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27 Cards in this Set
- Front
- Back
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What are the conditions to deduct bad debt expense? |
-reasonable, based on uncollectible accounts -reserve in one year must be income in the next -support for deductions must be compiled/kept (I.e. detailed AR listing) |
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What factors must be considered for taking salary vs. Div |
-RRSP room -RRSP deductions available -impact on CPP benefits -CPP costs -impact on CNL/LCGE -Theory of integration -deductibility of repayments |
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What is the 3 prong test for contractor/employee? How to ensure contractor relationship? |
Economic reality/entrepreneur test -who has control over what is done/how -who owns tools? -who holds chance of profit/risk? -can work be subcontracted? Integration/organization -Is employee economically dependant on org? -do they receive benefits? Specific results test Draw up a contract. Have employees invoice rather than salary. Pay markers by piece rather than hourly. |
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What are tax implications of a shareholder loan if: paid within a the end of the following year? Not paid back within the end of the next year? |
Xxx |
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Residential ties Canadian Resident -what are the 3 primary ties -secondary ties? -how are you taxed? Deemed Resident -what is the day threshold? -how are you taxed? How is a Non-resident taxed? |
Canadian resident
o Primary ties, Spouse and dependent in Canada,home/house in Canada o Secondary ties, private health insurance plan inCanada, driver license in Canada, membership in Canada o Tax at world wide income Deem resident o If you stay in Canada for 183 days in the year o Tax at world wide income Non resident o Travel to Canada for work/business, stay inCanada less than 183 days o Deem disposition of assets when becoming nonresident o Tax at Canadian source income only |
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Filing Deadlines -when is the filing deadline for individuals? -filing deadline for self-employed? payment deadline? |
-filing deadline and payment deadline: April 30 -June 15 and April 30 |
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Div How is eligible dividend income taxed? Non-eligible? Cap Gains Why are these the most desired form of income? |
Eligible Div: grossed up by 38% and paid from income that did not benefit from SBD. Non-Eligible Div: Gross up by 15%, generally paid from income that did benefit from SBD CG only 50% taxable |
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Steps to calculate personal tax? |
1. Calculate total income 2. Deductions from Income 3. Compute Tax Calculation to get tax payable 4. Reduce Tax Credits from taxes payable 5. Balance owing =tax payable - tax deducted at source- installements |
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What are the different types of income? |
-Emp income -Pension -interest -Net Rental inc -Net Business Inc -Div (grossed up --> 1.15 and 20%, 1.38 and 10%) -Cap Gains (50%) |
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Tax Deductions (gives us Net Income) -RRSP/RPP: when can contributions be made to? -Union/pro dues: which portion is deductible? limit? -Child Care: which parent must take, how much per child, -Moving Expenses: what is the qualifying requirement? which costs can be deducted? can they be carried fwd? -Carrying costs -Spousal support payments vs. children support payments -Employment Expenses |
-60 days after YE -no $ limit, for amounts not paid by employer -must be taken by lower income parent, limited to 6K per child 6 years of old or under 5K for 7-18 -must be 40km closer to employer/education, can be carried forward. all moving costs included closing costs on sale of home -CC: only if used to invest -child support payments not deductible. support payments deductible for one spouse and is taxable income for another. -EE: only if employee is not taxed if employer paid |
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Who gets these credits? What % is applied? -Basic -Spouse -Age (what age over? what reduced by?) -Disability: who must application be completed by? -Adoption Expense: -Medical Expense: what does it include? what is the minumum |
-15% -B: everyone -S: reduced by income by that amount -A: reduced by income threshold -D: doctor -AE: up to threshold -ME: 3% of income, advice: group expenses with spouse to meet threshold only once |
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Tax Credits that don't follow simple 15%? What are non-refundable tax credits? |
-Dividend Tax Credit (elig and non-elig rates different) -Charitable donations (15% on first 200, 29% on excess, donations limited to 75% of income) -Political donations: 75% on first 400, 50% on 401-700, 33.33 on 751-1275, max credit is 650. |
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home office expenses what are the two tests to claim HOE? Can the following be claimed: electricity, prop tax, home insurance, mortgage int, phone, internet, CCA on home, Maintenance costs |
(a) work from home more than 50% of the time; or
(b) meet clients, and so on, at home on a regular basis. As you will be working from home for 25 of the 40 hours you will work each week, you meet the first test. Since you will be holding meetings at the suppliers’ or donors’ places of business or at the store, you do not meet the second test. However, only one of the two tests must be met. 1. Electricity This is an allowable claim as a home office expense by an employee. Your annual electricity bill is $1,800. As the home office comprises 10% of your home, a reasonable allocation to the home office for 11-months (February to December) is $165 (10% × $1,800 x 11 / 12). Property taxes, home insurance, and mortgage interest Even though you would have to pay some additional insurance to work at home, mortgage interest, property tax, and home insurance are not claimable as a home office expense by an employee, in whole or in part. 3. Phone and internet As an employee, you can claim the cost of long-distance calls from a home phone, but no portion of your home phone plan or your home internet plan can be claimed as a home office expense. Since your work-related phone calls are all local, there is no amount to include as a home office expense. 4. CCAAs per the ITA, employees cannot claim CCA on a home at all. 5. MaintenanceThe maintenance costs are claimable. As $900 of maintenance costs clearly relates entirely to the home office, that will be the amount claimable (not 10% of $10,000 pro-rated for 11-months). We should analyze the actual costs further to determine if any of them are related to the entire home, as opposed to specific rooms, in which case 10% of such costs would also be claimable, assuming that they are incurred after February 1 when SGF’s operations begin.The total expenses eligible for deduction are $1,065 ($165 + $900). |
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Moving Expenses Eligible expenses? Ineligible expenses? What is moving allowance was given? What is the max you can claim and what to do with the rest? |
Test: Canadians that are employees or self-employed can claim moving expenses if they move within Canada in order to work or run a business at a new location, and the new home is at least 40 kilometres closer to the new location than the old home.
Eligible Expenses -Costs incurred to sell home (Legal fees, realtor fees) -Costs maintain home while vacant eligible to $5K: Util, prop taxes, ins -Temporary lodging for up to 15 days -Legal fee to purchase new home (since old home sold due to move) -Incidental costs (i.e. hooking up utilities) -Meals for 15 days: a. Using the detailed method, the taxpayer must keep all receipts and claim the actual amount spent.b. Using the simplified method, the taxpayer may claim a flat rate per person of $23 per meal, up to a total of $69 per day, per person. Ineligible Moving Allowance Shawn received a moving allowance of $5,000, which is deducted from the moving expenses. Alternatively, the moving allowance can be added to the eligible income earned at the new workplace Max Claim up to eligible net income, carry the rest forward to the next year. |
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Interest on funds borrowed for investment in income-producing assets
- is it deductible? -why is tracing important? -are common shares eligible? -ways to prove funds were used for investing |
-Interest on funds borrowed for investment in income-producing assets (such as shares of your corporation, which will eventually pay dividends, or an interest-bearing shareholder loan) would generally be a deductible expense to the individual borrowing them.
However, it is necessary to be able to clearly trace the borrowing to the use of the funds. In this case, since you put the borrowed funds in an existing joint personal savings account from which both investment and personal expenses (daughters’ tuition, home renovations) were made, you might have broken this link and the Canada Revenue Agency (CRA) could argue that the borrowed funds were used for personal expenses. Common Shares IT Folio S3-F6-C1 indicates that, in general, interest on funds borrowed to invest in common shares of a company is deductible on the basis of a reasonable expectation at the time of shares’ acquisition that at some point in the future dividends will be received. If this expectation is not met, then the interest deductibility may be denied. Therefore, if the expectation was for only a capital gain on the sale of your company’s shares in the future and no expectation of any dividends to ever be received for owning the shares, then a deduction for interest on the borrowed funds would not be allowed. Ways It may be possible to provide the necessary link through other means, such as if the bank only approved the mortgage on the basis that it was being used for investment in VEC, or if the amount and timing of the mortgage and investment matched up closely. I recommend getting copies of your statements for the period in order to be able to show the trail of money going into and out of your account, to support the case that the amount borrowed was invested in the shares of the corporation, and then calculate the proportional interest related to these funds. This interest can then be deducted on your current personal tax return, even though dividends are not expected to be paid until later |
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Attribution -what are is considered minor child? -what happens with int/dive for minor child? -what about cap gains? |
-18 -any income (interest or dividends) earned by your younger daughter would be attributed to the parent, who is deemed to be the transferor. -cap gains not attributed back |
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Association Fees (paid by for by company) -is it taxable benefit for the owner? -what is the main purpose test? |
Test The Income Tax Act (ITA) does not permit a taxpayer to deduct club dues paid for a club, “the main purpose of which is to provide dining, recreational or sporting facilities for its members.” The question of taxable benefit is generally based on a “main purpose” test. If the primary reason for your membership is to enhance your abilities and connections for VEC’s benefit, then there should be no taxable benefit to you. But if the CRA found that the primary purpose was for you to enjoy the company of friends, a benefit could be imputed. Veza Eye: The meetings and lectures seem to be the main purpose of the association, despite some dining. The local association does not appear to fall into any of the above categories noted in the ITA, so the membership fee should be deductible for VEC. Given that the purpose of your membership appears to be to keep yourself up to date on medical issues, I would argue that there is no taxable benefit to you. |
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Telephone bill - are costs deductible for business owner on her personal tax return? what must be done to arrange for this? -how about for the business to claim the deduction? |
The business use component of a personal asset (in this case, 10%) would generally be deductible as a business expense. You would have to be able to substantiate the 10% business-use component, and the overall cost of the plan would have to be reasonable.
For the corporation to deduct the cost, it would have to reimburse you for the business-use portion, but this reimbursement would not be taxable to you. If you instead wanted to claim the expense on your personal tax return, you could have the corporation require you to incur the cellphone expense as part of your employment contract, which would allow you to deduct the 10% against your employment income. Alternatively, it may be more efficient to simply have the corporation reimburse you, and the corporation claim the deduction. |
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Capital Expense -would $1K paid for advice on design of office count (Veza) -how to record? |
Test In determining whether an expenditure should be capitalized, the CRA usually applies three tests:• Does the expenditure provide a lasting benefit? • Does it improve the property? • Does the expenditure form part of the asset, or is it a separate asset? Veza The expenditure provides lasting benefit, as colours and furniture are not routinely updated. There would be improvement to the space by way of the leasehold improvements and addition of furniture, based on the advice of the interior designer. Lastly, the expenditure does form part of other assets, namely the office furniture that would be purchased and leasehold improvements that would be performed based on the advice received. Since all of the criteria have been met, the expenditure would be considered a capital expenditure. Rather than expensing the full amount this year, the amount will be recorded as a capital expenditure on VEC’s corporate tax return and each year, VEC will claim CCA as a deduction until the expenditure is fully expensed for tax purposes. The costs would likely belong in Class 13 for leasehold improvements. If any furniture was purchased as part of the $1,000, then this would likely belong in Class 8. |
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How to calculate taxes owing (personal) |
1. Calculate NI for tax purposes (emp + property) -donations (200 x 15% + >200 x 29%) 4. step 2 amount - step 3 amount gives you taxes owed |
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Calculating business tax Festival |
Step 1: start with Net Income step 4: multiply by tax rate (for ccpc with income below 500K) |
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CCA rates 1, 2, 8, 10, 10.1, 12, 14, 14.1, 50, 53, 13 ,14 |
Class 1 --> 4%/6%/10%
declining balance(DB)Buildings (4%) / non-residential buildings (6%*) /Manufacturing and processing facilities (10%*) Class 8 -->20% DB Furniture, fixtures, office equipment Class 10 --> 30% DB Passenger vehicles costing up to $30,000, delivery vans,other vehicles Class 10.1 --> 30% DB Passenger vehicles costing over $30,000 Class 12 --> 100% DB Tools under $500, applications software Class 14.1--> 5% DB Intangible capital assets, incorporation costs in excess of$3,000 Class 50 --> 55% DB Computer hardware and systems software
Class 13 --> Cost divided by lesser of1. 5 years (SL)2. Lease term + 1st renewal (SL)Leasehold improvements |
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Salary - pros and cons |
• A salary will provide a deduction in the calculation of corporate tax but will be included in your employment income in the year received, and taxed personally using the progressive tax brackets. |
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Dividend - pros and cons |
• Dividends paid from the corporation are not deductible to the corporation and will be subject to a gross-up and a dividend tax credit when taxed personally. Dividends generally attract less tax at the personal level than a salary does. Whether this nets to a greater or lesser amount of overall tax (combining personal plus corporate taxes) compared to the salary will depend on numerous factors, including the following: whether the dividend is eligible or other-than-eligible (you may surpass the small business deduction limit in the future, paying corporate tax at the high rate and thus creating a GRIP balance to pay eligible dividends), your personal tax bracket, the provincial tax rates, and the provincial dividend tax credits. In general, regardless of whether you are paid a salary or dividends, the total tax paid between the corporate tax and your personal tax should theoretically be the same. This is known as the concept of integration and is intended to avoid double-tax of the same income. |
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What is set up for personal tax calc? |
Taxable income (salary, 50% of cap gains, grossed up div, child support is not taxable) |
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Employee Benefits (benefit to employee/employer) |
Private health services plan
• Implication to employees: o Premiums paid for a private health services plan by an employer on behalf of employees are not a taxable benefit to the employees, that is, no tax is paid by employees on such a benefit. • Implication to WWS: o In addition, these payments would be deductible for tax purposes by WWS, so this option has preferential tax treatment. Service Awards • Implication to employees: |
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Employee Benefits(benefit to employee/employer) -Training -Rec facilities |
Training
• Implication to employees: o As long as the employer is the primary beneficiary of the training, it would be non-taxable to the employees. The decision as to whether the training benefits the company will need to be made on a course-by-course basis. • Implication to WWS: o Regardless of whether the training benefits the company, WWS could claim a deduction because it would be considered a form of employee compensation. Subsidized cafeteria meals Recreational facilities Pension plan |
