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Calculation of federal tax (Schedule 1)
To calculate your federal tax, follow the instructions in this section to complete Schedule 1, Federal Tax.
Generally, the federal tax you have to pay is based on your taxable income (line 260). Use Schedule 1 to determine your federal income tax, which includes the surtax for non-residents of Canada and deemed residents of Canada.
Non-residents electing under section 217 – Your federal tax is based on the greater of your taxable income (line 260) or your net world income after adjustments (line 16 on Schedule A, Statement of World Income). In addition, you may be entitled to the section 217 tax adjustment. For more information, see line 445.
▮▲Schedule A, Statement of World Income
Complete Schedule A to report your world income. World income is income from Canadian sources and sources outside Canada. Your foreign source income is reported only on your Schedule A.
Non-residents and non-residents electing under section 216.1 – Complete and attach Schedule A to your return. Your net world income is used to determine your allowable non-refundable tax credits on Schedule B, Allowable Amount of Non-Refundable Tax Credits.
Non-residents electing under section 217 – Complete and attach Schedule A to your return. Your net world income is used to determine your allowable non-refundable tax credits on Schedule B, and to calculate your federal tax on Schedule 1, and the section 217 tax adjustment on Schedule C, Electing under Section 217 of the Income Tax Act.
Minimum tax
Minimum tax limits the tax advantage you can receive in a year from certain incentives. You have to pay minimum tax if it is more than the federal tax you calculate in the usual manner. When calculating your taxable income for this tax, which does not apply to a person who died in 2017, you are allowed a basic exemption of $40,000.
To find out if you have to pay this tax, add the amounts shown in B and 60% of the amount on line 127 of your return. If the total is $40,000 or less, you probably do not have to pay minimum tax. If the total is more than $40,000, you may have to pay it.
Use Form T691, Alternative Minimum Tax, to find out if you have to pay minimum tax.
Here is a list of the most common situations where you may have to pay minimum tax:
A. You reported a taxable capital gain on line 127 of your return.
B. You claimed any of the following on your return:
- a loss (including your share of a partnership loss) resulting from, or increased by, claiming capital cost allowance on rental properties;
- a loss from a limited partnership that is a tax shelter;
- most carrying charges (line 221) on certain investments;
- a loss from resource properties resulting from, or increased by, claiming a depletion allowance, exploration expenses, development expenses, or Canadian oil and gas property expenses;
- a deduction on line 248 for an employee home relocation loan; or
- a deduction on line 249 for security options.
C. You claimed any of the following tax credits on Schedule 1:
Example
Paul claimed a $50,000 deduction in 2017 for carrying charges. Because this deduction is more than $40,000, Paul may have to pay minimum tax. To find out, he should complete Form T691, Alternative Minimum Tax.
Tax Tip
You may be able to claim a credit against your taxes for 2017 if you paid minimum tax on any of your returns for 2010 to 2016. See line 427.
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