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Flashcards in Test 2 Deck (37):

Capital allowance calculation

Opening balance account for each different class for every asset that the company owns
+ add new purchases
- subtract dispositions
x multiply by applicable CCA rate
= equals expenses for the year



Every year a company subtracts the capital cost allowance for an account the amount that was written off for the value of the disposition is too great and the account is in the negative. Recapture reflects the fact that you have to bring the negative amount back into income.


Who and what qualifies for a capital cost allowance

Any entity who acquires a capital asset for the purpose of producing income.
Tangible assets: asset that has some enduring life value and produces income (land not included)
Intangible assets: client or customer list, goodwill, location, name of the business, patent, franchise


Special rules: involuntary disposition

If equipment is lost or destroyed insurance will give money to replace it tax-free if you decide to keep the money it is then taxable


Special rules: change in use

If an asset goes from being a business asset to the personal asset it is deemed to have been sold at Fairmarket value and must pay Fairmarket value tax


Special rules: first year of acquisition

An anti-avoidance rule that reduces the amount of capital cost allowance allowed in the first year of ownership half of the normal rate of CCA applies


Special rules: terminal loss

It is the opposite of recapture, after all of the assets have been sold there is a realization that the assets were not appreciated enough. There is a positive balance on the account but there are no assets. There is deemed to be a terminal loss when you did not write off enough dispositions you're able to write the whole thing off because the assets are gone.


Eligible capital property - intangible assets

Capital assets that are intangible there is no specific place
Goodwill, trademark, franchise
Declining balance method to calculate the value of the eligible capital property
Able to write off 75% of the original cost of the asset at 7% per year when sold the seller receives a capital gain and the purchaser is allowed to write it off - recapture negative amounts


Income from property: Interest income

Accrual basis - must pay tax when it's earned
accrual basis or receivable when due and payable


Income from property: Dividend income

The income that forms the dividend has already been taxed at the Corporation level they pay the higher tax the dividend just text again at the shareholder level they pay the lower tax


Income from property: Rental income

Accrual basis, it is not when you actually receive the money but when money is deemed to be earned
Interest insurance maintenance utilities
Cannot create loss for building depreciation


Income from property: Royalty income

For capital growth you're not texting me you only pay tax on it just sold you must pay tax on the profits


Capital gain (loss)

Intended purpose of the acquisition was long-term enduring to achieve benefits
Benefit: financial or personal enjoyment
Intention: for resale versus enduring benefit
Four factors to consider:
Period of ownership
Nature of transaction
Number or frequency of the transaction
Relation to the taxpayers business


Capital gains and losses: personal use property

Things that are purchased for personal use no losses allowed


Capital gains and losses: listed personal property

Special category in income tax act for collectibles.
Because they go up in value losses are allowed.


Capital gains and losses: financial property

Everything else that is of a capital nature anything purchased that you intend to make a profit on


Capital gains and losses: principal residence calculation

Exempt from capital gains as long as you live in them.
1+ number of years at principal residence % by number of years owned x gain



Registered retirement income fund
Move all money from RRSP into the RRIF account. Formula must take out 5% the first year goes up to 20% but does not go higher afterwards.



Registered pension plan
What contribution you put in 10% and the government puts in 10%



Canada pension plan
Deductible going in and taxable coming out index to inflation



Registered education savings plan
$5000 per year grant, 20% of 2500 per year to a maximum of 7500
Maxim contribution of $50,000
Taxable in the hands of the children


Child-support payments for spouse

Prior to May 1, 1997 taxable
Post May 1, 1997 not deductible for the payor nor taxable to the payee


exclusion from income: gifts

Can't give a gift to a minor child for the purpose of splitting income (can do this with an adult child)
Can't give a spouse a gift because any income earned is taxable to the stuff I gave the gift


Exclusion from income - TFSA

Tax-free savings account Max deposit of $31,000 in 2014 increases by $5500 per year


Deductions - support payments to spouse (child)

Periodic payments
If a spouse is required to pay support it is deductive for that spouse and taxable for the one receiving it at a low rate
Rules do not apply for child support


Deductions - moving expenses

Students can claim it if they move 40 km closer to where they work and his deductible


Deductions - RRSP

Any unused contribution room +18% of last years income.
Tax-sheltered investment only taxable when it's cashed
Terminated at age 71
Life annuity
Fixed term annuity


Special RRSP features

Homebuyer plan $25,000 15 year payback
Lifelong learning plan $20,000 10 year payback
Spousal RRSP and income splitting 65 and up


Death of a taxpayer

Terminal return plates and things returned
All income to the date of the death
Deemed disposition of capital property
RRSP and RRIF taxable unless rollover to spouse
Executor T3 trust return after date of death clearance certificate


Federal tax rate

Four levels
Starts at 15% on first $43,953
29% on incomes over $136,270


Ontario tax rate

5.05% on the first $40,120 and add additional percentage to the next amount


Alternative minimum tax

Anti-avoidance rule a special calculation for people who make a lot of money but try to avoid paying tax by using RRSP for example to get tax down to zero or nothing must at least pay tax at the 20% level


Taxable income: statutory scheme - loss carryover

Business property employment loss
Special business bath come through owning shares in the corporation
All of those bosses get taken against income


Taxable income: statutory scheme - capital loss

Can only be used if you have a capital gain carry losses forward indefinitely or go backwards in time for three years to get back the money that you paid


Taxable income: statutory scheme - noncapital loss

Business loses money for five years
Losses can be carried forward for 20 years or go back three years in time


Taxable income: statutory scheme - farm losses

Business losses are allowed can't be used towards a hobby farm


Taxable income: statutory scheme - capital gain exemption

Abolished for individuals
Small business Corporation and qualified farm property $750,000 ($800,000 for 2014 plus index)