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1994-020-e.html
COMPENSATION DIRECTIVE : 1994-020
Annex A - Example of a Calculation
May 27, 1994
Ottawa,
Canada
K1A 0S5
SUBJECT: Non-refundable Age Tax Credit
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1
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PURPOSE
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1.1
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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.
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2
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BACKGROUND
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2.1
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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.
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3
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POLICY
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3.1
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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.
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3.2
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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.
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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.
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4
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PROCEDURES/INSTRUCTIONS
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4.1
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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.
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4.2
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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.
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4.3
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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.
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4.4
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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.
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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.
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4.5
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When applicable, Personnel should amend the amount in field 81 "Tax Credit
- Indexed" based on the calculation of the new age tax
credit.
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4.6
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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.
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4.7
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Please note that the reduction of the age tax credit is not applicable
to the Quebec age credit claimed on the MR-19.
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5
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INQUIRIES
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5.1
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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.
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Original Signed by
P. Charko
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P. Charko
Director General
Compensation Sector
Government Operational Service
Reference: CJA 9007-7
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:
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:
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
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