Student Workbook Taxes

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Teaching Taxes ProgramStudent Workbook

2008

TIS17(E) Rev. 08


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What is it?Since 1971, the Canada Revenue Agency (CRA)has worked with community volunteers to helppeople complete their income tax and benefitreturns.

Help people in your communityMany people dont know how to complete theirincome tax and benefit return and cannot payfor assistance. We need volunteers like you toprovide this important community service totaxpayers who have low incomes and simpletax situations. As a volunteer, we will ask youto respect the privacy of the taxpayer, declineany offers of monetary reward for yourservices, and return the completed income tax

and benefit return and other personaldocuments to the taxpayer.

What do you get out of it?As a volunteer, you will meet other peoplewho, like yourself, want to lend a helping hand.You will also have the satisfaction of knowingthat you are providing a service to those who

need it most. Volunteering is easy andrewarding.

The CRA organizes free volunteer trainingsessions for individuals and communityorganizations across the country and provides apackage that includes a handy reference kit.With the knowledge from the volunteertraining session and the reference kit, you willbe ready to help others in your community.Remember that the CRA is always available tohelp you if you have any questions.

How can you get involved?If you want to help in your community, registeronline at www.cra.gc.ca/volunteer, or call usat 1-800-959-8281.

You would be a welcome addition to ourvolunteer team!

Community Volunteer Income Tax Program


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Page Page

Introduction..................................................... 4Why should you learn about taxes?.............. 4What will you learn from the Teaching

Taxes Program? ............................................ 4

Additional information................................... 4

Learning Sections ........................................... 4Section 1 History of taxes in the world

and Canada ................................................... 4Section 2 Canadas tax system and the

Taxpayer Bill of Rights ................................ 4Section 3 Your tax obligations when you

start working................................................. 5Social insurance number ............................. 5Form TD1, Personal Tax Credits Return ...... 5What gets deducted from your salary or

wages.......................................................... 5Your statement of earnings (pay stub)...... 6T4 information slip Statement of

Remuneration Paidd .................................... 6Section 4 Income tax and benefit return.... 6

Calculating your income............................. 7

Calculating federal and provincial orterritorial taxes payable............................ 7

Refund or Balance owing ............................ 8Filing your return ......................................... 8

Tax Scenarios................................................... Example 1 High school student.................. 9Example 2 High school student (with

Quebec as the province of employment) .. 11Example 3 Post-secondary student ............ 13Example 4 Employed individual................ 16Example 5 Single-parent family ................ 17

Additional Information................................. 20Quick reference to box numbers on

information slips and line numbers on a

return.............................................................. 20Definitions ........................................................ 212008Personal Tax Credits Return TD1......... 23Sample Statement of Earnings (Pay Stub) .. 25Sample T4 Statement of Remuneration

Paid ................................................................. 26

Table of contents


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Why should you learn abouttaxes?Taxes will affect you and your family bothnow and in the future. As individuals orbusinesses, Canadians have to deal withtaxes, whether they file a return or claim acredit.

A basic knowledge and understanding ofCanadas income tax system will allow youto deal effectively with taxes throughoutyour life. You will learn how to comply withthe law and, at the same time, learn about allthe federal, provincial, or territorial benefitsand credits to which you may be entitled.

What will you learn from theTeaching Taxes Program?The Teaching Taxes Program is made up offour sections that will introduce you to theworld of taxes in Canada.

After completing the Tax Scenarios in thisworkbook, you will be able to prepare anincome tax and benefit return withconfidence, and you could help familymembers with their returns.

You could also join the CommunityVolunteer Income Tax Program. It is anexcellent opportunity for you to get involvedin your community and to deal with real-lifetax situations. See page 2 for moreinformation.

Additional informationThis workbook also has a glossary, a quickreference guide to the box and line numbersyou will find on the most common

information slips, sample copies of someforms, and a copy of the Taxpayer Bill ofRights.

Section 1 History of taxes inthe world and CanadaMany people assume that taxes are a recentdevelopment and that our ancestors did nothave to pay them. This is not the case.

Since the beginning of recorded history, somekind of tax system has existed in organizedsocieties and governments. Over 3,500 yearsago, the ancient Egyptians collected taxes andthe Roman Empire had a highly evolved taxsystem.

In this section, you will learn the evolution of

taxes from the early years of civilization to ourpresent day. You will also have the opportunityto discover some of the milestones in Canadastax system.

Your teacher can provide you with all thehandouts and/or activities you will need tocomplete this section.

Section 2 Canadas tax systemand the Taxpayer Bill of RightsThis section will introduce you to thecharacteristics of a good tax system. It will alsogive you an overview of Canadas tax system,and you will learn about the principle uponwhich the tax system is founded. You will alsotake a closer look at your rights as a taxpayerby reviewing the Taxpayer Bill of Rights. It canbe found on our Web site atwww.cra.gc.ca/fairness.

Your teacher can provide you with all thehandouts and/or activities you will need to

complete this section.

Introduction

Learning Sections


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Section 3 Your tax obligationswhen you start workingYou will learn all you need to know about someof the documents and forms that will help youto meet your tax obligations, and be introducedto those you will most likely see when you startworking. You will also be provided with

information on completing Form TD1, PersonalTax Credits Return, and be introduced to thecommon deductions you will most likely see onyour statement of earnings (pay stub). You willalso learn how to read and understand the T4information slips.

Social insurance number

The social insurance number (SIN) is a nine-digit number that you need to work in Canadaand to have access to government programsand benefits.

For more information, or to get an applicationfor a SIN, contact Service Canada at1-800-206-7218, or visit their Web site atwww.servicecanada.gc.ca.

Form TD1, Personal Tax CreditsReturn

When you begin working, your employer willask you to complete a Form TD1, Personal TaxCredits Return. This will enable your employer

to calculate the correct amount of income tax todeduct from your income.

Depending on your income level and theprovince or territory in which you work, youmay also have to complete a form for thatprovince or territory.

Form TD1 outlines the non-refundable taxcredits you can claim on the income tax andbenefit return you file after the end of eachyear. Non-refundable tax credits are used toreduce the amount of tax withheld on yourincome, because they reduce the federal andprovincial/territorial taxes you have to paywhen you file your return.

Generally, every taxpayer is eligible to claimthe basic personal amount on line 1 ofForm TD1. Depending on your situation when

you complete Form TD1, you may be eligiblefor other non-refundable tax credits.

If you have more than one employer or payer atthe same time and you have already claimedpersonal tax credit amounts on another FormTD1, you should not claim them again.Otherwise, your non-refundable tax credits will

be counted twice, and you will have taxesowing at the end of the year when you file yourincome tax and benefit return. To choose thisoption, you would enter "0" on line 13 on thefront page and not complete lines 2 to 12.

The amount of tax withheld by your employerduring the year will build a credit (total incometax deducted) that you will apply against yourtotal taxes payable when you complete yourincome tax and benefit return after the end ofthe year. See a copy of Form TD1 on page 23.

What gets deducted from your salaryor wages

Your employer will make deductions from yoursalary or wages. The most common deductionsare Canada Pension Plan (CPP) or QuebecPension Plan (QPP) contributions, EmploymentInsurance (EI) premiums, and income tax.

Canada Pension Plan (CPP) or QuebecPension Plan (QPP) contributions

Once you turn 18, and until you turn 70, youhave to make CPP or QPP contributions basedon your pensionable employment income. Youremployer is responsible for deducting thesecontributions and sending them to the CRA.

If you worked in the province of Quebec, youremployer will deduct QPP contributionsinstead of CPP contributions.

The amount of your contribution (deductedeach pay period) is calculated on an estimate ofyour pensionable earnings, including anexemption of $3,500 up to a maximum of$44,900.

The result is then multiplied by thecontribution rate. The contribution rate for CPPis 4.95% for 2008. The maximum amount thatyou can pay for the year is $2,049.30.


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Employment Insurance (EI) premiums

There is no age limit for EI contributions. Theseare also a percentage of your insurable earnings(generally, gross pay). The employees EI ratefor 2008 is 1.73%. The maximum premium youpay for the year is $711.03. Employees withQuebec employers pay EI premiums at the rateof 1.39% and the maximum premium payable

for the year is $571.29.

Quebec Parental Insurance Plan (QPIP)premiums (province of employment Quebeconly)

The QPIP is a plan to which employers and youas an employee contribute to provide for thepayment of benefits to an employee whoseregular income is interrupted as a result oftaking maternity, paternity, parental, oradoption leave. All employees, regardless of

their age, pay QPIP premiums. The employeerate for 2008 is 0.450% and the maximumpremium payable for the year is $272.25.

Income tax deductions

Your employer or payer will determine theincome tax to deduct based on your total claimamount on the Form TD1, Personal Tax CreditsReturn that you completed, and takes intoaccount the CPP contributions and EIpremiums deducted. There is no annual limit to

the total amount of income tax your employeror payer can deduct in a year.

If you expect your total income for the year tobe less than the total claim amount on FormTD1, you can ask your employer or payer not todeduct tax from your earnings. If you havemultiple employers throughout the year, it isimportant that you complete Form TD1for eachemployer.

Your statement of earnings (pay

stub)When you receive your first statement ofearnings (pay stub), it will show how muchincome you have earned over a specifiedperiod. Most importantly, it will show whatyour employer deducted from your incomesuch as CPP or QPP contributions, EIpremiums, and income tax.

The rates for your contributions, premiums,and deductions are revised every year. See asample of a pay stub on page 25.

T4 information slip Statement ofRemuneration Paid

You will receive your T4 slip from your

employer by the end of February following theyear in which you worked.

Your T4 slip will show your gross earnings forthe year, CPP or QPP contributions, EIpremiums, and income tax deducted at source.Use the amounts from your T4 slip to completeyour income tax and benefit return. See asample of a T4 slip on page 26.

Section 4 Income tax andbenefit returnThis section will introduce you to the incometax and benefit return and the General IncomeTax and Benefit Guide 2008. You will learn howto use the General guide as a reference tool tocomplete an income tax and benefit return.

You will also learn the importance of filing areturn every year and the various ways of filinga completed return.

You will use the General guide to completesimple returns using the examples of tax

scenarios on pages 9-19 of this workbook. Youwill also learn about the deductions and creditsthat you are entitled to claim and whichinformation slips and official receipts you mustattach to your return before you file it. You mayalso find helpful the quick reference on page 20of this workbook, which matches box numberson information slips to line numbers on thereturn.

Take the time to read the At your service andGeneral information sections of the General

guide. To complete a return, read the line-by-line instructions, and enter the appropriateamounts on the corresponding lines of thereturn. All the information you need tocomplete your return is in the guide.


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The return is set up in an easy-to-follow formatwith clearly defined areas called:

Identification; Elections Canada; Goods and services tax/harmonized sales

tax (GST/HST) credit application;

Total income; Net income; Taxable income; and Refund or Balance owing.Start with the Identification area and movethrough each area in the order they appear onthe return. Use only the lines that apply to yoursituation. Leave the other lines blank.

For example, if you have no pension income, donot enter any information on the pensionincome line on the return. It is important tocomplete each area before going on to the next.Most importantly, do not miss any areas.

You may also have to complete one or moreschedules, such as Schedule 1, Federal Tax.

Calculating your income

Most of the income you receive should bereported on your return.

Total income (line 150)

The most common types of income you mayreceive as a student include:

employment income; tips and occasional earnings; Universal Child Care Benefit investment income; research grants; registered education savings plan

income; and

scholarships, fellowships, bursaries, studygrants, and artists project grants.

NoteThe full amount of scholarships,fellowships, or bursaries that are receivedby you as a student with respect to yourenrolment in a program that entitles you toclaim the education amount are not taxableand are no longer reported as income onyour return.

You do not have to include your GST/HSTcredit or Canada Child Tax Benefit (CCTB)payments, or those from related provincial orterritorial programs, lottery winnings, or mostgifts and inheritances.

Net income (line 236)

In this section, you reduce your total incomewith certain deductions such as registeredretirement savings plan (RRSP) contributions,union dues, child care expenses, and movingexpenses to determine your net income. Netincome is used to calculate certain federal andprovincial or territorial credits. It is also used tocalculate the CCTB and GST/HST credit.

Taxable income (line 260)

This is the amount left after all allowabledeductions have been subtracted from your netincome. This amount is used to calculate yourfederal and provincial or territorial taxespayable.

Calculating federal and provincial orterritorial taxes payable

Your taxable income (line 260) is used tocalculate both federal and provincial orterritorial taxes. Use Schedule 1, Federal Tax, tocalculate your net federal tax. Use Form 428 forthe province (except Quebec) or territory whereyou lived on December 31, 2008, to calculateyour net provincial or territorial tax.

Although your federal and provincial orterritorial tax is calculated using a separateform, the method and structure are similar.Each province or territory has its own taxbrackets and rates, which differ from thefederal brackets and rates.


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Federal and provincial or territorialnon-refundable tax credits

Non-refundable tax credits reduce the amountof income tax you owe. However, even if thetotal of these credits is more than the amountyou owe, you will not get a refund for thedifference.

The eligibility criteria and rules for claimingprovincial or territorial non-refundable taxcredits are the same as the federalnon-refundable tax credits.

However, the value and calculation of mostprovincial and territorial non-refundable taxcredits are different from the correspondingfederal credits. You may find it easier tocalculate your net federal tax before youcalculate your net provincial or territorial taxpayable.

Refund or Balance owing

In this area, calculate all federal and provincialor territorial credits and taxes payable anddetermine if you will get a refund or have abalance owing.

Enter any federal and provincial or territorialtax payable on the applicable lines of the return,and follow the instructions on the return tocalculate the total payable on line 435.

Add all the tax credits listed from lines 437 to479, and enter the total on line 482. Unlike thenon-refundable credits, we do refund the partof the total credits on line 482 that is more thanthe total payable on line 435.

The most common refundable credits that willapply to you are:

total income tax deducted; CPP overpayment; EI overpayment; and provincial or territorial credits.Once you have determined the total credits online 482, subtract this amount from the totalpayable shown on line 435.

If the amount on line 435 is less than theamount on line 482, you are entitled to a refundof the difference. Enter the refund amount online 484.

If the amount on line 435 is more than theamount on line 482, you owe the amount of the

difference. Enter the balance owing on line 485.Even if you cannot pay all of your balanceowing right away, you should still file yourreturn on time. This way you will not have topay a penalty for filing your return after thedue date.

Filing your return

You can mail or deliver your income tax andbenefit return, or you can file it electronicallyusing NETFILE, EFILE or TELEFILE. If youmail or deliver your return, you should attachall the required information slips, receipts,schedules, and statements to the return, asindicated in the General Income Tax and BenefitGuide, and sign your return.

If you file your return electronically, keep yourdocuments in case we ask to see them at a laterdate. Generally, you should keep yoursupporting documents for six years.


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Quick reference to box numbers on information slips and linenumbers on an income tax and benefit return

Additional Information

Slip type Box No. Box title Line on return

T4 Statement of Remuneration Paid

14 Employment income 101

16 Employees Canada Pension Plan contributions 308

17 Employees Quebec Pension Plan contributions 308

18 Employees Employment Insurance premiums 312

20 Registered pension plan contributions 207

22 Income tax deducted 437

55 Employees Provincial Parental Insurance Plan (PPIP) (ifprovince of employment is Quebec)

375

T4A Statement of Pension, Retirement, Annuity, and Other Income

16 Pension or superannuation 115 and 31418 Lump-sum payments 130

20 Self-employed commissions 166 and 139


28 Other income Miscellaneous

40 RESP accumulated income payments 130 and 418

42 RESP educational assistance payments 130

T5 Statement of Investment Income

25 Taxable amount of eligible dividends 120

26 Dividend tax credit for eligible dividends 425

11 Taxable amount of dividends other than eligibledividends

180 and 120

12 Dividend tax credit for dividends other than eligibledividends

425

13 Interest from Canadian sources 121

14 Other income from Canadian sources 121

15 Foreign income 121

T4E Statementof Employment Insurance and Other Benefits

7 Repayment rate 235 and 422

14 Total benefits paid 119

20 Taxable tuition assistance Not entered onreturn


23 Quebec income tax deducted 437 (if not aresident of

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Canada Child Tax Benefit (CCTB) Anon-taxable monthly payment that is fullyindexed to the cost of living and that is paid toeligible families to help them with the cost ofraising children under age 18. The benefit is

based on the number of children, their ages,and family net income.

Canada Pension Plan (CPP) A pension plandesigned to provide you with income for yourretirement.

Child care expenses Expenses for a child paidto a caregiver by a person supporting aneligible child so that the person can earnemployment income, carry on a business,attend school, or conduct research.

EFILE A method of filing an income tax andbenefit return electronically through an EFILEservice provider.

Employment Insurance (EI) premiums Employers deduct EI premiums from the salaryor wages of their employees, and remit theseamounts to the CRA. When an employeebecomes unemployed, he or she may beentitled to EI benefits. Self-employed people areusually not covered under the EmploymentInsurance Act.

Goods and services tax/harmonized sales tax(GST/HST) credit A credit to help familiesand individuals with low and modest incomesoffset the effects of all or part of the GST/HST.

Income tax and benefit returns The five mostcommon income tax and benefit returns are:

T1 General This is the most detailed of allthe returns and it covers all tax situations. Itis the only income tax and benefit returnavailable on CRAs Web site atwww.cra.gc.ca/forms.

T1 Special This is a less detailed version ofthe General return and is designed fornon-business tax situations.

T1S-A This return is for retired seniorswith straightforward tax situations whosetaxable income is $50,000 or less. It includesthe most common types of retirement incomeand credits.

T1S-C This return is for individuals whohave certain types of income for which notaxes are being withheld and no taxes arepayable. They use this return to apply for theGST/HST credit and to give the CRA the

information needed to calculate any CCTB(and related provincial or territorial childbenefits and credits) payments they may beentitled to receive.

T1S-D Thiscredit and benefitreturn is forIndians who are registered, or eligible to beregistered, under the Indian Act.

Income tax deductions Employers deductincome tax from the salary or wages of theiremployees and remit these amounts to theCRA.

Information slips Forms that employers,trusts, and businesses use to tell the CRA andtaxpayers how much income was earned andhow much tax was deducted, if applicable.These include forms such as the T3, T4, and T5.

Instalment payments Taxpayers who receiveincome that has no tax withheld or not enoughtax withheld may have to pay their taxes byinstalments.

NETFILE A method of filing a return

electronically over the Internet. For moreinformation, visit our Web site atwww.netfile.gc.ca.

Net income The amount left after certainallowable deductions have been subtractedfrom the total income calculated on an incometax and benefit return.

Non-refundable tax credits These creditsreduce the amount of income tax you owe.Federal non-refundable tax credits are used to

reduce the amount of federal tax you owe.Provincial or territorial non-refundable taxcredits are used to reduce the provincial orterritorial tax you owe. However, if the total ofthese credits is more than the amount you owe,you will not get a refund for the difference. Thisis why they are called non-refundable.

Notice of Assessment A notice that the CRAsends to taxpayers after it processes their

Definitions


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income tax and benefit returns. The notice tellstaxpayers whether the CRA has made anycorrections to their return and what the changeswere. It also lets taxpayers know whether theyowe more tax or what the amount of theirrefund will be, and gives them their registeredretirement savings plan contribution limit forthe following year.

Penalties Amounts taxpayers must pay ifthey fail to file an income tax and benefit returnon time or try to evade paying tax by not filinga return. Individuals who make falsestatements or omissions on a return or who donot provide the information required on aprescribed form must also pay a penalty.

Quebec Pension Plan (QPP) A pension planmaintained by the Province of Quebec, which isequivalent to the CPP.

Refund The amount refunded to the taxpayerif the total credits on line 482 of the income taxand benefit return are more than the totalpayable on line 435.

Refundable tax credits These credits reducethe amount of income tax you owe. If the totalof these credits is more than the amount youowe, you may be entitled to a refund of thedifference.

Registered education savings plan (RESP) A

plan that can help an individual save money fora childs post-secondary education.Contributions to a plan are not deductible fromincome, but a beneficiary has to include RESPeducational assistance payments (incomeearned in the plan) in income.

Registered retirement savings plan (RRSP) A retirement savings plan that an individualestablishes and contributes to, and the CRAregisters. Any income earned in an RRSP isgenerally exempt from tax until the individualreceives payments from the plan.

Self-assessment The foundation of the taxsystem, whereby taxpayers are required toreport their income and calculate their incometax payable without the government having toformally request that they do so.

Statement of Remuneration Paid (T4 slip) Aninformation slip that shows the income andtaxable benefits an employer paid to theiremployee in the past year. It also shows thetotal deductions for the year.

Taxation The legislation (law and regulations)concerning consumption taxes and income tax.

Tax credits Amounts of money considered tohave been paid towards an individuals taxpayable. Governments give tax credits toreduce or redistribute taxes or to encouragecertain types of activity or investment.Examples of these are provincial or territorialtax credits and the dividend tax credit.

Taxable income The amount of incomeremaining after certain allowable deductionshave been subtracted from net income.

Tax year Usually the calendar year, that is, theyear that begins on January 1 and ends onDecember 31.

Taxpayer An individual or business that isrequired to pay tax.

TELEFILE A method of filing a returnelectronically. This system lets you file yourcompleted return using a touch-tone telephone.

Universal Child Care Benefit (UCCB) Ataxable benefit designed to help Canadian

families, as they try to balance work and familylife, by supporting their child care choicesthrough direct financial support.


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Your opinion counts!We review this workbook every year. If you have comments or suggestions that would help usimprove it, we would like to hear from you. Send your comments and suggestions to:

Taxpayer Services DirectorateCanada Revenue Agency

750 Heron RoadOttawa ON K1A 0L5


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Quick. Easy. Secure.

Join the millions of people who trust the reliability, flexibility, and speed of the online services that the Canada RevenuAgency (CRA) offers.

NETFILEFile your tax return over the Internet using software certified for the NETFILE service. You can get a NETFILE accesscode online. For more information, go to www.netfile.gc.ca.

Direct deposit and online paymentsExpecting a refund or making a payment? Try direct deposit and online payment options. Using direct deposit, you cahave your income tax refund, your GST/HST credit, your Universal Child Care Benefit, and your Canada Child TaxBenefit deposited directly into your account at a financial institution in Canada. You can also make a payment throughyour financial institutions Internet or telephone banking services. Its as easy as paying any other bill online. For more

information, go to www.cra.gc.ca/dd-indor www.cra.gc.ca/electronicpayments.

My AccountUse My Account to check your refund, change your return, apply for child benefits, arrange your direct deposit, verifyyour RRSP deduction limit or GST/HST credit, and much more. To use My Account, you have to register for aGovernment of Canada epass and the CRA will mail you a security code. For more information, go towww.cra.gc.ca/myaccount.

Quick AccessWant access to some of your information right away? Quick Access will give you immediate, secure access to someof your information in My Account. With Quick Access, you will be able to view your tax return status, RRSP deductio

limit, and the status of your benefit payments. For more information, go to www.cra.gc.ca/quickaccess .

Whats new for 2009?

For more information, visit www.cra.gc.ca.

Tax-Free Savings AccountThe Tax-Free Savings Account is a registered savings account that allows taxpayers to earn investment incometax-free inside the account. Contributions to the tax-free savings account are not deductible for tax purposes,and withdrawals of contribution and earnings from the account are not taxable. For more information, visitwww.cra.gc.ca.

C

Documents

Student Workbook Taxes