Chapter 3 - Business Income and Expenses for Tax Purposes

Question 1

An incorporated company may select a fiscal period ending when?

Answer 1

at any date in the year

Question 2

An incorporated company must file its tax return within

Answer 2

six months following the end of its fiscal year.

Question 3

the fiscal year of a sole proprietorship or partnership is the calendar year unless all the partners are

Answer 3

individuals

Question 4

Income from a business or professional practice must be reported using

Answer 4

the accrual basis of accounting

Question 5

Under the accrual basis of accounting, one would
recognize income once it is

Answer 5

earned

Question 6

The value of work in progress at the end of the fiscal period is subject to income tax. This value corresponds to either of two amounts:

Answer 6

• The amount of the invoice for the services provided
• The expenses incurred for the services provided

Question 7

The cost of goods sold is determined by the value of __ and __

Answer 7

• inventory at the beginning and end of the fiscal period
• the cost of purchases over the year

Question 8

There are two allowable inventory valuation methods:

Answer 8

• Valuating all inventory at its fair market value
• Valuating each item, or each group of items, at the lower of cost or fair market value

Question 9

NON-DEDUCTIBLE EXPENSES (6)

Answer 9

FINES AND PENALTIES
LIFE INSURANCE PREMIUMS
CHARITABLE DONATIONS
POLITICAL CONTRIBUTIONS
NON-DEDUCTIBLE RESERVES
BAD DEBT RESERVE

Question 10

following expenses relating to the use of an automobile may be deducted: (8)

Answer 10

• Licence and registration fees
• Insurance
• Fuel and oil costs
• Maintenance and repairs
• Parking costs
• Interest
• Depreciation
• Leasing fees

Question 11

If the business takes out a loan to finance the purchase of an automobile, interest charges are deductible up to an average of ___ per month, until the loan has been repaid.

Answer 11

$300

Question 12

Can you deduct costs relating to the use of an automobile to travel from home to the place of business?

Answer 12

no

Question 13

When can you deduct the costs incurred for travel from home?

Answer 13

if the home is a place of business

Question 14

When are repair costs due to accidents deductible?

Answer 14

if the automobile was being used to carry on a professional or commercial activity at the time of the accident.

Question 15

Expenses relating to the business use of a workspace in the home may be deducted under two conditions:

Answer 15

• The workspace is the principal place of business of the commercial activity or professional practice.
• It is used exclusively to earn business or professional income and to meet clients, customers, or patients on a regular and ongoing basis

Question 16

ADMISSIBLE HOME EXPENSES TO BE DEDUCTED (8)

Answer 16

• Interest on the mortgage loan (but not the capital portion of the payment), if the taxpayer is also the homeowner
• Rent, if the taxpayer is a tenant
• Property taxes
• Electricity, heating, water
• Property insurance premiums
• Depreciation
• Repairs and maintenance
• Telephone and internet

Question 17

Consequence if taxpayer claims the CCA for the portion of the principal residence used as a workspace, if. house is sold?

Answer 17

tax authorities can refuse tax exemption on gains

Question 18

The deductions that a taxpayer can claim for meal and entertainment expenses (cost of meals, beverages, or entertainment) incurred to earn business or professional income are limited to 50% of the lesser of:

Answer 18

• The expense incurred
• A reasonable amount in the circumstances

Question 19

EXCEPTION TO THE MEALS AND ENTERTAINMENT RULES, 100% DEDUCTIBLE (QUEBEC)

Answer 19

events where the employer provides an event for all staff

Question 20

IS THE USE OF RECREATIONAL FACILITIES AND CLUB DUES DEDUCTIBLE?

Answer 20

NO

Question 21

A company may deduct part of the capital cost of certain depreciable property from the business or property income it has earned during the year. This deduction is referred to as ___

Answer 21

the capital cost allowance (CCA)

Question 22

in which instance can the capital gain be deferred, in whole or in part?

Answer 22

when asset disposed of is replaced with another item that is used for the same or a similar purpose

Question 23

The amount of GST reimbursed (the ITC) and QST reimbursed (the ITR) following the purchase or leasing of an automobile used for business purposes depends on the following factors: (3)

Answer 23

• The type of registrant claiming the reimbursement
• The percentage to which the automobile is used for business purposes
• The cost of the vehicle

Question 24

If the automobile belongs to an individual or a partnership, it must be used __% or more for business purposes before the owner is entitled to a total reimbursement of the GST and QST paid on its purchase or lease

Answer 24

90%

Question 25

The following do not give rise to an ITC or ITR: (4)

Answer 25

* Salaries * Interest and dividends * Federal, provincial and municipal income tax * Most expenses, fines, and contributions

Question 26

When calculating Quebec taxes, deductible meal and entertainment expenses are limited to the lesser of: (2)

Answer 26

a. 50% of total amounts incurred b. A ceiling (limit) based on business sales revenue

Question 27

deductible meal and entertainment expenses - For small businesses, the ceiling (limit) based on sales is defined as follows: * For total sales not exceeding $___ , the maximum is 2% * For total sales between $___ , the maximum amount is $650 * For total sales exceeding $__ , the maximum is 1.25%

Answer 27

32,500 32,500 and $52,000 52,000

Question 28

Non-allowable Expenses - Some expenses applied in calculating the corporation’s net (book) earnings are not deductible for income tax purposes. The following are some of the amounts that generally must be added back to the net income for accounting purposes to determine net income for tax purposes: (7)

Answer 28

* Income tax payable * Deferred income tax * Interest and penalties on income taxes * Book losses on disposal of fixed assets * Political donations * Taxable capital gains * Book depreciation

Question 29

federal taxes, donations made by an individual to a federal political party are eligible for ___

Answer 29

a tax credit.

Question 30

can artificial persons, such as corporations and partnerships make political contributions?

Answer 30

No