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Taxation > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

Individual deadlines
CH4

A

Filing deadline
-Apr 30th
-June 15th if either individual or spouse is
self-employed
-Balance due Apr 30

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2
Q

Corporation deadlines
CH4

A

-Filing deadline: 6 months after yr end
-Balance due
2 months AYE
3 months AYE for a CCPC claiming the SBD and PY TI is less than $500K

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3
Q

Installments individuals
CH4

A

Required if current yr estimate net owing is greater than $3K & one of the 2 preceding yrs.
-Due quarterly
-interest can be avoided if you calc installments based on PY balance

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4
Q

Calc installments for individuals
CH4

A

-Lesser of:
a) 1/4* estimated net tax owing for current
yr
b) 1/4* PY net tax owing
c) 1st 2 installments: 1/4 * net tax owing for second preceding yr + 1/2 * (net tax owing for preceding yr-sum of first 2 installments)

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5
Q

Corp installments
CH4

A

Required if net tax owing is greater than $3K for current yr AND for the proceeding yr
-Due monthly or quarterly

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6
Q

Corp monthly installments
CH4

A

-Lesser of:
a) 1/12* estimated net tax owing for current
yr
b) 1/12* PY net tax owing
c) 1/12* net tax owing for second preceding yr + 1/10 * (net tax owing preceding yr-sum of the first 2 installments)

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7
Q

CCPC is eligible for quarterly installments if ALL of the conditions are met
CH4

A

1) TI (including associated companies) less than $500K in current or prev year
2) Taxable capital (including associated companies) is at most $10M
3) SBD was claimed in current or prev yr
4) Perfect compliance history during the last 12 months

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8
Q

Corp quarterly installments
CH4

A

-Lesser of:
a) 1/4* estimated net tax owing for current
yr
b) 1/4* PY net tax owing
c) 1/4* net tax owing for second preceding yr + 1/3 * (net tax owing preceding yr-sum of the first 2 installments)

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9
Q

Interest & Penalties
CH4

A

-Refund owned by CRA: Individual =refund amount * (PR+2%) & Corp=refund amount *PR

-Late or deficient installments: interest= PR+4%
penalty= 50% for interest> $1K & 25% of interest<

-Missed payment deadline=tax owing * (prescribed rate + 4%) compounded daily
until amount fully repaid
rate= (1+(PR+4%)/365) ^ days late

-Late filing: penalty= unpaid tax * (5%+1% per completed months up to 12 months)
if CRA sends a letter goes to 10%+2% per month for a max of 20 months

-Repeated faliure for income = or > $500: Lesser of
a) 10% * unreported income
b) 50% of the difference between the
understatement of tax and the amount of tax paid in relation to the unreported amount

-False statement: greater of a) $100 b) 50% of understated tax

-Error in tax return by advisor: Greater of a)$1K b) 100% gross revenue from person

-Participating in misrep: greater of a)$1K b) 50% tax sough avoided

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10
Q

Assessments and reassessments
CH4

A

-Reassessment period:
Ind & CCPCs: 3 yrs from NOA
Corps: 4 yrs after NOA
-After period CRA doesnt generally reassess unless:
a) Taxpayer misrepresentation due to neglect or carelessness
b) Taxpayer filed a waiver with Minister within 3 yrs of date of Org NOA.
-Amend up to 10 yrs back

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11
Q

Notice of objection and appeal process
CH4

A

-If you disagree with a NORA & NOA
-Deadline is as follows
1)Individual: Later of a) 1 yr after filing due date 2)90 days after mailing NO(R)A
2) Other taxpayers: 90 days after the date of mailing the NO(R)A
-If taxpayer dissatisfied after objection process, either party can appeal to Tax Court of Canada within 90 D of CRA reply

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12
Q

Change in use
CH12

A

-Deemed to have disposed of prop at FMV when its converted and used for another purpose

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13
Q

Change in use
Busi –> Personal
CH12

A

-Deemed POD and reacquisition at FMV
-CG, recapture, TL are recognized

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14
Q

Change in use
Personal –> Busi
CH12

A

-FMV<Cost: FMV= deemed POD & new ACB

-FMV>Cost: Deemed POD=FMV & CG
reacquisition= Cost+1/2 (FMV-ACB)

-RECALL: PUP LOSSES ARE NOT DEDUCTIBLE

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15
Q

Principal residences- Income producing to personal
CH12

A

-If no CCA was claimed during that time change of use does not apply
-Taxpayer may elect not to have deemed disposed at the change of use.
-Elections allows taxpayer to claim PRE up to 4 yrs prior to change of use.
-DONT RECCOMEND TO TAKE CCA

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16
Q

Busi investment loss
CH12

A

-If taxpayer has made a claim on CGE in preceding yrs or current yr, some of BIL would be restricted
-Restriction would be LESSER of:
a) BIL for the yr (before deducting the
restricted portion)
b) Cumulative CGE claimed in preceeding yrs * factor for that yr
2/1 before 1988
3/2 1988-1989
4/3 1990-Feb 27 2000
3/2 Feb 2000 - Oct 18 2000
2/1 Oct 18 2000- current

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17
Q

Eligible SBC
“Eligible small business corporation share” in ITA
CH12

A
  • CCPC that used more than 90% of the FMV of its assets principally in active business
    -CCPC where CV of assets and those related corps are less than = $50M
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18
Q

Deferral provisions of shares of eligible SBCs
CH12

A

a) Individual owned the CS of the eligible SBC throughout the 185-day period immediately preceding the sale
b) Individual reinvested the shares if another eligible SBC within 120 of the end of the year which the shares were sold.
MAXIMUM DEFERRAL=CG * (Lesser of (1)POD and (2) cost of replace of shrs/POD)

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19
Q

Def provisions of shares of replacement property
CH12

A

-When prop is disposed of and then replace with a similar capital prop.
-If applied, no tax consequences on disposition
-Split into voluntary vs involuntary

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20
Q

Voluntary disposition
CH12

A

1)Taxpayer must acquire the replacement prop within 12 MONTHS following the end of the taxation year in which the former prop was sold
2)Real property
3)Prop was used for business
4) Similar prop must have been purchased
-Date of disposition: the date an amouint has become receivable as the POD of the former property

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21
Q

Involuntary disposition
CH12

A

1)Taxpayer must acquire the replacement prop within 24 MONTHS following the end of the taxation year in which the former prop was sold
2) Prop is lost, stolen, expropriated or destroyed
3) Any kind of property except vacant land
4) Prop DOES NOT have to be used to earn business income
5) Acquire a similar prop

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22
Q

Deferred capital gain on prop replacement
CH12

A

-LESSER of:
a)POD-ACB
b) Cost of replacement prop-Cost of prop disposed
-THE COST OF THE REPLACEMENT PROPERTY IS REDUCED BY THE DEF CG
-IF ALL POD ARE USED TO PURCHASE A PROP 100% OF GAIN CAN BE DEF

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23
Q

Deferred recapture on prop replacement
CH12

A

-LESSER of:
a) UCC of replaced prop-Dispositions
b) Cost of the replacement property

-THE COST OF THE REPLACEMENT PROP IS REDUCED BY THE DEF CG

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24
Q

Related individuals

A

-If they are connected by blood relationship, marriage or common low partnership or adoption
-For tax purposes, individual is NOT considered to be related to nieces, nephews, aunts, uncles or cousin
- Related to:
a) Parent, grandparent (and those of spouse)
b) Siblings and siblings’ spouse
c) Children and grandchildren

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25
Q

Related corps

A

i) A person who controls the corps, if its controlled by one person
ii) A person who is a member of related group that controls the corp
-Any person related to person described in i&ii

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26
Q

NAL parties summary

A

1) Actual POD=FMV
-deemed proceeds=actual SP
-purchaser ACB=actual price paid
-Double tax=no
2) Actual POD=$NIL
-deemed proceeds=FMV
-purchaser ACB=FMV
-Double tax=no
3) Actual POD>FMV
-deemed proceeds=actual SP
-purchaser ACB=FMV
-Double tax=YES
4) Actual POD<FMV
-deemed proceeds=FMV
-purchaser ACB=actual price paid
-Double tax=YES

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27
Q

Double taxation

A

1) If actual SP>FMV: taxpayer pays tax on the entire amount of the dif between the selling price and the cost of the asset.
-The purchase cost is limited to FMV, as such the seller is paying tax on gain that doesnt exsist.
2) If actual SP<FMV: seller pays tax on the difference between FMV of the asset and cost base.
-Since the purchase cost base is restricted to actual sp, the purchaser will pay tax again on the dif between FMV and lower cost base when sold

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28
Q

EX: POD<FMV
John shrs with ACB 200 and FMV 350. He sells them to brother for 250, brother later sells from for 600

A

John
-POD=350 RECEIVES 250 FMV
-ACB=250
-CG=100
Brother
-POD=600
-ACB=250. ACTUAL SP
-CG=350

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29
Q

EX: POD>FMV
John shrs with ACB 200 and FMV 350. He sells them to brother for 400, brother later sells from for 600

A

John
-POD=400 RECEIVES 400 ACTUAL SP
-ACB=250
-CG=150
Brother
-POD=600
-ACB=350 FMV
-CG=350

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30
Q

NAL dep prop & 1/2 yr rule

A

Doesnt apply if before the transfer:
1) Prop was owned for less than a yr
2) During the asset was used to earn income

31
Q

Dep prop
SP>org cost

A

-Rules ensure that the purchaser cannot claim CCA on the portion of the purchase price that wasn’t tax in the NAL vendor hand
-Addition to UCC= org cost to NAL vendor+TCG realized by vendor
-Credit to UCC= LESSER OF:
a) Amount added to UCC
b) SP when asset is sold

32
Q

SP>org cost
EX

A
33
Q

Dep prop
SP<org cost

A

-Purchase price= vendors org cost
dif between the vendor capital cost and the price paid by the purchaser is deemed to be CCA taken
-Addition to UCC=price paid

34
Q

SP<org cost
EX

A
35
Q

Division C deductions
CH24

A

-Charitable donations
-Loss carryovers
-Dividends

36
Q

Charitable donations
CH24

A

-Limited to 75% of NIFTP
-Unused balances can be CF 5 yrs

37
Q

Loss carryovers
CH24

A
38
Q

Dividends
CH24

A

-Qualifying dividends include:
1) Dividends from taxable Canadian Corp
2) Dividends from taxable subsidary corp residents in Canada
3) Dividends from non resident corp carrying business in Canada
4) Dividends from foreign affiliates that have been appropriately taxed

39
Q

Corp tax payable for CCPCs vs non CCPCs
CH25

A
40
Q

Public company corp tax
CH25

A

-As prev above not required to classify income by source
-Breakdown for each calc would be discussed below

41
Q

CCPCs
CH25

A

-After TI, need to classify income by the following types:
1) AII
2) ABI
3) Foregin business income
4) Dividend income
5) PSB income
6) Specific investment busi income

42
Q

AII
CH25

A

-AII can be determined as investment income in NI less Division C deduction.

43
Q

ABI
CH25

A

-Can include ancillary income

44
Q

Personal service business (PSB)
CH25

A

-Services where:
a) indivdual owns>10% of the shares of the corp performs services on behalf of the corp
b) Individual would be argued as an employee
-UNLESS
a) Corp employees more than 5 full time
b) Services are provided to associated corp
-PSB income is not eligible for SBD & GRR
-PSB is subject to income tax @33%

45
Q

SIB
CH25

A

-Principle purpose is to derive income from prop
-SIB is used to determine AII (50.17%)
-Unless:
a) More than 5 full time employees
b) Another corp associated with the corporation proves managerial/admin services

46
Q

Basic federal amount
CCPCs & Non
CH25

A

-38% of TI

47
Q

Federal tax abatement (deduction)
CCPCs & Non
CH25

A

-10% if TI earned in a provide or territory of Canada
-Purpose of this is to leave room for the provides to levy provincial taxes

48
Q

SBD (deduction)
CCPCs
CH25

A

-19% of the LESSER of:
a) ABI earned in Canada
b) TI - 100/28 * FTC on non busi income - 4 * FTC on foreign busi income
c) Amount of busi limit of $500K allocated to company

49
Q

Taxable capital business limit

A
50
Q

Passive income busi limit reduction

A

-When AAII reaches $150L busi limit $NIL
- The reduction in CCPCs busi limit for the yr will be greater of: 1) taxable capital busi limit reduction 2) Passive income business limit reduction in the yr

51
Q

GRR (deduction)
CCPCs & Non

A

-13% of full-rate taxable income

52
Q

ART
CCPCs

A

-Additional tax paid on AII to prevent CCPCs the deferral of tax on investment income earned
-Refunded once a dividend is paid
-10 2/3% of the LESSER of:
a) AII in TI
b) TI-SBD base

53
Q

Provincial tax payable

A

-TI is allocated to the provinces and the TR are subsequently applied

54
Q

MP deduction

A

13% of the LESSER of:
a)MP profits- amount eligible for SBD
b) TI - amount eligible for SBD- 4* FTC on foreign busi income - AII (CCPC only)

55
Q

Investment tax credits

A

-Corps may qualify for certain types of properties or for qualifying expenditures
-Ex
1) Basic and applied research

56
Q

SR & ED pool deduction

A

-a systematic investigation by means of experiment or analysis, carried out in field of science or technology
-Qualifying expenditures may:
1) Deducted in the current yr in determining NITP
2) Added to SR ED pool and CF

57
Q

SR ED ITCs

A

General ITC rates
1) For all tax payers (individuals, corps, trusts) is 15% of eligible SR ED expenditures
2) CCPCs: 35% of eligible expenditures, maximum of $3M
-CF 3yrs & CB 20 yrs

58
Q

Refundable SR ED ITCs

A

Only for CCPCs

59
Q

ITC for Carbon Capture Utilization and storage

A

-CCUS: technologies that capture carbon dioxide emission to either store or use in industry
-Can be claimed on eligiible equipment and projects:
a)eligible equipment: used soley to capture transport store or use CO2 as part of eligible CCUS project
b) Eligible projects: new project that captures CO2 and prepares it for compression compress and transport it

60
Q

CCUS rates

A

-From 2021 to 2030:
60% for eligible capture equipment used in direct air capture projects
50% for all other eligible capture equipment
37.5% for eligible transportation storage equipment

61
Q

FTC for foreign non business income

A

-LESSER of:
1) Foreign tax paid
2) Net foreign non busi income/adjusted NI * tax otherwise payable

62
Q

FTC foreign busi income

A

-LESSER of:
1) Foreign tax paid
2) Net foreign non busi income/adjusted NI * tax otherwise payable
3) Part I tax less non busi FTC

63
Q

Part IV on dividends received from CCPC

A

-Private corps are req to pay Part IV tax on dividends received from taxable Canadian corp
-Part IV refundable tax is the SUM
of:
a)38 1/3% * dividends received from non connected taxable corps (porfolio dividends)
b) Investors share of dividend refund received by connected corps -> (ownership interest % * dividends received)

64
Q

Corp connected with another when EITHER of the following conditions are met

A

a) Control rule: Owns more than 50% of voting shares of corp
b) Vote or value rule: 1 corp owns shares in the other that represent more than 10% of voting shares and FMV of the company

65
Q

Amount if refundable dividend tax on hand

A

-LESSER of
a) 38 1/3% taxable dividends paid
b) RDTOH at the end of the yr (before dividend refund)

66
Q

2 types of RDTOH

A

1)ERDTOH: tracks refundable taxes paid on eligible dividends received by the corp–> payment of any type of dividend can trigger a refund of this account
2) NERDOH: includes refundable taxes on investment income and part IV tax on non-eligible portfolio dividends –> only payment of non-eligible dividends can trigger refund of this account
-ORDERING RULE: when noneligible dividends are paid, the refund must come out of the NERDTOG first

67
Q

NERDTOH

A
68
Q

Refundable Part I tax

A
69
Q

ERDTOH

A

-Equal to
a) PY ending ERDTOH
b) LESS: dividend refund out of ERDTOH on eligible or non eligible dividends paid in PY
c) PLUS: Part IV tax paid on eligible dividends received in the yr

70
Q

Dividend refund

A
71
Q

GRIP

A
72
Q
A
72
Q
A
72
Q
A

Taxation (9 decks)

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