Unit 4

Question 1

summary of federal tax calc

Answer 1

Question 2

Gross federal tax

Answer 2

-Determine federal tax before credit by applying federal tax rates to TI
rates vary from 15%-33%

Question 3

Nonrefundable tax credits

Answer 3

-Credits cannot be used in the CY do not form the basis of the refund
-Cant be CF with the exception of tuition, donation, student loans
-Credits are a direct reduction in tax payable
base of credit is multiplied by 15% to determine the reduction in tp

Question 4

Common credits

Answer 4

Question 5

Common credits P2

Answer 5

-Interest on student loans: credit base= inters paid in the yr or preceding 5 yrs (if no credit was claimed)-> no maximum
-Tuition: credit base=amount, trf to spouse parent up to $5K, more than $100

Question 6

EI RTC

Answer 6

• Credit base/req payments: $60,300 * 1.58%
  
  • Lesser of earnings & 60,300

Question 7

CPP amounts

Answer 7

• Credit base=(Earning-3,500)*4.95%
  
  • Maximum=$3,039

-Req payments= ($64,900-3,500)*5.70%
Lower of actual income & 64,900

Question 8

Medical RTC

Answer 8

Amount paid in the yr

Less: lesser of
a) Maximum credit 3% of NI ceiling
b) 3% of taxpayer NI

Question 9

Donation tax credit - Taken after RTC

Answer 9

-Eligible Canadian charities, governments, and certain charitable paths outside of Canada
-Credit base= lesser of donation amount and 75% of net income
-Unused credits can be CF up to 5 yrs

Question 10

Federal political contributions-Taken after RTC

Answer 10

Question 11

Dividend tax credit taken after RTC

Answer 11

-Eligible=6/11 of 38% GU
-Non eligible 9/13 of 15% of GU

Question 12

Refundable tax credits

Answer 12

-Paid regardless of federal tax payable

Question 13

Clawbacks and tax payable (refundable)

Answer 13

-OAS clawback when NI> $81,761
-EI clawback when NI>73,375
-When repayment is requied its deducted from NI and added to TP
-When self-employed individual made CPP cont the entire amount (2(pensionable earning-$3.5K)5.70%) is added back at this point

Question 14

Calc federal tax payable

Answer 14

-Net federal tax calc by aggregating all the above balances
-Gross federal tax payable less non refundable tax credits before considering withholdings and installments cant be negative

Question 15

Division C deductions-loss CF

Answer 15

-farm losses
-ABIL

Question 16

Farm losses- division C deduction

Answer 16

-Full-time farmers are categorized as a noncapital loss that is full deductible
-Hobby farmers farming losses are not deductible

Question 17

ABIL

Answer 17

-1/2 of capital loss arising of disposal of shares or debt of a small business corp
-CF are deducted against any source of income for 10 yrs
-After 10 yrs the unused amount is added to the net capital loss

Question 18

Other non refundable tax credits and AMT

Answer 18

Question 19

Foreign business income tax credit

Answer 19

Question 20

Alternative min tax

Answer 20

Question 21

Level of government and its role in the tax system

Answer 21

1) Federal government: initiates proposals for change in tax legislation which are presented by the minister of finance
2) Dep of finance: drafts wording of tax legislation & is involved in drafting changes required by the government in the federal budget
3) CRA: admin and enforces tax laws
4) Provincial and territorial governments: these tax systems parallel the federal systems–> in some case the admin of prov or territorial system has bee turned to CRA

Question 22

Liab for tax and residency

Answer 22

-Factual full time resident: tax of world wide income
-Factual part yr resident: taxed on ww income for the part of the yr they resident in Canada
-Deemed full time resident: taxed in ww income for the yr
-Non residents: taxed on Canadian soiurce income

Question 23

Tax treaties

Answer 23

-An agreement on taxation between Canada and another country
tax treaties override the provision of the ITA and are relevant to both residents of Canada with respect to international transactions

Question 24

Purpose of tax treaties

Answer 24

1) define which taxes are covered
2) reduce the amount of tax withheld by a resident of one country on the payment made to a resident of another country
3) define the circumstances in which the income of individuals who are resident in one country will be taxed in another country
4) limit the tax imposed by one country on the busi income of a resident of another country
5) may provide for exemption of certain types of org and individuals
6) provide procedural frameworks for enforcement and dispute resolution

Question 25

Legal forms and structures-Sole proprietorships

Answer 25

-Sole proprietor is the individual who runs the business
-Simplest way of conducting business easy to set up and setup costs are low
-No legal distinction between individual and busi
-Income and losses are included in the individual personal tax return

Question 26

Legal forms and structures-Corporation

Answer 26

-separate legal entity that is separate and distinct
-SHs are not personally liable for any debts of the corp unless they the guarantee the debt
-SH has the right to participate in profits through dividends and shr value appreciation
-Must file an annual corp return and full set of FS
-Setup is complex and costly & additonal return is required

Question 27

Type of corps

Answer 27

1) CCPC: corp that
a)resident in Canada
b)not controlled directly or indirectly by one or more nonresident person one or more public corp and a combination therof
c) has no class of its shrs in designated stock exchange
d) WHEN A CANADIAN RESIDENT OWNS AT LEAST 50% OF SHRS AND OTHER REQ ARE MET ITS A CCPC

2) Public corp:
a)resident in Canada
b) has one of more classes of shrs on Canadian stock exchange

3) Canadian priv corp: are resident in Canada but not public corp or a CCPC because it’s controlled by nonresidents

4) Other corps:
a)include those that are controlled by a public corp,
b)those that are Canadian subsidiaries of a public corp
c)or those who don’t fall with any other categories

Question 28

Partnership

Answer 28

-Form of business where 2 or more individuals or corps contribute resources to conduct. a busi & agree ti share profits or losses according to the partnership agreement
-regulated by provincial laws
-Each partner is JOINTLY and severally liable for the debt of the partnership
-NITP is determined at the partnership level and allocated to the partners

Question 29

Joint ventures

Answer 29

-Association of individuals or coprs that agree to contribute their skills or resources to a shared busi venture
-NOT regulated by federal or provincial laws
-NOT jointly liable for the debts incurred by other ventures or acts or omissions of fellow venturers

Question 30

General anti-avoidance rules

Answer 30

-Tax planning: arrangements where tax reduction is consistent with the intent of the tax law
-Tax avoidance: arragement where tax reduction is inconsistent witht he overall intent of the taw law–> unacceptable and abusive tax planning
-Tax evasion: tax reduction that is illegal and ignores provision of tax law

Question 31

General anti avoidance rule

Answer 31

Question 32

Retention of books and records

Answer 32

-Records and supporting documents must be kept for a min of 6 yrs from the end of the taxation yr to which they are related