Corporate Tax

Question 1

Business income vs. property income

Taxation

Answer 1

Business income vs. property income (Taxation)
* It is a question of fact whether income is from business or property.
* Capital property is property that provides a long term or enduring benefit
* Disposition of capital property gives rise to capital gains or losses
* Business income will arise from an “adventure or concern in the nature of trade”, determined as follows:
o Conduct
 How long was the asset held? Have there been similar transactions?
o Nature of the asset
 Is the asset capable of producing income? Is the asset related to the taxpayer’s ordinary business?
o Intent
 Did the taxpayer originally acquire the asset with the intention to sell?
* For an individual, business income is generally taxed at a higher rate than capital gain, as only 50% of capital gains are taxable.
* For a CCPC earning less than the SB Limit, capital gain is generally taxed at a higher rate than business income, as the SBD doesn’t apply to capital gains

Reference: ITA 9, 248(1)

Question 2

Refundable dividend tax on hand (RDTOH)

Taxation

Answer 2

Refundable dividend tax on hand (RDTOH) (Taxation)
For tax years beginning on or after January 1, 2019, there are two types of RDTOH balances:
* Non-eligible RDTOH: Includes refundable taxes on investment income and Part IV tax on non-eligible portfolio dividends.
o Only the payment of a non-eligible dividend can trigger a refund from this account.
* Eligible RDTOH: This tracks refundable taxes paid on eligible dividends received by the corporation.
o Any type of dividend (either eligible or non-eligible) can trigger a refund out of this account; however, when non-eligible dividends are paid, the refund must come out of non-eligible RDTOH first.
At the date of transition, the eligible RDTOH balance will be calculated as the lesser of:
* The existing RDTOH balance; and
* 38 1/3 % of the General Rate Income Pool (GRIP) balance.

Reference: ITA 123.3, 129(4), 186 

Question 3

Eligible versus non-eligible dividends

Taxation

Answer 3

Eligible versus non-eligible dividends (Taxation)
* Individuals must include the actual dividend plus a gross-up in their net income for tax purposes. The grossed-up dividend is referred to as the taxable dividend. Dividends received by individuals will have been designated as either eligible or non-eligible by the corporation paying the dividend.
* Non-eligible dividends are paid by Canadian-controlled private corporations (CCPCs) out of after-tax active business income eligible for the small business deduction or from after-tax aggregate investment income subject to RDTOH.
o Since both of these types of income are taxed at preferential rates inside the corporation, the gross-up and dividend tax credit rates on non-eligible dividends are lower than the gross-up and dividend tax credit rates on eligible dividends.
* Eligible dividends are paid by: Canadian public companies out of after-tax income taxed at the general corporate tax rate, or CCPCs out of the general rate income pool (GRIP).
* A CCPC’s GRIP balance comprises eligible dividends received and 72% of active business income not eligible for the small business deduction.

Reference: ITA 82(1)

Question 4

Filing and payment deadlines – corporation

Taxation

Answer 4

Filing and payment deadlines – corporation (Taxation)
* Income taxes
o Filing deadline is six months after year end.
o Tax balances owing are due two months after year end (three months for CCPCs eligible for small business deduction).
* GST/HST filing deadline
o Annual taxable supplies of:
 $1.5 million or less = annual reporting
 More than $1.5 million up to $6 million = quarterly reporting
 More than $6 million = monthly reporting
o Annual or quarterly filers have the option to report more frequently.
o Quarterly and monthly filers must file and remit the balance owing within one month after the end of the reporting period.
o Annual filers must file and remit the balance owing within three months after the fiscal year end.
o Annual filers are required to pay quarterly instalments if net GST owing in the previous year was more than $3,000.

References: ITA 150(1)(a), 248(1), Excise Tax Act 238(1)