Hello, fellow practitioners! Today's question deals with the calculation of income for family class sponsorship.
Question:
Would you kindly address one question about financial evaluation sponsoring parents/grandparents?
If the sponsor is self-employed, is his annual income still considered the amount from Line 150 on the Notice of Assessment? For example, a self-employed sponsor, his gross annual income on Line 150 is $60,000. However, his Net Income on Line 236 is $32,000, after deductions from total income. On the IMM5768, it seems they ask for the number on Line 150, regardless whether the sponsor has employment income (T4) or self-employment. So, is it not the same as when it specifically asked for Net Income on the older version of the form IMM 1283?
Also, how is RRSP deduction from total gross income considered in relation to financial evaluation for sponsorship purpose? For example, a sponsor's total income in 2015 is $70,000, he bought his RRSP for $20,000. Is his qualified income $70,000 or $50,000?
Answer:
This question applies not only to parent/grandparent sponsorships, but to any sponsorship in which Minimum Necessary Income is at issue. The answer lies in the interpretation of the meaning of "total income" in R133(1)(j)(i), which reads as follows:
133 (1) A sponsorship application shall only be approved by an officer if, on the day on which the application was filed and from that day until the day a decision is made with respect to the application, there is evidence that the sponsor:
(j) if the sponsor resides
(i) in a province other than a province referred to in paragraph 131(b),
(A) has a total income that is at least equal to the minimum necessary income, if the sponsorship application was filed in respect of a foreign national other than a foreign national referred to in clause (B), or
(B) has a total income that is at least equal to the minimum necessary income, plus 30%, for each of the three consecutive taxation years immediately preceding the date of filing of the sponsorship application, if the sponsorship application was filed in respect of a foreign national who is
(I) the sponsor's mother or father,
(II) the mother or father of the sponsor's mother or father, or
(III) an accompanying family member of the foreign national described in subclause (I) or (II), and
"Total income" is not defined in the Act or Regulations, but it is a recognized tax accounting term and appears on the Notice of Assessment itself. The Manual in Chapter OP2 gives guidance on what this means for sponsorship purposes. http://www.cic.gc.ca/English/resources/manuals/ip/ip02-eng.pdf
s.5.32 states as follows:
"Total income" as referred to in R133(1)(j)(i) is the total income shown on line 150 of the Notice of Assessment.
To make a long story short, Line 150 is the only relevant number we need, and thankfully no additional calculations are required in filling up the sponsor's Financial Evaluation. If you're like me and math makes your head hurt, you could stop there, but if you really want to understand why this all makes sense, please keep reading.
Line 150 on a person's tax return represents the total of Lines 101-147, representing all potential income sources, such as employment income, business income, rental income, commission income, etc. See a line by line breakdown at http://www.cra-arc.gc.ca/E/pbg/tf/5006-r/5006-r-15e.pdf
Since self-employed income is captured in lines 135-143 of a person's tax return, it is automatically captured in Line 150 and no separate calculation is needed on our side. Something important to note is that in lines 135-143, only the NET self-employed income goes toward Line 150. This means that any business deductions the person claimed have already been taken out and only the surplus goes toward Line 150.
Deductions such as RRSP contributions are reflected in Lines 206 onward, and therefore do not have to be included in "Total Income".
So to summarize, the amount which is relevant in calculating Minimum Necessary Income is limited to "Total Income" which is fully represented and pre-calculated by simply using the figure from Line 150 of the person's Notice of Assessment.
