quiz 2 Flashcards
(9 cards)
Is there any integration available for Canadian active business income generated through a Canadian Public Company?
What is the purpose of integration? How do I know if the tax system has achieved integration (in other words, what criteria do I apply to determine if integration is working)?
To determine if integration is working, compare the total tax paid on income earned directly by an individual versus income earned through a corporation and then paid out as dividends. If the combined corporate and personal taxes are approximately equal to the tax that would have been paid if the income was earned directly by the individual, integration is working.
Why is the tax rate imposed under Part IV at 38 1/3%? Do you expect this rate to remain the same in the future? Explain.
The Part IV tax rate of 38 1/3% ensures integration by offsetting the 38% gross-up on eligible dividends received by corporations from other taxable Canadian Corps. This prevents corporations from deferring tax on dividends received, The rate could change if there adjustments to the dividend gross-up
When computing tax under Income Tax Act Section 123.4, why do we subtract aggregate investment income from “full rate taxable income” for a Canadian-Controlled-Private Corporation (CCPC)? Why don’t we subtract aggregate investment income from “full rate taxable income” for a non-CCPC
For a CCPC, aggregate investment income is excluded from “full rate taxable income” because it’s taxed at higher rates and doesn’t qualify for the GRR or the SBD.
How is integration accomplished for capital gains generated by a Canadian Controlled Private Corporation? (Be sure to include integration of both the taxable and the non-taxable portion of the capital gain
Integration for capital gains in a CCPC:
Taxable Portion (50%): Taxed at corporate rates and integrated through dividend gross-up and tax credit when paid out.
Non-Taxable Portion (50%): Added to the Capital Dividend Account (CDA) and paid out tax-free to shareholders.
This ensures overall tax matches what an individual would pay directly.
How are the net capital losses and property losses of a corporation affected when voting control of the corporation shifts from one shareholder to another (in other words, when there is an acquisition of control)? Do you think this treatment is appropriate
When there is an acquisition of control, net capital losses cannot be carried forward, but they can be carried back three years before the acquisition. Property losses (non-capital losses) can be carried forward but only applied against income from the same or similar business. This treatment prevents companies from buying loss corporations solely for tax benefits. It is generally appropriate to maintain fairness and prevent tax avoidance
We have said that integration in the tax system is designed to neutralize the decision of how to structure activities. How do I know if the tax system has achieved integration? (The answer is Not the shareholder including the full pre-tax income of the corporation, and the after-tax income of the corporation being paid in dividends)
Integration is achieved if the total tax paid on corporate income distributed as dividends to an individual shareholder is roughly the same as if the individual earned the income directly. The sum of corporate tax and personal tax on dividends should equal the personal tax rate applicable to direct income.
Part IV tax is an element of integration in the tax system. How does Part IV tax assist in achieving integration? Is the rate of tax under Part IV appropriate for eligible dividends paid by public corporations?
Part IV achieves integration by imposing a 38 1/3% tax on dividends received by a CCPC or a non-CCPC from other corporations. This tax is refundable once the receiving corporation pays out the taxable dividends to the shareholders. This way, the total tax paid ends up being the same as if the shareholders received the dividends directly, avoiding double taxation.
What is Paid-Up Capital (“PUC”)? Distinguish the PUC of a share of stock from the adjusted cost basis (“ACB”) of that share of stock. (In other words: how are PUC and ACB the same? How are PUC and ACB different?)
