Ufe Tax Review

Front 1

What's the formula for child care deduction?

Back 1

Least of:

1. actual ELIGIBLE child care expenses paid
2. 2/3 of earned income
3. infirm-7 years: $7000/child; 7-16: $4000, Disability:$10,000

Front 2

What is not included in earned income for purposes of the child care deduction computation?

Back 2

• No RPP contribution can be deducted
• No rental income
• No spousal support received
• no interest income
• No CG

Front 3

What's the formula on charitable donation credit? Carry period rule? New rule?

Back 3

• =15% * first $200 + 29% of excess
• 5 year forward, 1 year back from year of death
• Donations between Mar.20,2013-2017: 25% for first $1,000 donated for eligible first time donors

Front 4

What's the pension credit formula?

Back 4

= 15% * first $2,000 of pension income

Front 5

What's the max fitness and arts credits for children?

Back 5

lesser of:

• amount spent
• max. $500 each per child

Front 6

How to calculate EI & CPP Credits?

Back 6

15% of amounts paid/withheld

Front 7

What are the general assumptions of individual tax rates and corporation tax rates?

Back 7

• Personal=50% (29+16)
• AII = 50%
• Corporate general=30% (15+13)
• Corporate SBD= 16% (11+5)
• Part IV = 1/3

Front 8

Who are eligible for the married or common-law partnership credit and what are the special rules?

Back 8

• available if an individual supports the spouse
• tax credit base will be reduced by dependent spouse's division B income

Front 9

What is the special rule about age credit?

Back 9

• age tax credit is reduced by 15% (thus completely eliminating the credit) for division B income over the certain threshold.

Front 10

What unusued credits can be transferred to spouse or common-law partners?

Back 10

• tuition, education and textbook credits (max $750)
• age credit
• pension income credit
• mental or physical impairment credit
• child amount
• Formula=transferred credits - spouse part I tax payable after deducting her credits

Front 11

How to calculate SBD deduction?

Back 11

17% of least of:

• Canadian ABI
• Taxable Income
• $500,000 limit shared by associated corp.

Front 12

Is taxable dividends from canadian companies included in AII?

Back 12

No, specifically excluded.

Front 13

How to calculate RDTOH?

Back 13

1. Part I tax on AII of CCPA (refundable portion)
2. Part IV Tax on portfolio dividend
3. RDTOH at end of PY - Dividend refund of PY

Front 14

How to calculate CDA?

Back 14

1. Untaxed CG (1/2)
2. CD received from other corps.
3. Untaxed CECA （2/3 * CECA)

Front 15

What's the ITC on corp. & CCPC?

What's the carry periods, limit and refundable rules?

Back 15

• Public and individuals: 20% non-refundable (back 3 years, forward 20 years)
• 1st $3M for CCPC: 35%, 100% refundable for current expenditure, 40% refundable for capital items, (starting 2014 0% refundable on capital items)

Front 16

How to calculate ACB of partnership interest?

Back 16

• Capital contribution+%income/loss+%CD received + 50% of CG -draws - %of charitable/political donations - 50% of capital loss

Front 17

What is the deemed disposition rule on becoming non-resident?

Back 17

• Deemed disposition at FMV --> can elect to defer tax and pay it when selling the property if file security for tax owing (no interest will be charged)
• 3 main Exceptions:

1. Life insurance, Interests in registered plans such as Pensions, TFSA, RRSP, (taxed when payment received)
2. Cdn real estate and business/natural resource property used in Canada (taxable canadian property -> taxed when property is sold)
3. if resident in canada < 5 years in last 10 years

Front 18

What is inter vivos trust and related tax rate?

Back 18

• created when settler is alive
• taxed at top marginal rate (29%)
• also pay provincial tax based on residency of the trust

Front 19

What is testamentary trust?

Back 19

• created as a result of death (Will)
• can be tainted if contributing while alive
• taxed at gradual rate (15%-29%)
• also pay provincial tax based on residency of the trust

Front 20

What's the trust tax return filing date and their respective YE?

Back 20

• T3 filed within 90 days from December 31
• Inter vivo trust has to choose 12.31 as YE
• Testamentary trust can choose to have different YE

Front 21

How are trust taxed?

Back 21

• pay tax on income earned (then can distribute tax-free)
• get deduction for income distributed or designated as payable
• income allocated to beneficiary retains its character

Front 22

What is the use of a TFSA? contribution rules? Deductibility?

Back 22

• allow 18+ Cdn residents to earn investment income tax-free
• excess contribution has 1% tax penalty
• contribution room carried forward indefinitely
• cannot invest in non-arm's length parties
• interest on money borrowed to invest in TFSA is not deductible since income is not taxable
• attribution does not apply-> let higher income spouse contribute it
• can transfer to spouse (TFSA itself or assets of TFSA) tax-free after death to avoid tax

Front 23

What is the limit for contribution to spousal RRSP?

Back 23

• limit calculated based on the contributor's income only
• contributions can be made to spousal RRSP until the spouse reach 71 age

Front 24

What's RRSP contribution and deduction (deductible in computing division B income) limit?

Back 24

1. RRSP carry forward +
2. Lesser of 18% * PY earned income or 23,820
3. - PY's PA (can over contribute up to $2,000 without penalty,1% penalty for excess)

Front 25

What's the earned income for RRSP purpose?

Back 25

1. employment income
2. business income
3. rental income
4. royalties from a work
5. spousal support
6. CPP disability income

Front 26

What is the attribution rule on RRSP to prevent short-term income splitting?

Back 26

• income splitting if the spouse's at a lower marginal rate upon retirement
• Tax on amounts withdrew by spouse up to amounts of the premiums paid by the individual in the 3-year period will be attributed back to individual's income (can contribute to spouse's RRSP as long as the spouse does not withdrawal within 3 years)

Front 27

What is the home buyer's plan?

Back 27

• Individual can withdraw up to $25,000 tax-free from RRSP to buy an owner-occupied home
• must be repaid annually over max. 15 years (starting 2nd year)

Front 28

What are the filing due dates for the following?

• corporations
• individuals
• sole proprietorship
• Deceased individual
• Trusts

Back 28

1. 6 months after YE
2. 4.30
3. 6.15
4. later of 6 months after death or normal due date
5. 3 months after YE

Front 29

What are the payment deadlines for the following?:

1. individual
2. corporations
3. CCPC claimingSBD
4. Trusts

Back 29

1. 4.30
2. 2 month after YE
3. 3 month after YE
4. Due date for trust return (3 months after YE)

Front 30

What's the penalty on late-filing?

Back 30

=balance owing * 5% + 1% for each month (max. 17%=1 year)

Repeat offender: double the %, max 50%

Front 31

What is the pay date and requirement for instalments for individual and amount?

Back 31

• paid by 15th of each quarter
• if difference between liability in CY and 1 of previous 2 years > tax withheld by $3000
• =Least of:

1. 1/4 of CY tax payable
2. 1/4 of PY instalment base
3. For Mar.&June: 1/4 of 2nd PY instalment base For Sep.&Dec. : 1/2 of (PY instalment base - Mar. & June payments)

Front 32

What is the pay date and requirement for instalments for corporations and amount?

Back 32

• monthly or quarterly (last day for CCPC) depends on type of corporation
• if tax payable for CY or PY > $3,000
• =least of:

1. 1/4 Tax payable for CY
2. 1/4 tax payable for PY
3. First instalment: 1/4 tax payable for 2nd PY Second instalment: 1/3 (tax payable of PY - first instalment paid for current year)

Front 33

What is the standby charge on owned & leased car?

Back 33

Assuming employment use > 50%

• owned=Personal km/20,004 * (24% * (Cost+HST))
• leased=Personal km/20,004 * (2/3 *(Lease PMT - insurance))

Front 34

What is the operating cost benefit?

Back 34

1. If there's standby charge:

= lesser of:

• 0.27 * Personal km - employee reimbursement
• 1/2 of standby charge (if employment use > 50%) 2. If there's no standby charge:
• =personal % * employer-paid expense

Front 35

What is the max. deductible lease expense?

Back 35

Lesser of:

1. (800+HST)* total months leased - previous lease deducted - imputed interest - reimbursement receivable
2. (Total lease payable in the year * 30K & HST)/ (0.85* greater of 39,882 or manu. price)

Front 36

What are some examples of deductible interests to save tax?

Back 36

1. home mortgage interest if used to earn income from business or property
2. interest on money borrowed to buy capital property (CS/PS/ BUT NOT gold bars/commodities:no income stream, CG only)

Front 37

What are some important points on gift of stock to charity?

Back 37

• CG will result but TCG=0
• If a private corp. makes a gift, the CDA=CG rather than 1/2 CG

Front 38

Moving expense: what are the special rules on deductibility on these expense?

Back 38

• Must move 40km closer to new employment
• Deductible to a max of $5,000: cost of maintaining vacant former residence if reasonable efforts made to sell
• Deductible meals: $17/meal -> $51/day flat rate or actual meals & accomodation expense near old or new residence for max. 15 days

Front 39

What are the tax effects of child support payment to payer and receiver?

Back 39

• Payer: not deductible
• Receiver: not include in income and not taxable
• *fees incurred to establish spousal support amount are not deductible (capital nature)

Front 40

What are the 3 basic ways of corporate reorganization?

Back 40

1. Mergers (section 87 or 88) - auto tax-deferred
2. Share exchanges ( sec. 51,85.1 or 86) - auto tax-deferred
3. Transfer of assets ( sec. 85) - election must be filed for tax-deferral

Front 41

What you should know about section 85?

Back 41

1. Use: to incorporate a proprietorship or investment, to transfer assets between corp., to set up a holding company.
2. must take back shares and must elect
3. Election deadline = earliest of deadline for transferor or transferee (can still file with penalties within 3 years)
4. can only transfer eligible capital property
5. can only transfer to taxable canadian corporation

Front 42

How to incorporate a partnership?

Back 42

1. using section 85 (2) to transfer assets from partnership to corporation and take back shares
2. wind up partnership and distribute shares

Front 43

What is ABIL? carry period? special rules?

Back 43

• ABIL = 1/2 of BIL
• BIL = capital loss on the disposition of shares or debt of a SBC
• If not used in 10 years -> net capital loss
• Disallowed by any LCGE claimed -> ACL

Front 44

What are the rules on replacement property?

Back 44

• voluntary: 1 year after YE of disposal
• involuntary: 2 years
• ACB of new property=Cost-deferred CG
• UCC of new property=Cost-deferred CG - deferred recapture

Front 45

What's the rate of PSB?

Back 45

28%=38%-10%

Front 46

How to calculate GRIP?

Back 46

• =opening balance + 72% of taxable income subject to the general rate + eligible dividend received - eligible dividend paid

Front 47

What is section 51?

Back 47

• convertible securities
• auto tax-free rollover

Front 48

What is section 84.1?

Back 48

• NAL sale of shares by an individual to a corporation
• any boot received will be a deemed dividend rather than a CG to the extent it exceeds the greater of PUC or ACB of the shares transferred

Front 49

What is section 84(2)? (together with section 88(2))

Back 49

• windup of a corporation after sale of assets

Front 50

What is section 85.1?

Back 50

• arm's length share for share exchange
• auto tax-free rollover
• no boot allowed
• cannot be used to set up holdco. (NAL)
• easier than section 85 n/c no election required

Front 51

What is section 85(2)?

Back 51

• Allows to incorporate a partnership (same as section 85)

Front 52

What is section 86?

Back 52

• reorganization of capital
• auto tax-free rollover
• used in estate freeze to convert CS to PS

Front 53

What is section 87?

Back 53

• amalgamation
• auto rollover
• deemed YE
• can use loss in current year
• BUMP available (vertical)
• General Anti-Avoidance Rule will apply if it is to create a deemed YE to take advantage of a tax rule

Front 54

What is section 88(1)?

Back 54

• windup of a subsidiary into its parent
• sub's loss can be used in 1st year following YE of the year windup occured
• BUMP available

Front 55

Under what situations will PSB and SIB will be deemed to be ABI?

Back 55

1. > 5 full time employees through the year
2. employee-like service provided to associated corporations
3. income from property provided to associated corporation and deducted by associated corporation in computing its ABI

Front 56

What's the difference between SIB and AII?

Back 56

• SIB is on a net income basis
• AII is on a taxable income basis
• (AII exclude dividend as deducted under Div. C, and reduced net TCG using Net CL claimed under division C)

Front 57

What's the attribution of income and CG if spouse separated?

Back 57

• income attribution automatically stops
• CG attribution only stops if jointly elect

Front 58

What's the benefit of using RESP?

Back 58

• tax deferral
• 20% Canada Education Saving Grant
• income splitting: child pays tax on income and CESG

Front 59

What is an estate freeze?

Back 59

• it's a technique whereby the current FMV of growth assets (CS or other assets) is "frozen" by exchanging them for a corporation's PS (PS are non-growth assets b/c they don't grow in value)
• Freezing the value of the assets freezes the amount of CG at death

Front 60

What's the advantages of an estate freeze?

Back 60

1. freeze CG with no tax cost (elect at ACB on transfer or at FMV to use LCGE)
2. keep control (take back redeemable/retractable PS)

Front 61

What are the 2 most common types of estate freezes?

Back 61

1. Holdco Freeze (if opco have other shareholders, can use to defer tax on dividends as well, can freeze property other than shares)
2. Internal Freeze (simpler and cheaper)

Front 62

What is rate on personal service business?

Back 62

28%=38%-10%

Front 63

Under what situation is a reimbursement of moving cost a taxable benefit and not a taxable benefit? How to determine the amount of taxable benefit?

Back 63

• Generally not taxable benefit
• Taxable benefit: if it's reimbursement of costs to finance the use of a residence or for reimbursement of a loss suffered by the employee on the sale of a residence
• calculated as = 50%*(reimb. - 15,000)

Front 64

Under what situation would a stock option be a taxable benefit with no deduction?

Back 64

• Public company share with an option price < FMV at the grant date of the option, resulting in employement income of the difference at the purchase date (in the money)

Front 65

Under what situation would a stock option be a taxable benefit with deduction?

Back 65

• Public company option price >= FMV at grant date -->
• 50% stock option deduction;
• stock option benefit on the first $100,000 stock option value can be deferred and included in emplopyment income in year shares are sold (must elect)
• Or CCPC: if shares are held for 2 years after acquisition:
• taxable benefit at sold date rather than purchase date, 50% deductible

Front 66

Under what dollar limit will gift to employee not count as benefit? And what is the additional tax-free benefit on gifting?

Back 66

• $500 (no 2 gifts limit anymore)
• For every 5 year long service / anniversary, an additional $500 gift

Front 67

What are some examples of employer-provided taxable benefits?

Back 67

• Gifts in cash or > $500
• rent-free or low-rent housing
• group term life insurance
• Loyalty points converted to cash (form of additional remuneration)
• reimbursement for the cost of tools required to perform duties of employment
• financial counseling and income tax return preparation
• reimbursement for day care costs for children
• club dues for no employment use

Front 68

Under what situation is home office expense deductible? What about excess of the income earned?

Back 68

• If the home office is the place where the individual principally perform the duties (>50%), OR if the space is used exclusively to earn employment income and is used on a regular or continuous basis for meeting customers
• Excess can be carries forward

Front 69

What are the kinds of home office expense deductible by:

1. self-employeed
2. sales employee
3. employee

Back 69

1. mortgage interest, property tax, insurance, utilities
2. property tax, insurance, utilities
3. Utilities

Front 70

What are the 3 methods to recognize income?

Back 70

1. cash method
2. receivable method
3. accrual method ( for investment subject to the limitation of the anniversary date)

Front 71

What are other taxable sources of income related to insurance proceeds?

Back 71

• Proceeds from accident, disability, sickness or income maintenance insurance policies: insurance proceeds in excess of any premiums paid in past years by employee are taxable as employment income

Front 72

What are the tax treatments to inducement payments received?

• grant or subsidy
• forgivable loan

Back 72

• Taxable business income
• OR can elect to apply the payment as a reduction of the property acquired

Front 73

What are the tax treatments to insurance proceeds on property(business)?

Back 73

• If property destroyed: treated as POD
• If property damaged: treated as taxable income to the extent of cost of repairs, any excess treated as POD

Front 74

Is interest cost and property tax on idle land deductible?

Back 74

• only deductible to the extent of the income generated on land
• Excess is added to ACB of land

Front 75

Is cost related to construction of a building deductible?

• legal and accounting fees
• interest cost, mortgage cost, property tax
• promotional taxes

Back 75

• No, they are capitalized into ACB of building

Front 76

What are the exceptions to the 50% deductibility on meals and entertainment?

Back 76

• Up to 6 "occasional events" per year which the meal and entertainment is available to all employees --> 100% deductible

Front 77

What is the max. interest deduction on money borrowed to buy a car and lease a car?

Back 77

• To buy: $300/month
• To lease: $800 (plus tax) / month

Front 78

What is the tax treatment for interest on loans used to purchase depreciable property?

Back 78

• Can be deducted on as incurred bases OR
• Can be added to ACB of the property

Front 79

Under what situation would landscaping cost be deductible?

Back 79

When:

1. around building that is used for earning income
2. AND when paid

Front 80

Under what situation can you claim a reserve for delayed payment revenues?

Back 80

• When inventory has been sold AND
• all or part of payment is not due until after 2 years

• reserve is limited to 3 years max.

Front 81

What are the deductibility of expense of representation?

• to regulatory body
• apply for a permit, franchise, patent, trademark or broadcast license

Back 81

• deducted in full in year paid OR
• deduct equally over 10 years

Front 82

What is the deductibility of site investigation?

Back 82

• Deductible only when paid
• not adding to ACB of land! (only interest & property tax on vacant land if used in business)

Front 83

Under what situation is convention expense deductible?

Back 83

• up to 2 per year AND
• the location of the convention is within the territorial scope of the organization AND
• paid

Front 84

What's the new rule on SR&ED expenditure and ITC for Canadian corporations in 2014?

Back 84

• Capital expenditures are no longer deductible
• ITC rate changes from 20% to 15%

Front 85

How are WIP incurred by professionals taxed?

Back 85

• can choose to exclude them and recognize income on an as-billed basis

Front 86

How are partnership interest treated?

Back 86

• Capital property --> disposition results in CG or CL

Front 87

How are the CCA determined in partnership?

Back 87

• Determined by partnership rather than individual partners.

Front 88

What is the corresponding assets and rates for the following class?

1. Class 1
2. Class 8
3. Class 10
4. Class 10.1
5. Class 12
6. Class 13
7. Class 14
8. Class 17
9. Class 29
10. Class 44
11. Class 50

Back 88

1. Class 1, Building,4%,6%,10%
2. Class 8, Furniture, appliances, outdoor ad signs, photocopiers, electronic equipment, fax machine, 20%
3. Class 10, Truck, vans, passenger vehicles<30,000, 30%
4. Class 10.1, Passenger vehicles>30,000 (no recapture/ terminal loss, 1/2 CCA in year of sale), 30%
5. Class 12: No 1/2 rule for tools&utensils <500, linens, cutlery, dishes; 1/2 rule for dies and moulds and application software, 100%
6. Class 13, Leasehold improvements, SL over remaining lease term plus first renewal option, 1/2 CCA in first year
7. Class 14, Limited life intangibles - franchise, license, patent, SL over legal life in days (no 1/2 rule)
8. Class 17, Parking lots, 8%
9. Class 29, M&P property, 25%, 50%, 25%
10. Class 44, Patents or rights to use patented information, 25%
11. Class 50, computer hardware & systems software, 55%

• Note: everything is prorated if the tax year < 365 days!!

Front 89

What happens when change in use of property (personal to business, at which time FMV > cost)?

What if specifically it is changed from a principal residence to rental property?

Back 89

• deemed disposition at FMV -> CG
• New cost = original cost + CG, to be taken CCA upon

• If change use from principal residence to rental property, can elect to have the deemed disposition rule not apply for a max of 4 years, but CCA cannot be taken for this period

Front 90

What is the eligible and non-eligible dividend gross-up in 2013 and 2014?

Back 90

• eligible: 38% and 6/11 of GU
• non-eligible:
• 2013: 25% and 2/3 of GU
• 2014: 18% and 13/18 of GU

Front 91

What are the 4 criteria to determine whether it's business income or CG?

Back 91

1. Nature of the transaction
2. Number and frequency of the transaction
3. Relation to taxpayer's business
4. Period of ownership

Front 92

Are sales of Canadian securities business income or CG/CL?

Back 92

• If not elect: business income
• If elect: capital transactions
• Elections cannot be changed afterwards

Front 93

What's the max CG reserve that can be taken? Under what situation would it be over 10 years?

Back 93

Over 5 years:

lesser of:

• reasonable reserve (unreceived / total proceeds)*CG
• 20% each year

Over 10 years:

• if sale of shares of a SBC
• a farm property
• interest in a family farm partnership to a child

Front 94

How are income from mutual funds taxed and what happens to the mutual fund as a result of the tax?

Back 94

• Included in taxpayer's income in year of distrition (retaining its characteristics)
• Distribution will increase ACB of the trust

Front 95

How can you save tax on sale of a SBC share?

Back 95

1. If QSBC shares --> 750K LCGE
2. Take CG reserve and defer over 10 years
3. Use proceeds from disposition to purchase (within 120 days after YE of the year of sale) newly issued common shares of another SBC (deferred until the new shares are sold) -> the amount deferred reduce the ACB of new shares

Front 96

What is a SBC?

Back 96

• a CCPC with at least 90% of the FMV of its assets used in active business carried on primarily in Canada

Front 97

What moving expenses are not deductible?

Back 97

• Not deductible:Expense for work done to make the property more saleable or any loss incurred on the sale;
• value of items mover refused to take: frozen food, plant etc.
• expense to clean or repaid a rented residence to meet landlord's standards
• mail-forward costs
• cost of vehicle inspections and emission tests

Front 98

What is the annual contribution limit for RESP?

Back 98

• No annual limit
• Lifetime limit = 50,000

Front 99

How can a person be related to a corporation?

Back 99

1. The person controls the corporation
2. The person relates to another persons who controls the corporation

Front 100

How can two corporations be related?

Back 100

1. If Corp.A controls Corp. B
2. If person X controls Corp. A & B
3. If X and Y are related and X controls Corp. A, Y controls Corp. B

Front 101

When are shareholder loan not included as taxable income? Is there any other tax consequence?

Back 101

1. Obtained in capacity as an employee rather than shareholder (if as shareholder, can exclude from income if repay the loan within 1 year after YE) AND
2. bona fide arrangements for repayment within reasonable time AND
3. to acquire personal residence
4. to acquire common shares
5. to acquire automobile to be used in performing employment duties
6. If money lent in ordinary course of money lending business

• Other tax consequence: imputed interest benefit needs to be included if not income

Front 102

What's special about amalgamation of corporations within a related group?

Back 102

• Does not result in change in control

Front 103

What is a key feature about a joint ventures?

Back 103

• It is formed for a limited purpose or limited duration project (risk existed that CRA will rule it as a partnership)
• unincorporated joint venture not subject to tax
• Discretionary deductions are determined by each member rather than the venture itself
• FMV rule does not apply on transfer of property in&out of the venture
• can potentially enjoy SBD if not used anywhere else and is a incorporated venture

Front 104

What are the criteria used to determine employee vs. self-employee?

Back 104

1. Control
2. Ownership of tools and equipment, hires helps
3. Risk of loss/ opportunity for profit
4. Economic dependence
5. Duration of contract/ specific results
6. Treated like employee? Employee benefit?
7. Other factors: written contract and invoice

Front 105

What happens to safety deposit box rental fees?

Back 105

• No longer deductible

Front 106

What's the new change on AOC regarding trust and percentage of shares?

Back 106

• AOC now also applys on trust
• AOC occurs if have > 50% voting shares OR
• if have > 75% of FMV of all shares (if reason for not acquiring 50% control is to avoid the loss restrictions)

Front 107

What are other effects of becoming non-resident other than deemed disposition?

Back 107

• no need to pay tax on worldwide income
• pay 25% withholding tax on certain passive Cdn income ( rental, dividend, pension income and RRSP withdrawals)
• No withholding tax on CG and most interest income

Front 108

What is definition of affiliated person?

Back 108

1. a person is affiliated with himself
2. a person is affiliated with his/her spouse
3. a person is affiliated with a corporation that him or his spouse control

Front 109

How to calculate refundable portion of part I tax?

Back 109

Least of:

1. 26 2/3% * AII
2. 26 2/3% * (TI - Amount eligible for SBD)
3. Part I tax

Front 110

How to test for impairment?

Back 110

Test for recoverability

Front 111

What needs to be done to prevent a FMV dispute with CRA in case of share exchange?

Back 111

A price adjustment clause

Front 112

What's the tax advantage on retiring allowance?

Back 112

A Max of $3,500 per year employed before 1996 could be paid and transferred to RRSP on a tax deferred basis.

Front 113

How to finance estate tax liability?

Back 113

Purchase insurance
Defer tax payment over 10 years (estate interest expense not deductible)

Front 114

What is section 50? (write down on capital property for financially troubled business)

Back 114

• If FMV=0, can elect to recognize ACL or ABIL on:
• shares : corporations must be inactive or bankrupt
• bonds : must try to collect or know it is bad because you own the corp.
• Loan receivable

Front 115

What are the CECA rules?

Back 115

• all costs entered at 3/4, disposed also at 3/4
• at 7%
• no 1/2 rule
• short tax year - prorate for days

Front 116

What is AOC acquisition of control?

Back 116

1. Deemed YE immediately before AOC
2. Deemed realization of loss
3. Non-capital loss carryforward 20 years : 1 year shorter, streaming rule applies
4. Expires: property loss, ABIL, capital loss

Front 117

When is there no 1/2 rule on CCA?

Back 117

1. Class 12 (100%) for tools and utensils <$500
2. Class 14 - limited life intangibles : SL over legal life in days
3. If purchased from a non-arm's length vendor and purchased by vendor at least 364 days before purchaser's year end (V buys the asset this year and has already taken a 1/2 rule on CCA, when this year V sells to P who is related to V, P doesn't need to take the 1/2 rule anymore)
4. on 7% of CECA

Front 118

What is the formula on recapture, terminal loss?

Back 118

1. Recapture = lesser of cost and proceeds - UCC
2. Terminal loss = the balance of positive UCC left when there's no asset left

Front 119

What are the rules on shareholder loans and shareholder benefits?

Back 119

• No deduction for employer
• Income for employee (exempted if repay in 1 year)
• repayment deductible in year repaid
• Sec. 15(2) {income inclusion of loan} and section 80.4 {deemed interest benefit} are mutually exclusive
• however there might still be an actual interest benefit if corp. borrow fund to make shareholder loan

Front 120

What are the common adjustments to ACB?

Back 120

• Additions:

1. superficial loss
2. interest & property tax on vacant land
3. employee stock option benefits
4. cost of surveying or valuing

• Deductions:

1. government assistance and grants (inducement)

Front 121

What is the special rule on allocation of POD for building and land?

Back 121

• allocate based on FMV %
• if building has a terminal loss (business loss, 100% deductible) and land has a CG (capital gain, 50% taxable), must reallocate so that terminal loss = 0.

Front 122

When are capital losses deemed to be nil?

Back 122

1. Personal use Property (PUP)
2. Disposition to affiliated person (superficial loss -> added to ACB)
3. Loss on transfer of property to RRSP or TFSA
4. If sell for a loss and buy back it or identical property within 30 days
5. affiliated corp: loss is deferred and suspended (stay with the seller)

Front 123

What happens at windup?

Back 123

• Deemed dividend

Front 124

What do you need to know about CPP?

Back 124

1. receive payment at 65 (or 60 and 70 for decreased and increased payment)
2. share CPP payment with spouse
3. mandatory to contribute
4. self-employed pay *2 CPP

Front 125

What are the 5 major reasons to create a holdco?

Back 125

1. to defer tax on dividends and loan back on secured basis
2. to expand operations by having holdco own shares of subsidiaries (risk management)
3. estate freeze
4. purchase of company financed by bank debt (holdco borrow from bank to buy out Opco, then amalgamate two or windup holdco into Opco)
5. amalgamation / windup and BUMP
6. To crystallize LCGE

Front 126

What is the tax rule on corporation's amount payable to a NAL person for a deductible expense?

Back 126

• can deduct in year 0 even if payable
• if unpaid at end of year 2:
• then add back to income in year 3 (either corporation or the NAL person)

Front 127

What's the major differences between buying business by acquiring assets vs shares?

Back 127

• higher vs. lower ACB of assets
• No unknown liability vs. unknown liaility
• ability to use losses vs. inability

Front 128

What is leveraged buyout?

Back 128

1. incorporate holdco and have holdco borrow from bank to buy Opco shares
2. amalgamate or windup the two corportions so that interest can be deducted and principal can be repaid by Opco.s business profit

(It is more expensive to buy shares personlly considering personal tax cost)

Front 129

Why does seller prefer to sell shares rather than assets?

Back 129

1. LCGE
2. CG better than income (50% vs. 100% tax)
3. CG reserve possible (over 5 years max)

Front 130

What are some benefits of seller selling assets rather than shares?

Back 130

1. Use loss carryforward to offset income
2. can distribute RDTOH, Capital Dividend free

Front 131

How to save tax with your child?

Back 131

1. Buy a mutual fund to earn CG and use a trust for the child, only income attribution to you but not CG attribution
2. Invest in RESP:

• tax deferral
• 20% government grant
• income split: child pay tax on income and CESG
• 3. Pay child a reasonable salary

Front 132

What are ways of Retirement planning?

Back 132

1. max RRSP contribution
2. max TFSA contribution
3. retiring allowance
4. At 71, convert RRSP to RRSP annuity/ RRIF
5. Pension income split with spouse
6. CPP income split
7. Spousal RRSP

Front 133

What are personal tax consequence of becoming a non-resident?

Back 133

• not taxed on WWI
• personal credits are prorated if becoming non-residents during the year
• Principal residence exemption only available for years in canada
• no LCGE
• attribution stops

Front 134

What happens when you die?

Back 134

• Property is distributed according to will
• Deemed disposition of capital property at FMV (exception: spousal rollover --> can elect out of rollover on an asset by asset basis to use QSBC exemption, losses or other credits)
• Life-insurance is tax-free
• RRSPs or RRIF: FMV is included income unless left to a spouse or financially dependent child : in that case, spouse or child include in their income and deduct it if transfer the "refund of premiums" to their RRSP, RRIF

Front 135

How to calculate CEC on ECE?

Back 135

• 3/4 of FMV at disposition, not of original cost!!

Front 136

Is there capital loss on depreciable property?

Back 136

No! Only terminal loss if any!

Front 137

Which of the following cannot claim child care expense?

• lower income spouse
• higher income spouse

Back 137

• Higher income spouse

Front 138

Who can claim eligible dependent amount (equivalent-to-spouse)?

Back 138

• unmarried person for one of his/her children under 18

Front 139

Who can claim child amount?

Back 139

• For each child under 18 at the end of the year

Front 140

Who can claim caregiver amount?

Back 140

If you live with:

• Child dependent: who is over 18
• Parent dependent: who is born before 1948 (over 66)

Front 141

Who can claim child's fitness credit?

Back 141

Registering for a fitness program for a child under 16, max $500

Front 142

Who can claim medical expense credit?

Back 142

• The parent's and children's medical expense credit can be all claimed by the parent

Front 143

How to calculate credit for:

1. Tuition
2. Education
3. Textbook
4. What is the transfer limit to spouse or parent

Back 143

1. 15% * tuition paid in year
2. 15% * 400/month
3. 15% * 65/month
4. =$5000 - amount needed by student to reduce federal tax to zero

Front 144

What is kiddie tax?

Back 144

• Taxed at highest personal marginal rate on the kid if under 18 and receive dividend from private corporation

Front 145

Is capital gain realized by children attributed to parent?

Back 145

No, only CG realized by spouse are attributed back to the other spouse.

Front 146

What happens when a child under 18 sell shares of a private corporation to a NAL person and realize a capital gain?

Back 146

• The capital gain is reclassified as a non-eligible dividend and subject to kiddie tax on top marginal rate for the child

Front 147

What's the deadline to file an objection to the notice of assessment?

Back 147

• later of:

1. 90 days after the mailing date of notice of assessment
2. the day that is 1 year later than the filing due date for that year

Front 148

What is the normal reassessment period?

Back 148

• 3 years after date of original notice of assessment

Front 149

What's the benefit of involving family member as shareholder of a private corporation?

Back 149

1. income splitting - salary and dividend
2. LCGE
3. Estate planning

Front 150

What's the % used on base amounts for federal and provincial tax credits?

Back 150

Federal: 15%

Provincial: 5%

Front 151

How to calculate CPP?

Back 151

• 4.95% of pensionable earnings for between $3,500-$51,000
• max. $2,356

Front 152

What is a Personal Service Business? (PSB)

Back 152

• A personal services business consists of providing the services of an “incorporated employee” to an entity of which the incorporated employee would otherwise reasonably be regarded as an officer or employee.
• a contract of service generally exists if the person for whom the services are performed has the right to control the amount, the nature, and the management of the work to be done and the manner of doing it. A contract for services exists when a person is engaged to achieve a defined objective and is given all the freedom required to attain the desired result.”
• must be a “specified shareholder” of the corporation providing the services.

Front 153

What is BUMP?

Back 153

• to increase the adjusted cost base of the nondepreciable capital property of Targetco.
• available only in windup or vertical amalgamation