Tax Planning

Question 1

When do returns for the deceased need to be filed?

Answer 1

If died Jan 1 - Oct 31 - April 30th following year

If died Nov 1 - Dec 31 - Six months after the date of death

If deceased or deceased spouse is self-employed:

If died Jan 1 - Dec 15 - June 15th following year

If died Dec 15 - Dec 31 - Six months after the date of death

Question 2

When do you have to pay instalment taxes?

Answer 2

If you net tax owing is greater than $3,000 in 2016. You do not have to pay if your net tax owing will be less than $3,000 - even if you received an installment reminder.

Question 3

What are the options for paying installment taxes?

Answer 3

1. No Calculation - pay what the CRA calculates - good when you income is consistent. Based on income in two prior years. 2. Prior year option 3. Current year option

Question 4

What are the political tax contributions?

Answer 4

on first $400 - 75% on next $350 - 50% on next $525 - 33.33%

Question 5

What income is used to calculate certain federal and provincial non-refundable tax credits

Answer 5

Net income

Question 6

What deductions from net income calculate taxable income>

Answer 6

capital gains net capital losses of other years non-capital losses of other years security options deductions limited partnership losses of other years

Question 7

what are the federal tax rates and brackets?

Answer 7

0 - 11,474 - personal exemption 11,474 - 45,282 - 15% 45,283 - 90,563 - 20.5% 90,534 - 140,388 - 26% 140,389 - 200,000 - 29% 201,000 + - 33%

Question 8

What is the carry forward/carry back of capital losses?

Answer 8

Back 3 years, forward forever

Question 9

What are the superficial loss rules?

Answer 9

deny any capital loss if you or spouse sold and reacquire shares within 30 days

Question 10

What is the carry forward of business losses

Answer 10

can be deducted in the year they incurred or carried forward 10 years or back 3 years can be deducted from other types of income, including employment income

Question 11

How do ABILs work?

Answer 11

Can be deducted from ordinary income in the year it is recognized. if it exceeds taxpayers income for the year, the excess will be treated as a non-capital loss and can be carried forward 10 years or back 3 years

Question 12

What actions will trigger a deemed disposition for tax purposes?

Answer 12

1. Personal residence to income producing property 2. Transfer of property to personal trust (not spousal trust) 3. Transfer of principal residence to a spouse 4. No longer a resident of Canada 5. Death of a taxpayer

Question 13

What are attribution rules?

Answer 13

When property (including money) is gifted to a spouse, income or loss from property and any capital gain or loss on the disposition will be attributed back. For children (under 18) and grandchildren (under 18), only income is attributed back.

Question 14

What are the exceptions to attribution rules?

Answer 14

1. Transfer property at FMV and report resulting gain. 2. Charge and report interest on the loan. Interest must be at least the CRA’s prescribed rate - and must be paid in each year or by January 30th of following year. (If January 30th deadline passes - that year’s income and all future income from the loaned property will be attributed back to the lender).

Question 15

How are stock options taxed when granted if a CCPC?

Answer 15

No tax until employee disposes the shares (provided the employee is not related to the controlling shareholders of the company).

Question 16

How are stock options taxed when granted from a public company?

Answer 16

Options exercised prior to Feb 28, 2000 - differnce between grant and exercise price taxed as employment income in year of exercise Options exercised after Feb 29, 2000 -Employees do not have to pay tax until they actually sell their shares (subject to $100,000 vesting limit) as long as they do own more than 10% of the shares of any class or related to corporation.

Question 17

What is an RCA?

Answer 17

Retirement Compensation Arrangement - premium pension plan, it allows for large contributions relative to other retirement plans. Cannot be related to corporation.

Question 18

Are spousal contributions allowed for a TFSA

Answer 18

NO

Question 19

What can a commissioned employee expense?

Answer 19

Rent, utilities, repairs/maintenance, insurance, property taxes

Question 20

What can a home office employee expense?

Answer 20

Rent, utilities, repairs/maintenance

Question 21

What can a self employed person expense?

Answer 21

Rent, utilities, repairs/maintenance, insurance, property taxes, interest, CCA

Question 22

How do you calculate the standby charge for employee car use?

Answer 22

2% of original cost, or 2/3 of lease cost plus GST for each month it is available for use. Reduction - The standby charge can be reduced if the vehicle is used more than 50% of the time for employment purposes and annual personal driving doesn’t exceed 20,000 km. In this case, the standby charge (as calculated above) is multiplied by the following fraction: Personal km ÷ 1,667 km per 30-day period (to an annual maximum of 20,004 km)

Question 23

How do you calculate the operating benefit for employee use of car?

Answer 23

2016 is 26¢ per kilometre of personal use. If the car is used more than 50% for employment, it can be one-half of the standby charge

Question 24

What is a capital dividend account?

Answer 24

A notional account representing the cumulative total of non-taxable portions of various income (insurance proceeds, tax exempt portion of capital gain, dividends received from other Cdn corporation). A private corporation can pay a dividend out of this account, and the shareholders receive the payment tax free.

Question 25

What is Part IV Tax and how does it related to RDTOH?

Answer 25

A private corporation must pay Part IV Tax in the amount of 33 1/3% of all taxable dividends received by it (unless the dividends were received from a payor corporation that was connected with it. Even if the payor corporation is connected with it, the private corporation must pay Part IV tax on its share of any refund received by the connected payor corporation as a result of paying the dividends). All Part IV Tax is included in the RDTOH and is refundable to the corporation when it pays out taxable dividends at the same rate of $1 for every $3 it pay

Question 26

What are the various business valuation methods?

Answer 26

1. Discounted cash flow 2. Multiple of earnings or sales method 3. Liquidation value method

Question 27

When can you get a current tax credit for giving life insurance to a registered charity?

Answer 27

Transfer ownership of a whole life policy with a CSV )CSV will be the current tax credit). Charity will receive the proceeds. Transfer ownership of term life policy to charity and pay the premiums.

Question 28

What are the implications of dividend vs. salary being received as income?

Answer 28

Dividend: Higher taxable income (gross up) Not considered earned income for RRSP purposes Paid from after tax dollars Salary: Reduces corporate income increases RRSP contribution room Subject to CPP premium payments

Question 29

What is a capital gain reserve?

Answer 29

When you sell capital property, and the proceeds from the sale will not all be receivable in the year of sale - you can defer a portion of the capital gain by claiming a reserve. You need to report at least one-fifth of your taxable capital gain must be reported in the year of sale and each of the following four years.

Question 30

When do you need a GST/HST number?

Answer 30

When you are self employed with income greater than $30,000 (total) in last consecutive 4 quarters

Question 31

What is the carry back/carry forward of non-capital losses?

Answer 31

Back 3 years Forward 20 years

Question 32

What is the CCPC Tax Rate?

Answer 32

38% Small Business Deduction - 17% on $500,000 of active business 10% abatement

Question 33

What tax does a taxable private corporation need to pay on portfolio investments?

Answer 33

Not subject to Part I tax Must pay Part IV tax (33.33%

Question 34

When can the cost of a frachise license be considered an eligible capital expenditure?

Answer 34

If purchased for an indefinite period of time

Question 35

What are the minimum monthly installments of a corporation?

Answer 35

There are three options you can use to calculate the least amount of tax you have to pay in instalments for the current tax year, based on: the current year; the previous year; or a combination of the previous year and the year before the previous year. (the first two instalments can be calculated as 1/12 of the corporation’s instalment base for its second-last taxation year, and the next 10 instalments can be based on the corporation’s instalment base for the immediately preceding taxation year after deducting the first two instalments.)

Question 36

When are current year tax installments due for coprporations?

Answer 36

Instalment payments are due on the last day of every complete month of your tax year, or of every complete quarter if you are an _eligible_ small CCPC.

Question 37

When do you need to sell securities when trying to utilize capital losses against capital gains earned during the year?

Answer 37

Fourth last business day of December Settlement is T+3

Question 38

What is the time limit for filing an objection to a tax return?

Answer 38

Later of: One Year after filing deadline, or 90 days after CRA mailed notice of assessment

Question 40

What can you do with net capital losses in the year of death?

Answer 40

1. Carry back 3 years against capital gains. If any left, reduce other income on the final return, the return before the year of death, or both. 2. Reduce other income on the final return, the return for the year before the year of death, or both returns.

Question 41

When are gains from pursonal use proprety reported on the tax return?

Answer 41

When ACB and POD are greater than $1,000 When ACB \< $1000 - ACB is deemed to be $1,000 When POD \< $1000 - POD is deemed to be $1,000

Question 42

What is tax avoidance vs. tax evasion?

Answer 42

Tax avoidance: results when actions are taken to minimize tax, while within the letter of the law, those actions contracene the object and spirit of the law. Tax evasion - typically involves deliberately ignoring a specific part of the law.

Question 43

If one dies with unused RRSP contribution room - his executor or personal representative can make a contribution to:

Answer 43

A spousal plan (not into the RRSP of the person who died).