To reward military personnel for their service, the Canada Revenue Agency (CRA) offers a special tax deduction for qualifying members of the military forces. In some cases, members of the Canadian police service can also claim this deduction. Here’s what you need to know.
Originally, this deduction was reserved for service members or police officers who were involved in high-risk missions. In 2004, the CRA announced that it had expanded the deduction to all service members except those in low-risk situations, as well as to members of the Canadian police force.
To qualify, whether you are a member of the police or military force, you must have earned the money while outside of Canada.
As of 2004, there are no income limits related to claiming this deduction. Military personnel of all ranks — including the highest levels of pay — may claim this deduction. According to the Minister of Finance, this deduction allows service members to avoid paying income tax on up to $6,000 of income per month.
Claiming the Deduction
If you qualify for the Canadian Forces personnel and police deduction, you will see that some of your income of your T4 slip is marked with code 43.
This amount represents money that you made while working in a high-risk or moderate-risk operation.
To claim the deduction, transfer this amount to line 24400 of your income tax return (T1). This amount, along with a few other deductions, is subtracted from your net income on line 23600 to determine your taxable income. By lowering your taxable income, this deduction can help you can avoid an unwieldy tax burden and can even earn you a tax refund.
However, by lowering your taxable income, this deduction cannot help you qualify for benefits. Note that eligibility for benefits is based on your net income from line 23600.
Understanding Your T4 Slip
Your T4 slip reports all of the income you received from your employer in the previous tax year. In most cases, your income is reported in box 14 of this slip.
If you have received military or police pay for both low and high-risk missions, the total of your income from all of these missions will appear in box 14.
However, in another section of your slip, some of that money will be noted with code 43, which indicates that it is not taxable.
When completing your income tax return, you should report the entire amount from box 14 as income. However, you won’t be taxed on all of it. As indicated above, when you claim the amount affiliated with code 43 on line 24400, it is subtracted from your net income so that you don’t pay tax on it. Instead, you only pay tax on the income you earned from low-risk operations.
For Québec Resident this amount will be found on your Relevé 1 box A-7 which in turn applies to line 297 of your TP1 form. Please review this link for more details.
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