DH got his T4 today...tax question!

**MomToTwoBoys** · 02-17-2009, 11:31 AM

I was just asking him about it this past weekend too. Talk about weird!

Anyways, his T4 shows that he made more money than we thought he did. $40,443.80 with an income tax deduction amount of $6,264.26 for the year of 2008.

The good thing about this is that now we can do the taxes. I got his student loan statement for 2008 last week, but the interest payment is not eligible to be used in the tax return. I guess it wasn't enough.

I hate doing his taxes. It's a matter of digging up all of the old pharmacy receipts and the receipts from the glasses that we bought the kids last year. I have them all organized, but I hate touching them because they make the tax return filing that much harder!

So my question is this:

Would he fall under a lower tax bracket this year with the new budget? The 2009 Canada Federal budget states the following:

For 2009, the budget proposes to increase the upper taxable income threshold of the 15% tax bracket from $38,832 to $40,726. You will be taxed at the higher rate of 22% only when your taxable income exceeds $40,726.

Further more, the upper taxable income threshold of the 22% bracket will be increased from $77,664 to $81,452. You will be taxed at the higher rate of 26% only when your taxable income exceeds $81,452.

The 29% bracket will continue to begin at $126,264.

For 2008, it would have been this:

15% on the first $38,832 of taxable income, +
22% on the next $38,832 of taxable income (on the portion of taxable income between $38,832 and $77,664), +
26% on the next $48,600 of taxable income (on the portion of taxable income between $77,664 and $126,264), +
29% of taxable income over $126,264.

Would that apply to us filing taxes this year? Would he be in the 15% bracket or would he be in the 22% bracket?

**mommy4ever** · 02-17-2009, 11:39 AM

the changes will affect the income tax for 2009 earnings, NOT 2008, I don't believe it was retroactive to include 2009. So he's in the 22% for this year. Unless you have some rrsp deductions that offset it enough.

I'd use the receipts to lower the taxes, but it takes alot to make it eligible.

All student loan interest is eligible, I'm confused as to why they would say it is not. I'd call them as it must be an error. I paid off mine this year with under $100 in interest paid, and it was eligible.

**Greebo** · 02-17-2009, 11:55 AM

In the US, taxable income = income - deductions
$40,443.80 with an income tax deduction amount of $6,264.26 = $34,179.54

Is it different in Canada? If not, then he's in the 15% range for 2008 and 2009 alike.

**mommy4ever** · 02-17-2009, 12:13 PM

yes it is different Greebo. Messed up is what it is..lol

**MomToTwoBoys** · 02-17-2009, 12:27 PM

Originally Posted by mommy4ever

the changes will affect the income tax for 2009 earnings, NOT 2008, I don't believe it was retroactive to include 2009. So he's in the 22% for this year. Unless you have some rrsp deductions that offset it enough.

I'd use the receipts to lower the taxes, but it takes alot to make it eligible.

All student loan interest is eligible, I'm confused as to why they would say it is not. I'd call them as it must be an error. I paid off mine this year with under $100 in interest paid, and it was eligible.

Alright, I pulled out the loan statement and at the bottom, it states You are not eligible for an Income Tax credit for this interest payment. It's a loan through the National Student Loans Service Centre for a Canada Student Loan. We paid $174.39 in total this year and out of that, there was about $5 in interest paid. I can have DH call them and see what the situation is with this one.

Originally Posted by Greebo

In the US, taxable income = income - deductions
$40,443.80 with an income tax deduction amount of $6,264.26 = $34,179.54

Is it different in Canada? If not, then he's in the 15% range for 2008 and 2009 alike.

I yanked one of his old tax returns out of my file folder and here's the basis of how it works:

Employment income is considered as gross income. The amount of that income is used to figure out your total income (which is the sum of the employment income, Old Age Security pension, CPP/QPP benefits, employment insurance benefits, interest income, support payments, etc). Basically if you received any sort of payment then that's configured into your total income for the year. You use the total income and subtract items from it to get your net income. These things that are subtracted are things like child care expenses, support payments made, unions dues, etc. It's basically all payments that you made that fall into their category as being applicable towards your net income. You then use the net income as your taxable income, in which the percentages come into play. The taxable income is what is considered, not the total income or the net income. You'd multiply the taxable income by the rate, which is your tax bracket basically. When you move up a bracket, you're also taxed on top of that. If he made $20,845.73 in 2003 then his tax rate would have been 16% then. Multiply those two and you get $3335.32. Since that's the lowest tax bracket for that year, he would be taxed 16% on that base amount and he'd use the $3335.32 in further configuring his federal tax rate.

So it's sort of different.

If you sit in the lowest tax bracket, you're only taxed via a percentage rate. Move up one bracket and not only are you taxed a higher percentage rate, but you're also taxed on that base amount by a certain amount. In 2003, it would have been 16%, 22%, 26% and 29%. The tax on base amount would be 0, $5,149, $12,230 and $22,703.

I know it sounds way confusing.

**Greebo** · 02-17-2009, 12:31 PM

Actually it sounds almost exactly like our system, so I'm not clear on how my math was off?

**monkeywrangler71** · 02-17-2009, 12:53 PM

Originally Posted by MomToTwoBoys

If you sit in the lowest tax bracket, you're only taxed via a percentage rate. Move up one bracket and not only are you taxed a higher percentage rate, but you're also taxed on that base amount by a certain amount. In 2003, it would have been 16%, 22%, 26% and 29%. The tax on base amount would be 0, $5,149, $12,230 and $22,703.

I know it sounds way confusing.

You are only taxed the highest percentage on the amount above the lower bracket. The lowest bracket is $38832, you pay 15% on that much ($5824); you pay 22% on the difference (40443.80 - 38832) * .22 = $354.59. Total federal taxes 5824 + 354.59.

You are not being taxed at the higher percentage and a flat amount, the flat amounts are put there so that you don't have to calculate how much you are paying at all the lower rates, you only have to figure out the amount in the highest tier.

**Greebo** · 02-17-2009, 12:56 PM

That's a common misconception in the states too - people think somehow if they make more money they'll be taxed at an overall higher rate and lose money, when in reality they'll only be taxed at the higher rate on the part above the line. It's always better to make more money.

**monkeywrangler71** · 02-17-2009, 12:58 PM

Originally Posted by Greebo

In the US, taxable income = income - deductions
$40,443.80 with an income tax deduction amount of $6,264.26 = $34,179.54

Is it different in Canada? If not, then he's in the 15% range for 2008 and 2009 alike.

It is not the same. We do not deduct from our income, we deduct from our taxes. There are a few specific items which are deducted from the total income, but not the stuff she is talking about.

Total income - RRSPs (and a few other special circumstances) = taxable income
(Taxable income * tax rate) - (personal deductions * 15%) = taxes owing

**Greebo** · 02-17-2009, 01:01 PM

AHHH, now I see.

Here, deductions from income are deductions, and deductions from taxes are credits.

Got it!

**MomToTwoBoys** · 02-17-2009, 01:13 PM

Originally Posted by monkeywrangler71

You are only taxed the highest percentage on the amount above the lower bracket. The lowest bracket is $38832, you pay 15% on that much ($5824); you pay 22% on the difference (40443.80 - 38832) * .22 = $354.59. Total federal taxes 5824 + 354.59.

You are not being taxed at the higher percentage and a flat amount, the flat amounts are put there so that you don't have to calculate how much you are paying at all the lower rates, you only have to figure out the amount in the highest tier.

Ooooh, now I get it.

So no matter what way I slice it, we'll probably get the same amount back this year that we did last year. I can deal with that, I guess.

It's better than getting nothing back at all.

**monkeywrangler71** · 02-17-2009, 01:18 PM

Originally Posted by Greebo

AHHH, now I see.

Here, deductions from income are deductions, and deductions from taxes are credits.

Got it!

They are actually called the same here - rrsps are deductions, the stuff she is talking about student loan interest, medical expenses, as well the basic personal amount and amounts for dependents that he would get etc. are really credits.

Reading back in the original post, I think the deduction that you picked up on was not a tax deduction but a payroll deduction into taxes, so that's just what he paid in through the year and not part of the equation.