ARCHIVED CD 1994-020

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Annex A - Example of a Calculation

May 27, 1994

Ottawa, Canada
K1A 0S5

SUBJECT : Non-refundable Age Tax Credit

1. PURPOSE

1.1 The purpose of this directive is to provide you with information concerning the reduction of the age tax credit based on an individual's net income.

2. BACKGROUND

2.1 The federal budget of February 22, 1994, announced that from January 1, 1994, the non-refundable age tax credit for all persons age 65 and over will be subject to an income test; i.e. the income test determines the age tax credit according to the net income.

3. POLICY

3.1 Currently, the income tax system provides a federal non-refundable age tax credit of $3,482 to all persons age 65 or over, regardless of income.

3.2 The new federal budget has announced that the age tax credit will be subject to an income test but that employees and pensioners with a net income less than $25,921 will retain their full credit.

Where the individual's net income exceeds $25,921, the age tax credit amount of $3,482 will be reduced by 7.5% of the net income exceeding $25,921 for 1994 and will be reduced by 15% of the net income exceeding $25,921 for 1995.

4. PROCEDURES/INSTRUCTIONS

4.1 Effective July 1, 1994, changes will be implemented to reflect the true annual adjustment retroactive to January 1, 1994. Therefore, from July 1, 1994, to December 31, 1994, the age tax credit will be reduced by 15% of the net income exceeding $25,921 to cover the entire taxation year 1994.

4.2 For withholding purposes, "net income" is the total of the expected gross salary and pension income plus any taxable benefits, minus anticipated contributions to a Registered Pension Plan, and/or a Registered Retirement Savings Plan, Alimony or Maintenance payments and union dues deductions.

4.3 A report will be produced to provide personnel offices with a list of the employees who will be age 65 on or before the end of December 1994. This report will also display the amount contained in field 81 "Tax Credit - Indexed" on the master file for these accounts.

4.4 Personnel should identify whether the employees with a tax credit amount in field 81, which is higher than the basic personal amount of $6,456, have claimed the age tax credit amount of $3,482 from their TD1 on file.

Personnel should inform employees who have claimed the age tax credit amount of the possible reduction of the tax credit and that a calculation of the net income is to be performed to adjust the age tax credit from July 1, 1994. An example of the calculation is attached in Annex A.

4.5 When applicable, Personnel should amend the amount in field 81 "Tax Credit - Indexed" based on the calculation of the new age tax credit.

4.6 For 1995, Revenue Canada is anticipating an amendment to their TD1 in order to allow the individual to calculate his/her applicable age tax credit.

4.7 Please note that the reduction of the age tax credit is not applicable to the Quebec age credit claimed on the MR-19.

5. INQUIRIES

5.1 Any queries concerning the foregoing may be directed to Shirley Auksztinaitis at 819-956-2094 or Diane Perrier at 819-956-2063, of the Advisory Services Division.

Original Signed by
P. Charko

P. Charko
Director General
Compensation Sector
Government Operational Service

Reference: CJA 9007-7

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Annex A

EXAMPLE OF A CALCULATION OF THE AGE TAX CREDIT
EFFECTIVE JULY 1, 1994 (ITEM 5 ON THE TD1)

The employee is claiming the basic personal amount of $6,456 plus the age tax credit amount of $3,482 for a total of $9,938 on his TD1 form.

The calculation of the "net income" is to be based on a projection of total earnings and allowable deductions as shown below for 1994.

Calculation of the "net income" for 1994:

• Gross salary: $42,000
• Pension income: 0
• Federal Taxable Benefits: $480
• Total $42,480 ($42,000 + $480)

Less 1:

• Contributions to a Registered Pension Plan(i.e. PSSA): $2,345
• Contributions to a Registered Retirement Savings: $1,000
• Alimony or Maintenance payments: 0
• Union dues: $360
• Total $ 3,705
• Net Income for 1994: $38,775 ($42,280 - $38,775)

Reduction of the age tax credit to be implemented on July 1, 1994:

• Age tax credit: $3,482

Less 2:

1. If the net income is equal or less than $25,921- enter 0
   or
2. If the net income is greater than $25,921 - Calculate and enter 15% of the net income exceeding $25,921

• 15% of income exceeding $25,921: ($38,775 - $25,921 = $12,854)
• 15% of $12,854 = $1,928
• Age tax credit reduction: $1,928
• New age tax credit for 1994: $1,554

New Tax Credit - Index applicable from July 1, 1994:

Therefore, the amount in field 81 should be amended effective from July 1, 1994, to reflect the retroactivity to January 1, 1994.

• Basic amount: $6456
• Age credit: $1544
• Tax credit - index: $8010