall that return at any time. Point and click on File and then Open. Select the client from the list.

8 The Tax Shelter Training 7 (Open a Saved Return continued) OR: Point and click on Index and then Open. Select the client from the list. If there are no names in the Index, select Rebuild Index to create an index of returns stored in the Returns folder. Navigating Around the Return Goto The GOTO key <F4> or the GOTO ICON This key is used to "Open a Window" to any information slip, schedule, form or any part of the return. When the <F4> key is pressed or the GOTO Icon is clicked, a window with a list of forms, schedules etc. is displayed. To access any form, schedule or information slip simply move the highlight bar (using the arrow up or down keys) to the desired selection or type the appropriate letters and/or numbers of the form, and then press <Enter>. For example, to go to the screen to enter information from a T4 Slip, press <F4>, type T4 and then press <Enter>. To close the Goto Form window, press the <ESC> key or click on the X in the Goto Form screen. Click here to close the Goto Form window Goto Icon

9 The Tax Shelter Training 8 Tabs After you select a form, schedule or information slip, a tab will appear at the top of the screen so that you can easily return to that form, schedule or slip by simply clicking on the tab. Tabs <F6> - Expand Often a field will have a magnifying glass in it. This means that you cannot enter information directly in that field. You must expand to another screen to enter information. To expand to that screen, press <F6> while in the field or double click on the field. Press <ESC> to return to the original screen. <F1> - On The Line Help If you need help, simply press <F1> while yor are on the line for which you need information. For example, pressing <F1> while on Line 212 (Union Dues) will display a help screen as below. <F2> - Override Fields in which the preparer can enter information directly contain "0.00" in black. Calculated fields into which the preparer cannot enter data directly are in blue. There are time, however, when it necessary to override a calculated field. To do that press <F2> while in the field and enter data. Notice that pencil appears in any field that has been overridden. To remove the override, press <F2> again while in the same field. Calculated Field Calculated field that has been Overridden

10 The Tax Shelter Training 9 Checking Your Work - Using the function keys <F8> and <F9> At any time while the return is being prepared, you can view a Summary of the information on the return and view the Diagnostics to find any errors that may prevent the return from being efiled. Viewing a Summary <F8> Press <F8>. This will display a summary of the return(s). Viewing the Diagnostics <F9> Press <F9> to display diagnostics (Possible Errors). This screen is essential to determine if the return is eligible to be efiled. A list of errors that must be corrected before the return is ready to efile will be highlighted in green. By clicking on the green highlight error, the program will go to the screen and line where the error is located. After the error is corrected, press <F9> again to see if there are any other errors.

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12 The Tax Shelter Training 11 Printing a Return Point and click on Print on the toolbar, move the highlight bar to "Return" and press <Enter>. An X will be displayed in column A for each form that has been used to prepare the return. In addition an X will be displayed for other forms such as Diagnostics, Receipt, Mailing Label etc. The X indicates that one copy of that form will be printed. To Print additional copies of a particular form, click in the box in column B to add an additional X for that form. To remove a form from the list, click in the box to remove the X. To print only the forms that are used by CRA click on Select and then Select CRA forms. Click here first Then Select CRA Forms It is usually not necessary to print the complete return for the client when the return is efiled. The client may, however, want a summary and important schedules like rental, moving and business. Printing the Four Page Jacket: This can be done by selecting only the first four pages to be printed as follows. Select Print from the menu toolbar, Select Single Form and T1-Jacket. Press the Print button in the dialog box. Basic Forms: Most clients do not require a complete printout of the T1 return. It is usually acceptable to provide only the Summary A and the T183. In addition, discount clients must be provided with a RC71. To access the one page Summary A, press GoTo /Form and type "summ". Summary will be highlighted. Move down one item in the list to Summary A. Printing a Single Form: Pull down the Print menu, move the highlight bar to "Single Form" and press <Enter>. Type the number of the form and press <Enter>. If you wish to print the form that is currently being used, pull down the print menu and select Current Form, or press <Alt>+<F11>. PDF File: Since 2011, a pdf copy of the return can be generated in the print menu.

13 The Tax Shelter Training 12 Paper Filing A Return There are times when we are unable to Efile a return and thus a paper one must be filed. This will be the case, for example, when a person is filing a return for a previous year, is a bankrupt, is deceased or is claiming a disability for the first time. In other cases, the client may just wish to file a paper return or have a complete copy of the return for his/her files. A paper return must include the following: 4 page jacket Schedules (i.e. Schedule 1 Federal Tax, Schedule 428 Provincial Tax, Child Care, Moving, Schedule 5 etc.) - Do not include CTB or GST. Information slips Before printing the return, go to the INFO screen and answer NO to the question Consider this return for Efile? and NO to the question Will this return be Discounted? (if necessary). When this is done the Document Control Number (DCN) will NOT appear at the top of page one of the jacket. On the Print screen click on Select and then Select CRA Forms to show only forms that are used by CRA. Also select Paper as the copy option. Click OK to print. Select CRA Forms Select Paper The return should be put together in the following order: Pages 1 and 2 of the jacket Information slips and receipts Other Schedules and forms Pages 3 and 4 of the jacket. Staple in the top left hand corner. Note: Since 2012 Cantax can print the T1 Condensed Jacket. The T1-KFS contains a bar code that contains all the information on the return. The program also identifies any other forms that must be filed with a paper return.

14 The Tax Shelter Training 13 Essential Shortcut Keys Most of the movement and selections can be made using point and click with the mouse. However, you may find it useful to memorize and use some shortcut keys to help speed things up while preparing a return. <F1> <F2> <Alt> + <F2> <Shift> + <F2> <Ctrl> + <S> <Ctrl> + <F11> <F4> <Ctrl> + <F4> <Ctrl> + <F2> <F5> <F6> <ESC> <F8> <Ctrl> +<F7> <Ctrl> + <F8> <F9> <AlT> + <F8> Tax Information Help (On that line) Override Display Calculator/Adding Machine Recalculate the return Save a Return Print Current Form Goto a Selected Form, Slip or Schedule Close a Form or Page Goto a specific line on the T1 Switch to Spouse's Return Expand Close Display Tax Return Summary Display Comparative Summary Display Notes Display Diagnostics Display Information about Return

15 The Tax Shelter Training 14 Entering information on a Return Information Screen The first step in preparing a return is to complete the "T1-Information" (INFO) Screen. The INFO screen is where you enter personal information about the taxpayer and spouse or commonlaw partner including: name, SIN, address, province of residence on Dec 31, date of birth, marital status, changes during the year, spousal information, etc. To go to the INFO screen, Press <F4>, select INFO and press <Enter>. Use <Page Up> and <Page Down> or the Scroll Bar to move around the page. Care of line: Use the Care of" line to enter the name of a person other than the taxpayer, who CRA should correspond with. This is only necessary for taxpayers who are unable to take care of matter for themselves. Province of Residence: Make sure NEWFOUNDLAND or NL (or whichever province) appears on the "Province or territory of residence on December 31, xxxx" line. If the taxpayer is self-employed, enter the province of self-employment. Efiled Returns. Most returns prepared by computer today are efiled to CRA, thus it is very important to note that CRA has certain requirements about how the data must be entered on the return. Following is information about entering data within the "T1 Information" screen for returns that will be EFILED. If the return is to be EFILED, select "Yes" on the line "Consider this return for EFILE?. Each point and click of the mouse changes the selection from yes to no or vice versa. If the return is to be discounted select "Yes" on the line "Will this return be discounted? DO NOT use periods after the taxpayer's initials. If a taxpayer has multiple first names, use a hyphen (dash) between the names, eg. Mary- Lou, Jean-Paul. DO NOT use an apostrophe, dash or comma in the street address.

16 The Tax Shelter Training 15 Spousal Information After entering the taxpayer's personal information, enter information about the spouse or common-law partner including date of birth and surname if different from the taxpayer. If the spousal return has been prepared by someone else, enter the spouses' Net Income (Line 236) in the section shown below. If the taxpayer supported the spouse, answer "Yes" to the question "Did taxpayer support a spouse at all in the year". If the spouse had no income, put a check mark at the box at Line Enter the amount of the (Universal Child Care Benefits) UCCB and Registered Retirement Savings Plan (RRSP) included in income and the amount deducted on the spousal return. Certain dates and amount must be entered on the bottom of the screen.

17 The Tax Shelter Training 16 Coupling Spousal Returns Cantax is able to couple (link) both spouses returns together. This will allow the automatic transfer of any claims that may be made from one spouse to the other. When information about the taxpayer s spouse is entered on the INFO screen of the taxpayer, that information will be transferred automatically to the spouse s return if the returns are coupled. It is highly recommended that spousal returns be coupled. To couple both spouses returns, click in the field after the question "Process spousal returns together?" on the INFO screen (the default is NO). If the returns are already coupled, "Yes" will be shown in the box. If "No" is in the box, click on the field and a box will appear with three possible selections. Select Current year return if the spouses return for the current year is already on file because his or her return for the current year was prepared earlier in the year. Make sure the returns are not already coupled. If they are coupled, you may press <F5> to toggle back and forth between the two returns. The spousal return will be green in colour. Select Previous year return if you wish to carry forward a spouse s return from the previous year that has not already been carried forward. This would happen if the returns were prepared separately in the previous year and not coupled Select New return if the return for the spouse is not on file for the previous or current year. This is usually the case with new clients. <F5> Key: After the returns are coupled (linked), you may toggle back and forth between the two, coupled returns, by pressing the <F5> key. One return has a blue screen and the other will be green. Please note that if the returns were completed as a couple in the previous year and you are carrying them forward from the previous year, the returns for the current year will automatically be coupled. DO NOT enter the Net Income of the spouse on the taxpayer's INFO screen if both returns are being processed together (coupled). The program will automatically calculate the Net Income of each spouse and transfer it to the other return.

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19 The Tax Shelter Training 18 T1 - Page 1 The information entered on the INFO screen is automatically posted to the page 1 of the T1. The preparer must, however, enter some information directly on the bottom part of this page. It is important to complete the three items indicated by the numbers 1, 2 and 3 below. Residency, Elections Canada and GST/HST GST/HST The program will automatically select "Yes" to the question "Are you applying for the GST/HST credit?". If the taxpayer is married or common-law, it is very important that the preparer ascertain which of the two will be applying for the HST/GST credit. An override may be required to change

20 The Tax Shelter Training 19 the answer.

21 The Tax Shelter Training 20 Entering Data from Information Slips After the INFO screen is completed, the preparer should enter information from the information slips. When income is entered from the slips, Cantax automatically calculates the federal and provincial taxes and posts the amounts to page 4 of the T1. To access the screen for a list of forms and slips, press <F4>. The "Goto Form" screen shown below will be displayed when <F4> is pressed. To select a specific form a specific form or slip, type the first few letters or numbers of the slip or form. For example to display the T4 slip screen, type T4. The list below will be displayed. Make sure the T4 line is highlighted and press <Enter> to go to the T4 screen.

22 The Tax Shelter Training 21 Most Common Form, Slips and Schedules What to Type Personal Information INFO T1-Jacket T1 Page of the return T1-page number Information Slip T (slip number) (ie. T4, T5, T4E, T3 etc) Schedule 1 Federal Tax S1 Schedule 2 - Transfer From Spouse S2 Schedule 3 - Capitals Gains Summary S3 Schedule 4 - Investment Income S4 Schedule 5 Eligible Dependant S5 Schedule 6 - Working Income Tax Benefit S6 Schedule 9 Donations and Gifts S9 Schedule 11 Tuition and Education S11 Discounting Transaction RC71 Adjustment Form ADJ Automobile Expenses AUTO Business Income & Expenses T2125 Canada Pension Income (CPP) T4AP Charitable Donations DON Child Care Expenses T778 Claim of dependants DEP Consent and Request T1153 Direct Deposit Request DD Efile Authorization T183 Authorizing or Cancelling a Representative T1013 Employment Expenses T777 Employee and Partner GST Rebate GST-370 Fishing Income & Expenses T2121 Foreign Pension Income T4A(OAS) Foreign Tax Credit FTC Medical Med Moving Expenses T1M NL 428 Newfoundland Tax 428 Northern Residents Deduction T2222 Old Age Security T4A(OAS) Overseas Tax Credit T626 Pension Splitting T1032 Rental Income T776 Receipt Rec

23 The Tax Shelter Training 22 RRSP Contributions RRSP

24 The Tax Shelter Training 23 T4 Slips - Employment Income For more information see Completing the T4 Slips Generally, most of the income that a taxpayer receives will be shown on a T4 slip. ABC Company 52, , , X 46, John Doe 1, , , Most Common Information found on the T4 Slip Box (14) Gross employment income before deductions Box (16) and (17) Canada or Quebec Pension Premiums Box (18) EI Premiums Box (20) Registered Pension Plan Premiums Box (24) EI Insurable Earnings Box (26) CPP/QPP Pensionable Earnings Box (22) Income Tax Deducted Box (32) Travel in a Prescribed Zone Box (42) Employment Commissions Box (44) Union Dues Box (46) Charitable Donations Box (66) Eligible Retiring Allowance Box (85) - Employee Paid Premiums for Private Health An X in Box (28) indicates the employee is exempt from, paying EI, CPP or both. In this case the employee is exempt from paying EI and thus 0.00 must be entered in Box 24.

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26 The Tax Shelter Training 25 Box 29 - Employment code. If a taxpayer receives a T4 with no income reported in Box (14) but a code in Box (29), he/she may be considered to be self-employed and be able to claim business expenses. This will be discussed later. The codes are: 11 - Placement agency 12 - Driver of taxi or other passenger-carrying vehicle 13 - Barber or hairdresser 14 - Withdrawal from a prescribed salary deferral arrangement plan 15 - Seasonal Agricultural Workers Program 16 - Detached employee - Social security agreement 17 - Fishers - Self-employed Other Information" Area The "Other information" area at the bottom of the T4 slip has blank boxes for the employer to enter codes and amounts that relate to employment commissions, taxable allowances and benefits, deductible amounts, fishers' income, and other entries, if they apply. The boxes are not pre-numbered as in the top part of the slip. Codes 30 - Housing, board, and lodging* 31 - Special work site 32 - Travel in a prescribed zone* * These amounts will be 33 - Medical travel shown in shaded areas and are 34 - Personal use of employer's automobile* already included in Box Interest-free and low-interest loan* and do not have to be reported 37 - Employee home-relocation loan deduction as income elsewhere Security options benefits* 39 - Security options deduction 110(1)(d) 40 - Other taxable allowances and benefits* 41 - Security options deduction 110(1)(d.1) 42 - Employment commissions 43 - Canadian Forces personnel and police deduction 53 - Deferred security options benefits 66 - Eligible Retiring Allowance 70 - Municipal officer's expense allowance 71 - Status Indian employee 72 - Section income - employment outside Canada 73 - Number of days outside of Canada 74 - Pre-1990 past service contributions while a contributor 75 - Pre-1990 past service contributions while not a contributor 77 - Workers' compensation benefits repaid to the employer 78 - Fishers - Gross earnings 79 - Fishers - Net partnership amount 80 - Fishers - Share-person amount 84 - Public Transit pass Many of these will be discussed in detail later.

27 The Tax Shelter Training 26 Generally, T4 income is reported directly on the T4 screen in CanTax. To report the income from a T4 slip, GoTo the T4 slip screen by pressing <F4>, type T4 and press <Enter>. When the data from the T4 is entered on this screen, most of it will automatically be transferred to the appropriate lines on the T1 Return. However, some items have to be posted manually to another schedule. Please refer to the bottom of the T4 Screen. When the amount from Box 14 on the T4 is entered on the screen, that same amount will automatically be displayed in Boxes 24 and 26 (EI Insurable and CPP Pensionable Earnings) to the maximum for the year. If the amount shown in Box 24 or 26 on the T4 slip is different from what is in Box 14 and is not the maximum amounts for the year, override those amounts to enter the correct amounts as shown on the T4. To override, click in the field and press <F2>. Now enter the correct amount. If Boxes 24 and 26 on the T4 are empty, it is understood that the amount that should have been entered in those boxes is the same as in Box 14. DO NOT enter 0 in those boxes. If 0 or Nil is entered in Box (24) or (26) on the T4 or the box is blank and the taxpayer is exempt from paying EI or CPP, then be sure to put an "X" in Box (28.1) or (28.2) as shown on the T4. Be sure to verify that the taxpayer is exempt from paying EI or CPP. Notice that the screen shows only 3 columns. If the client has more than three T4 slips, hold the <Ctrl> and press <Right Arrow> to move to column 4 and 5 etc. use the <Left Arrow> to move to the left. Notice that the last column will always show the Totals. This can be used for all screens requiring more columns. Note that you cannot move to column 4 until information is entered in column 3. Exempt Employment Income For Status Indians Income earned by a status Indian on a reserve is exempt from income taxes and does not have to be reported as employment earnings. Employers have to report on a T4 slip employment income that is exempt under section 87 of the Indian Act. On the slip, an employer will enter code "71" in the area called "Other information.". Pensionable earnings must be reported in Box 26 of the T4 slip if an employer has elected to cover exempt employment income of a Status Indian under the Canada Pension Plan. Note: Even though such exempt income is not taxable, it must be reported on line It may then be used to calculate other claims and benefits. To find Line 5363 expand at line 104.

28 The Tax Shelter Training 27 T4E Slips - Employment Insurance Enter information from a T4E slip on the T4E screen. Box (7) - Repayment Rate: Be sure to enter the Repayment Rate from Box (7) of the T4E the taxpayer may have to repay a portion of EI Income based on his earnings and the repayment rate. Box (30) (Found in the Other Information Section of the T4E slip) - Shows the amount of any EI Benefits repaid. When this amount is entered on the T4E screen, it is posted to Line 232 of the return. Box(20) - Taxable Tuition Assistance This amount is included in Box(14) and does not have to entered separately on the screen. This is an amount paid to students while attending a post secondary institution. Generally the taxpayer will be able to claim the Tuition and Education amount while receiving this assistance. Box(21) - Non-taxable tuition assistance This is an amount paid to students taking the ABE program. It is not taxable but must be reported and thus increases the taxpayer's Net Income. It is then deducted on Line 256. Employment Insurance Benefits for Status Indians EI benefits received by a status Indian are not taxable if the benefits relate to employment that was exempt. Thus if all of a taxpayer's earnings were from exempt income, then all his or her EI benefits are exempt. If only part of the earnings were exempt then only part of the EI received

29 The Tax Shelter Training 28 will be exempt. If the taxpayer has received EI, the total amount will be shown in Box (14). The amount that is exempt will be shown in Box (18) on the T4E slip.

30 The Tax Shelter Training 29 T5 Slips - Investment Income For more information see Completing a T5 Slip This slip is the most common one issued by banks and trust companies to report Investment, Capital Gains and Dividend income. If both spouses share the earnings and the returns are coupled, enter the information on the T5 screen for one spouse only. Then enter the percent amount (%) allocated to the other spouse in the field % allocated to spouse on the same return. The appropriate amount will be posted on the Schedule 4 on both returns. DO NOT enter that same information on both spouses returns. If the returns are not coupled, enter only the taxpayer's share on this screen. If the income is shared with some person other than a spouse, enter only the amount earned by the taxpayer. % allocated to spouse T5 Screen Note: Indicate YES if any annuity payments in Box 19 were Received due to the spouse s death. Even if the taxpayer is under age 65, he/she may be entitled to the Pension Income Amount (Line 314). This will be discussed later.

31 The Tax Shelter Training 30 Dividend Income and the Dividend Tax Credit on T5 Slips Taxable Dividends from a Canadian Controlled Private Corporation (CCPC) is generally shown in Box (11) or (25) on a T5 slip. These dividends are eligible for a special Dividend Tax Credit that is calculated automatically by Cantax and posted to Line 425 on page 2 of the Schedule 1. For more information on the Dividend Tax Credit see Dividend Tax Credit. The amounts shown in boxes 10, 12, 24 and 26 do not have to be entered on the T5 screen. When Taxable Dividends and Interest income is entered on the T5 screen, the taxable amount will be posted to the Schedule 4 and reported on Lines 120 and 121 of the T1. Capital gains will be posted to the Schedule 3 and the taxable amount will be reported on Line 127 of the T1. Foreign Income Box (15) and Foreign Taxes Box (16) on the T5 Slip If foreign income is shown in Box (15) and foreign taxes have been paid and shown in Box (16), the taxpayer is entitled to a Foreign Tax Credit on Line 405 on the Schedule 1 and Line 50 on page 2 of the NL Schedule 428. This credit is calculated on the T2209 FTC schedule. To make the claim, select go to the FTC Schedule, and type in the name of the country or, if the country is unknown, type in Unknown. Go to the T5 slip and select UNKNOWN from the pull down menu on the top of the T5 Screen. The Foreign tax credit will be calculated and posted automatically by Cantax. If the total taxes paid to a foreign country is more than 15% of the investment or business income earned, the taxpayer may be entitled to an additional deduction on Line 232. This deduction under Section 20(11) or 20(12) is calculated by Cantax when <Shift>+<F10> is pressed while on the FTC Screen and is posted to Line 232 on Page 3. The preparer can assume that foreign income and foreign taxes are reported on the T5 Slip in Canadian dollars. However, in the unlikely case of a country code shown in Box(27), the amount will have to be converted to Canadian dollars.

32 The Tax Shelter Training 31 T5007 Slips - Workers Compensation or Social Assistance Note: Social Assistance received while two spouses (including common law) are living together must be reported on the spouses return with the higher income. In a case where the spouses started living together or separated during the year, the income may have to be prorated.

33 The Tax Shelter Training 32 T3 Slips - Trust Income For more information see T3 Slip This slip is similar to a T5. Data from the slip can be entered directly onto the T3 screen. Note that spousal allocations and the Foreign Tax Credit are treated the same as on the T5 Slip. Most Common Information found on the T3 Slip Box (50) - Taxable amount of Eligible Dividends Box (32) - Taxable amount of Dividends other than Eligible Dividends Box (21) Capital Gains Box (30) Capital Gains eligible for the Capital Gains Deduction Box (26) Other Income Box (35) Eligible Death Benefits (First $10,000 may be tax exempt) Box (24), (25), (33) and (34) Foreign Income and Taxes Box(46) and (47) - Pension income or Retiring Allowance eligible for transfer (Included in Box(26)) T3 Slip Continued

34 The Tax Shelter Training 33 T4A Slips - Statement of Pension, Retirement, Annuity, and Other Income This slip is used to report a number of sources of income including pensions, self-employed commissions, lump sum payments, annuities, fees for service and other income. Information from this slip is entered on the T4A Screen. T4A Slip Continued Expand here to report income in Box (28)

35 The Tax Shelter Training 34 Some Boxes require a closer look Pension or Superannuation The amount in this box shows the income from a regular employee pension and is eligible for the Pension Income Amount no matter what the age of the taxpayer. The Pension Income Amount of up to $2, is claimed on Line 314 of the Schedule 1. We will discuss this in more detail later in the course Annuity Income If a T4A includes an Annuity in Box 24, this amount may be eligible for a Pension Income Amount. If the taxpayer was age 65 or older during the year, the amount in Box 24 will automatically qualify for the Pension Income Amount. However, if he/she was under age 65 during the year, the claim is only available if the annuity income was received as a result of the death of the spouse. The footnote should identify the annuity as a General Annuity or an Income Averaging Annuity Contract (IAAC) or a Deferred profit Sharing Plan (DPSP) Self-Employed Commissions Amounts reported in field 020 are for Self-Employed Commission Income. Taxpayers receiving that type of income can generally claim expenses on Form T2125. This income must be reported on a business income and expenses form. To report the income on a T2125 (Business Income and Expenses), a check mark must be entered in the field "Carry the amount from box 020 to Form 2125". The name of the business must first be entered on the T2125 Schedule. Business Income and Expenses will be discussed in detail in Part 7 of this course.

36 The Tax Shelter Training Other Income Do not enter any amounts directly into field 028. Press <F6> to expand to another screen and enter information in the appropriate field on that screen.

37 The Tax Shelter Training Research grant The actual amount that should be reported in the field on the "T4A Other Income Screen" is the Net Research Grant after related expenses are claimed. The expenses that can be claimed include (a) travelling expenses, including all amounts for meals and lodging while away from home in the course of doing research work, (b) fees paid to assistants, and (c) the cost of equipment, and laboratory fees and charges , 105.2, and Scholarships (study grants), fellowships, bursaries If the student is attending an eligible university or college in Canada, any scholarships, fellowships and bursaries do not have to be included in income (Code 105.1). In other situations the student may be allowed an exemption of $ (Code 105.2) and in other cases the student may have to report the full amount as income (Code 105.3). If a taxpayer received a scholarship, fellowship, or bursary received in connection with a part-time program for which the part-time education amount can be claimed, the scholarship exemption is equal to the amount of tuition paid for the program plus the costs of program-related materials plus $ (Code 105.4). To enter the amount, expand a field 105 and enter the amount in the appropriate field. When the income and corresponding code are correctly reported, Cantax will post the proper amount to Line 130 of the return Death Benefits A death benefit is an amount paid to the beneficiary after a person's death for that person's employment service. The first $10, of death benefits is not taxable. The preparer must enter the full amount of the benefit shown in Box 106 on the T4A Slip Summary Screen. Then expand at Line 130 and enter the $10,00000 exemption on the appropriate line. Note that this $10, exemption does not apply to the Canada Pension Plan Death Benefits Income from wage-loss replacement plan, not fully funded by employee premiums If a taxpayer has received a T4A slip showing income from a Wage-Loss Replacement Plan, the full amount may not be taxable. If the plan was fully funded by the employer, the full amount is taxable. If the taxpayer has paid premiums to the plan since 1967 he/she can deduct those premiums from the income less any amount that was claimed in a previous year. If the plan was fully funded by the employee, then the income is not taxable and no T4A slip should be issued. Enter only the income after the premiums are deducted.

38 The Tax Shelter Training 37 T4A(OAS) Slip Old Age Pension and Foreign Pensions For more information see Line Old Age Security Pension Old Age Pension and Supplements are included in income on Line 113 and thus affect the taxpayer's Net Income. The Supplements are then deducted on Line 250 so that it is not taxable to the taxpayer. If the taxpayer's earnings are more than $66,668 (for 2011) he/she may have to repay some of the OAS. Information from this slip is entered on the T4A(OAS) screen. Foreign Pension - Note that this screen is also used to enter pensions from foreign sources. US Social Security US Social Security is taxable in Canada and must be reported in Canadian funds. This pension is eligible for the Pension Income Credit. In addition there is a special 15% deduction on line 256.

39 The Tax Shelter Training 38 For Canadian residents who have been receiving this pension prior to 1996, the amount of the exempt pension is 50%. This will automatically be claimed on Line 256. Place a X in the box to indicate that the taxpayer has been receiving the pension since then.

40 The Tax Shelter Training 39 Exempt Foreign Pensions Some foreign pensions are exempt from taxes in Canada but may affect the Net Income of the taxpayer. These amounts should be reported in Canadian funds. They will automatically be added into income at line 115 and deducted at line 256. Other Foreign Pension Income and Taxes If a taxpayer receives a pension from another country (other than U.S. Social Security or Exempt foreign pensions), the income and any taxes must be reported in Canadian funds. Enter the amounts on the Other foreign pensions and Foreign tax paid lines. The taxpayer may be entitled to a Foreign Tax Credit. This is claimed on the FTC (T2209) Schedule. This credit is claimed the same way as on the T5 and T3 slips. T4A(P) Slips Canada Pension For more information see Line CPP or QPP Benefits Boxes (14), (15), (16) and (17) - If a person receives Retirement, Disability, Survivor or Child Benefits, the T4A (P) slip will come in the name of the person who received the benefit. The SIN number of the recipient will be shown on the slip. That income must be reported as income of the recipient. Box (18) CPP Death Benefits If a CPP death benefit is received upon the death of a person, the income is NOT reported on the return of the deceased. The income must be reported on the beneficiary s return(s) or on a T3 trust return for the estate of the deceased. If the spouse is the beneficiary, it should simply be reported on his/her return. If there are a number of beneficiaries, it may be better to file a T3 trust return and pay the taxes through the trust.

41 The Tax Shelter Training 40 T4RSP Slips Registered Retirement Savings Plan Income For more information see Line Registered Retirement Savings Plan (RRSP) income Name of Annuitant SIN of Annuitant SIN of Contributor If the annuity payments in Box 16 were received due to spouse s death, the taxpayer may be entitled to the Pension Income Amount. If this situation applies, enter "Yes" at this field. Funds withdrawn from a Spousal Plan If the annuitant withdraws funds from a spousal plan (Box 24 is Yes ) and the spouse of the annuitant has contributed to any spousal RRSP in the past three years, the contributing spouse, rather than the annuitant, may have to include in income all or part of the funds withdrawn. To determine the amount to be included as income for the annuitant or contributor complete Form T2205, Amounts from a Spousal or Common-law Partner or RRIF to Include in Income. Note that in any case the annuitant must report the full amount of the taxes deducted in Box (30) on his/her return.

42 The Tax Shelter Training 41 The annuitant must include the full income and taxes on his/her return if they are separated or divorced; the contributor is a non-resident or is deceased. T4RIF Slips Registered Retirement Income Fund Income Box 24 - Excess Amount The amount in Box 24 on the T4RIF is included in Box 16 and represents an amount received that is in excess of the amount that is required to be paid for the year. It is fully taxable unless it is transferred to an RRSP or RRIF. This transfer must have been made directly into the fund. The client must have an official receipt verifying this transfer under Section (60). The full amount must be reported in the first Excess amount Box. The receipt amounts should be reported in the second or third Box 24 as appropriate. Indicate if payments in Box (16) were received due to the Death of a Spouse Indicate if the payments in Box 16 were received due to spouse s death. The taxpayer may be entitled to the Pension Income Amount Credit. If this situation applies, enter "Yes" at this field. Note: If this is a spousal plan, the same three-year rule applies as with an RRSP. A T2205 may have to be completed.

43 The Tax Shelter Training 42 Cantax Edit Tip - How to erase all manually entered information from a screen. Sometimes information is entered on a screen in error and the preparer wishes to erase all the manually entered information from that screen. While that screen is open click on Edit on the toolbar and then click on Clear All.

44 The Tax Shelter Training 43 T4PS Slips - Statement of Employee Profit-Sharing Plan Allocations and Payments (556.87) If the amount in Box (34) has brackets around it, it is a Capital Loss and you must enter a negative sign in front of the number on the screen. Note that this information slip is used to report dividends, capital gains and losses and foreign income for employees as part of a profit sharing plan. Foreign income and taxes are treated the same as on the T5 and T3 slips.

45 The Tax Shelter Training 44 RC62 Slips - Universal Child Care Benefit Statement- Line 117 The UCCB is paid to a parent for children under the age of 6 years and is paid in instalments of $100 per month per child. Box (10) - Total Benefit Paid If the taxpayer had a spouse or common-law partner at the end of the year, the spouse or common-law partner with the lower net income has to report this amount regardless of which person received the benefit. If the taxpayer is a single parent on December 31, he/she can choose one of the two following options: 1. include in his/her return the UCCB amounts he/she received; 2. include all UCCB received in the income of the dependant for whom he/she is claiming the amount for an eligible dependant on line 305 of Schedule 1 or, if not claiming a dependant on line 305, in the income of another child for whom the UCCB was paid. To have Cantax automatically include the income for the child claimed on Line 305, simply put an X in the box for Option #2 on the RC62 screen. If no child is claimed on Line 305, the preparer can enter the name of another child for whom the UCCB was received.

46 The Tax Shelter Training 45 Box (12) - Repayment of Previous-Year Benefits This is the total amount of benefits repaid for previous years. The person who reported UCCB income for the previous year must claim this amount. Information from this slip is entered on the RC62 Screen and posted to Line 117. RC210 Slips - Working Income Tax Benefit Advance Payments Statement Box 10 - Working Income Tax Benefit Advance Payments This is the portion of the Working Income Tax Benefit that was issued as Advance Payments for the Tax Year indicated on this statement. Enter this amount on the RC210 Screen.

47 The Tax Shelter Training 46 T5018 Slips - Statement Of Contract Payments Box (22) shows the amount of Construction subcontractor payments. This amount must be entered directly on a Statement of Business Income and Expenses T2125. T5013 Slips Statement of Partnership Income A taxpayer receiving a T5013 is a member of a partnership. The type of income earned in the partnership ranges from Investment Income, Rental Income, Capital Gains and Dividends. In addition, the partnership may incur losses that can be deducted by the taxpayer. When the information from this slip is entered on the T5013 screen in CanTax, the amounts are posted to their appropriate schedules and lines on the T1.

48 The Tax Shelter Training 47 Quebec Earnings A taxpayer may have earnings from Quebec yet is a resident of another province on December 31 and thus will not file a Quebec return. Since residents of Quebec on Dec 31 must file both a federal and provincial tax return, they are issued both a T4 slip and a Releve 1 slip from the same employer in Quebec. The T4 slip will show total earnings and federal taxes deducted as well as premiums paid for the Quebec Pension Plan (QPP) and EI. The Releve 1 slip will show total earnings and the Quebec taxes deducted as well as the QPP and EI. Box A Employment income before source deductions Box B Contribution to the Québec Pension Plan (QPP) Box C Employment insurance premium Box D Contribution to a registered pension plan (RPP) Box E Québec income tax withheld at source Box F Union dues (line 373) Box N Charitable donations and gifts Box J Employer contribution to a private health services plan. May be included in medical expenses. Reporting Information From The Releve 1 and the T4 When preparing a return for a taxpayer with a Releve 1 Slip and a T4 Slip from the same employer, be aware of the following. Total Earnings - Box (14) on the T4 and Box (A) on the Releve 1 show the same amounts and should be entered only once in the Box (14) field on the T4 screen. Quebec Pension Premiums (QPP) - Box (17) on the T4 and Box (B) on the Releve 1 show the same amounts and should be entered only once in the Box (17) field on the T4 screen. Employment Insurance Premiums Box (18) on the T4 and Box (C) on the Releve 1 show the same amount and should be entered only once in the Box (18) field on the T4 screen. Income Tax Deducted Box (22) on the T4 shows the federal taxes deducted only while Box (E) on the Releve 1 shows only the Quebec taxes deducted. The taxpayer must be given credit for both of these taxes. The amount in Box (22) on the T4 and the amount in Box (E) on the Releve 1 must be added together and entered in the Box (22) field on the T4 screen. Other amounts on the Releve 1 can be ignored as they either apply to the Quebec provincial return or the amounts are included on the T4 slip, which should be entered directly on the T4 screen.

49 The Tax Shelter Training 48 Foreign Employment Income and Foreign Tax Credit Foreign Employment Income Foreign employment income is income earned outside Canada from a foreign employer. This income must be reported on line 104 in Canadian dollars. Use the Bank of Canada exchange rate that was in effect on the day the income was received or, if the amount was paid at various times throughout the year, the average annual rate may be used. Exchange rates for various countries can be found using the Help feature of Cantax. Select Help / Contents and Index / Index Tab. Type exchange in the blank search field. The first item at the top of the list will be Exchange Rates. Click on Display to show the rates. Foreign employment income should be reported on the bottom part of the T4 screen in the field Other employment income not reported on T4/T4A Slips. Cantax will automatically post the income to Line 104 on page 1 of the T1 Foreign Tax Credit on Employment Income In addition to entering the employment income on the bottom of the T4 slip, the income and taxes must also be entered on the FTC screen in order to claim the Foreign Tax Credit. When this is done the credit will be posted to the Schedule 1 and the provincial Schedule 428. Enter Foreign Employment Income here. This amount has already been entered on the T4 Screen Enter taxes paid to a foreign country on employment income reported above

50 The Tax Shelter Training 49 Income Not Reported on Slips For more information see Line Employment income not reported on a T4 slip GST/HST Rebate Received in Previous Year If an employee paid and deducted employment expenses in the previous year, he/she may have received a GST/HST rebate on those expenses. If so, include on line 104 the rebate received. To enter this amount, expand on Line 104 of the T1 and then expand at the GST rebate received line and enter the amount on the top of the Employee and Partner GST/HST Rebate Application. This will be discussed in more detail later in the course. Note: This is not the same as the GST/HST credit received by many taxpayers. Jury Duty Income from jury duty is taxable and must be reported on Line 130. Expand at Line 130 to see a list of other incomes to be reported. Tips, Gratuities and Casual Labor Tips, gratuities and casual labour not shown on an information slip should be reported in the field Other Employment Income not reported on a T4/T4A slips. Support Payments Received For more information see Line 156 and Support payment received Taxpayers must report the total amount received on Line 156 and the taxable amount on Line 128 (These fields will have to be overridden unless the preparer uses the Cantax worksheet by expanding at Line 156 or 128). Under new rules, child support is not taxable to the recipient nor is it a deduction for the payer. Spousal support is taxable to the recipient and deductible for the payer. Prior to 1997, both spousal and child support were taxable to the recipient and deductible for the payer. Some support agreements were made prior to 1997 and thus the payments are taxable to the recipient and deductible for the payer.

51 The Tax Shelter Training 50 Income that Must be Self-Reported Some income earned and losses incurred by taxpayers is not reported on slips and thus, it is the responsibility of the taxpayer to report this income or loss. These include income or loss from a business, rental property and the sale of property and shares. The reporting of these types of income and expenses require the completion of special forms. These will be discussed in detail later in the course. Non-Taxable Income (which does have to be reported) Some types of income are not taxable to the recipient but may affect the amount that another person may claim for that recipient as eligible dependant, disability amount, etc. In addition, these types of income may affect the WITB, NL Low Income Reduction, GST/HST rebate and access to other assistance or income. These must be entered on the return but will be deducted before Taxable Income. These non-taxable amount include: Workers Compensation (T5007 Slip) Social Assistance (T5007 Slip) Federal OAP Supplement (T4(OAS)) Certain Foreign Pensions Non-Taxable Income (which does NOT have to be reported) Some types of income are not taxable and do not have to be reported on the T1. These include: GST/HST Credit (Do not confuse with GST/HST rebate on employee expense) Child Tax Benefit Lottery Winnings Vets Allowance or Disability Pension Inheritance Victims Compensation Foster parents payments Income of Indians on Reserves Strike Pay Non-Taxable Employment Benefits The following are non-taxable benefits that can be received from an employer. 1. discounts on employer s merchandise 2. subsidized meals 3. the cost for distinctive uniforms/clothing and cleaning 4. reimbursement of moving expenses 5. two non-cash gifts up to a total of $ per year 6. use of employers recreation facilities 7. employer mandated medical examinations 8. employer sponsored personal counseling services

52 The Tax Shelter Training travel for business when reimbursed on a per kilometer basis 10. tuition if the course is required for your employment 11. employer allowance for an employees child to attend the nearest suitable school

53 The Tax Shelter Training 52 Part 1 Exercise Complete this exercise and compare it to the solution on our website. Solution to Part 1 Exercise Fred Janes (SIN ) was born on Dec 12, He is a single person with no dependants and received the information slips below. He was resident in NL at the end of the year. Fred has been paying part of the premiums to the Wage Loss Replacement Plan since He has paid a total of $ and has not claimed any amount of those premiums on a previous return. Fred and his mother, Mary, have a joint savings account at BMO. (T5 included). Fred has contributed 30% of the savings in the account. Fred rolled $ of the excess amount shown on the T4RIF directly into an RRSP. He has the receipt. After you have completed the return, check the solution on the Tax Shelter web page.

54 The Tax Shelter Training 53

55 The Tax Shelter Training 54 Part 1 Exercise Continued KHJ Co 6, , Janes, Fred 26 2, GHF Co Janes, Fred 107 6,

56 The Tax Shelter Training 55 Part 1 Exercise Continued