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84 Cards in this Set
- Front
- Back
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How do you carryforward allowable losses from years with differing inclusion rates?
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Convert the losses back to gross losses by dividing allowable loss by inclusion rate for that year. Deduct the gross loss from current year gross gain, before calculating balance of taxable gains after deducting loss.
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What are the Declaration of Taxpayer's Rights |
fair impartial treatment courtesy, respect, consideration privacy, confidentiality French/English complete, accurate, clear information right to every benefit allowed under law formal review of file appeal to courts |
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How do you determine how much moving expenses can be claimed as a deduciton in the year of move? |
1. Determine eligible costs 2. Determine amount of income from new job in year of move. Must carryforward, not claim expenses exceeding new income |
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What moving expenses would be considered taxable benefits if paid by employer? |
Payment of more than $5000 to keep up old residence Sold house at loss, half amt that exceeds $15K is taxable Refinancing costs resulting in bridge costs, higher rate |
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What are basic limits of childcare deduction? |
2014 $7K 0-6 overnight $175/wk $4K 7-16 $100/wk $10K dis $250/wk to max of 2/3rds income of lower income spouse |
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If the lower income earner is in school, how much can the higher earning spouse claim for childcare?
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FT $175/wk 0-6 PT $175/mo FT $100/wk 7-16 PT$100/mo FT $250/wk disab PT$250/mo |
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What are the differences between net capital losses and non-capital losses?
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Net Capital Losses = Taxable Capital Gains - Allowable Capital Losses. These are 50% of the loss resulting from the sale of property. Applied only against taxable capital gains. Net Capital Loss results after an ABIL has arose and reduced income to zero in that tax year. It is 100% of the loss and would remain at 100% even if converted to net-capital loss after 20 yrs. Applied against any income. |
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How do you determine if someone is a Canadian resident in terms of CRA and taxes?
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-Regularly & normally lives in Canada as part of settled routine -Hasn't severed ties w Canada even though spending great deal of time in another country -Immigrated to Canada (only owe taxes on income after became resident) -Live in Canada 183 days (soujourner and would owe tax on global earning for full yr) |
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What are examples of situations where someone would still be considered a Cdn resident?
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-Uni student 8mo's in US, then back home in summer -Cdn on sabatical 18mo's in europe -US citizen working in Cdn logging camps 7mos/yr -US citizen lives in Can work week and goes home to house w kids and spouse weekends (NOT CDN: US cit living in US, cross border daily for work) |
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When do you have to start making installment payments? |
If owed more than $3K tax in either of previous two yrs, and will owe more than $3K in current year, have to start paying installments in current year
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When are you fined an installment penalty?
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If the interest owing on late installment paying is more than $1000
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What are the tax filing deadlines?
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Corp: 6 mos from YE Death: LATER of 6 mos and normal filing date Trust: 90 days from YE Self Employed: June 15 Other ind: Apr 30 |
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What is a filing penalty and from when is it charged? What is payment penalty? |
Filing penalty: 5% + 1% per COMPLETE month of interest due accruing from ffiling deadline Payment penalty: Charged from payment deadline at prescribed rate that changes quarterly. P/Yr=365; xP/Yr=(#days/365); I/Yr=%; PMT=$0; PV=tax due; Solve for FV |
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What is the process of initiating and escalating tax appeals and what are the time limits involved? |
1. File objection w CRA Appeals Div later of 1 yr from due date or 90 days after NOA 2. Appeal to tax court of canada w/i 90 days CRA mails appealed decision or 90 days after objeciton provided to Cheif of Appeals 3. Federal court of appeal w/i 30 days tax court communicates decision 4. Supreme court w permission from supreme court |
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What and how much is Planner Penalty?
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Knowingly making a false statement to an unidentified group, ie tax shelter seminar or appraiser of a report for a scheme -Penalty greater of $1K and the taxes "avoided" by person making false statement |
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What and how much is Preparer Penalty? |
Preparing return or providing tax advise w false information to specific persons. ie Appraiser for identified persons. -Penalty greater of $1K and lesser of gross entitlement arising from making statement (taxes "avoided") and $100K+profit/commision |
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Are insurance benefits a taxable benefit to employees? |
Taxable to employee · Non-Group Insurance Plan ie. For key employees (sickness,accident, disability, income maint): Employer paid premium is a taxablebenefit, benefit is tax free<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> · Group life insurance (to extent taxpayer doesnot reimburse employer NOT taxable to employee · Group/Private Insurance or Health Services Plan available to all employees(sickness, accident, disability, income maint): Employer paid premium is NOT a taxablebenefit, insurance benefit is taxable |
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What amount of moving expenses are considered taxable benefits to employees if paid by employer?
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Taxable Ben: Amount above 5K paid to keep up old residence, halfamount above $15K compensating for loss on sale of former residence, anyreimbursement for financing
Below these amounts or if reimbursement for any of the moving expenses CRA allows as deductions, it is a tax free benefit. |
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What use of home expenses are not allowed to be deducted by commissioned employees? By non-com employees?
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commissioned employees cannot deduct CCA or mortgage interest Non-com employees cannot deduct CCA, mortgage interest, prop tax or insurance (only maintenance & utilities) |
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What can an employee deduct against the taxable benefit of low or no interest home relocation loans?
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Lesser of 1. Prescribed rate x $25K 2. Annual benefit from reduced rate loan For maximum 5 years |
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How are stock option benefits taxed? |
Included in employment income in year exercises the option (NOT when acquired) Benefit = FMV when shares aquired - amount paid for shares |
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How do you calculate the ACB of shares purchased by excercising stock option benefit?
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ACB should be same as FMV at time of exercise ACB = amount paid for shares + amt paid for option + FULL amount of taxable benefit included in income |
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Which employees can dealy including the benefit of an exercised stock option until disposal, regardless of the issue price of stock option?
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Corp that issued stock option is CCPC Corp at arm's length from employee |
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What are the conditions that allow an employee to defer the tax benefit arising from a public corp or mutual fund trust stock option until the year of disposal?
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- file an election with employer by Jan 15th yr after exercises option -amt must paid to acquire secuity must not be less than FMV when option granted -arm's length -common share & listed on stock exchange -own < 10% of corp shares |
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What would make an stock option to buy a public corp or MF taxable upon exercise?
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If one of these true: -amt paid to acquire secuity less than FMV when option granted -not at arm's length from co -preferred share -shares not listed on stock exchange -own > 10% of corp shares -specified value in yr of vesting > $100K |
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How does the $100K deferral of employee stock options for publicly listed shares work? |
$100K/yr annual limit on specified value of options available for deferral applies to year of vesting, not yr option granted nor yr exercised. Specified value is FMV at time option issued. ie. if 10K options issued at $50 each, specified value is $500K. If they all vest at the same time, could defer only 2000 shares. If they vest 2k/yr, could defer all taxable benefits. |
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How do you calculate the employee taxable benefit at year of excise of a public stock option?
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(FMV at time shares exercised - exercise price) x (total number of shares aquired - # shares on which deferral is available) where # shares deferral available = annual limit / exercise price |
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What are the conditions for claiming a deduction equal to 50% of the taxable benefit reported as a result of exercising an employee stock option? |
Public Co: 1. Shares are common 2. Exercise price + cost to aquire option not less than FMV at time option granted 3. employee at arm's length from co.
CCPC - if shares held at least 2 yrs, only need to be an employee at arm's length from co. |
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What tax credits claimed may subject tax payer to AMT? |
-investment taxx credit -overseas employment tax credit -federal political contribution tax credit -labour sponsored funds tax credit |
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What deductions claimed may subject tax payer to AMT?
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-employee home relocation loan -CCA or carrying charge on certified films, videotapes, & rental properties -losses from from limited partnerships and related carrying charges -loss from reource properties resulting from depletion allowanc, exploration/development expenses, Cdn oil and gas property expenses -employee stock options & shares |
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What examples of tangible property are specifically excluded from class 8, thus are non-depreicable?
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Land, animal, tree, shrub, herb, plant, right of way
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How does CCA work in a taxation year less than 12 mos?
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Prorated
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How is bond income reported?
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If the owner is a person, it is reported on the anniversary date, which is the day preceding the contract issue date. Us TVM calcs to determine what interest is if a strip bond. ie PV, FV, etc. or Principal * (1 + int rate) ^yrs |
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How is dividend income taxed?
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Other than eligible: 118% gross up to report taxable income with tax owing of div*118%*(MTR-11.017% + Prov tax cred) Eligible: 138% gross up to report taxable income with tax owing of div*138%*(MTR-15.02% + Prov tax cred) Foreign: fully taxable, w no gross up or credit Spousal: can report ALL of spouses dividends on own return if lowers taxes |
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Specified Member Income
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Income is considered propety and not biz income for limited partners, silent or inactive general partners or gp who conducts sep biz to partership
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When is rental property considered available for use and how does this affect soft costs?
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1. when purchased if rentable If reno'd 2. when90% rented 3. 3rd yr of ownership 4. immediately before disoposition 5. date construciton complete Soft costs must be capitalized to the extent that rental income cannot offset. Cannot claim CCA until above conditions met. |
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What type of capital expenditure are the following: Car Building Land Goodwill Investments |
Depreciable Property: Building, Car Capital Property: Land, Investments Eligible capital expenditures: Goodwill |
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When does the 50% rule apply to capital expenditures?
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The first year property becomes available for use. Property is not added to class until it is available for use. However, if it becomes available for use in 3rd year of ownership because of the 2 yr rolling start rules, the 50% rules do not apply
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When is property other than buildings available for use?
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Earliest of date: -delivered & capable of use -first used for income -licenses and permits rec'd -2nd yr after yr of purchase -time immediately before disposal |
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How do you calculate Undepreciated Capital Cost? What is unadjusted vs adjusted UCC? |
UCC = total capital cost - prev clamed CCA - proceeds of sale Unadjusted UCC=UCC jan 1 + Net additions Adjusted UCC= UCC Jan 1 + 50% net additions Net additions are additions - dispositions *important to remember bc impacts 50% rule |
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What do you need to know to determine tax implications of property disposition? |
Capital Cost Undepreciated Capital Cost Net proceeds of Disposition UCC after disposition = UCC before disposition - lesser of (net proceeds or capital cost) -negative = recapture of CCA and capital gains -positive = terminal loss |
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What must you remember when accounting for the disposition of a building? |
Deterimine how much of purchase and sale prices relate to the building vs the land. Building: Determine CCA recapture and gain/loss Land: Only gain/loss |
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What is the special class rule for rental properties?
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Rental properties over $50K, must each be in their own class which will force the recapture of CCA immediately upon disposition of the building. |
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How does capital loss apply to depreciable property? How is loss on a depreciable property taxed?
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-If balance of class positive even after reducing it by lesser of cost or proceeds, the balance is deducted from income as a terminal loss, not as a capital loss. -This terminal loss is 100% reported on return, not like a capital loss would be reported 50%. -Disposal of depreciable capital property can never give rise to a capital loss. |
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How do you determine taxable capital gains of depreciable property? |
UCC after disposition = UCC before disposition - lesser of (net proceeds and capital cost) -If this results in a negative balance, reduce the negative balance by the CCA claimed to date. This is the recaptured amount. -If a negative amount still remains, that is capital gains amount and 50% of that is taxable. |
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How do you determine the capital cost or ACB when converting personal use property into income producing property?
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The ACB or capital cost will be FMV if the FMV is less than the original cost. This loss is not permitted to be a allowable loss for taxes be not permitted for personal use property.
The ACB or capital cost will be original cost + taxable gain if FMV is more than original cost. The gain on personal use property is taxable, but only allowed to attribute the taxable gain for ACB, so does not = FMV. |
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How do eligible capital expenditures translate into deductions?
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75% of an ECE is added to a notional pool. 7% of positive balance at YE can be deducted.
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What are examples of dispositions of eligible property?
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Sale of unlimited timeframe franchise or license Sale of goodwill Sale of a process Sale of certain rights |
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How are dispositions of ECC taxed?
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75% of the proceeds above the costs associated with disposition are subtracted from ECC pool. If negative, any previously deducted amounts must be recaptured and added to income. The balance of the negative pool is multiplied by 2/3rds and added to income. Terminal loss may result with positive balance if business ceases and all eligible capital property disposed. |
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What are conditions to determine if interest on a loan can be deductible against income? |
1. Must be a legal obligation to pay the interest 2. Funds must be used to earn business or property income. (capital gains excluded from def of property income) 3. It is the use of the borrowed funds and not the collateral for the loan that determine if loan interest deductible |
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How do tax credits for student loan interest work?
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-15% federally plus a provincial tax credit -interest must have been paid and not outstanding -credit can be carried forward 5 yrs if no taxable income in yr interest paid |
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What are investment councelling fees and what cannot be deducted?
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Can deduct service fees for advice on Non Registered buing/selling shares/securities or admin/mgt of shares/securities. As well as accounting fees for this income. (not for RRSP a/cs) Cannot deduct commissions, or fees paid for financial/tax advice/planning |
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Attribution rule definitions Designated Person Related Person Related Minor Arm's Length Person Specified individual |
Designated Person - spouse, related minor Related Person- related by blood, marriage or addoption, but not nieces and nephews Related Minor - under 18 at Dec 31st & does not deal at arm's length or is neice or nephew Arm's Length Person-separate economic interests, ie. can include non related person if transactions do not reflect ordinary commercial dealings Specified individul - under 18, Cdn resident throughout year, parent who is Cdn resident anytime in year |
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If a tax liability arises from property income subject to attribution, who is responsible for liability?
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Both taxpayers are jointly and severally liable for any increase in transferor's tax liabilty resulting from inclusion of that amount of income.
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Attribution rule definitions Loan for Value Tainted Loan |
Loan for Value-loan charged at prescribed rate Tainted Loan - any loan not for value, ie lower interest rates or paid interest after 30 days end of tax year |
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What changes in circumstances halt income attribution?
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Death of either taxpayer or designated person Taxpayer no longer Cdn resident Related minor turns 18 |
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When do attribution rules not apply?
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If main reason for loan or transfer of property was to reduce tax payable on income (anti-avoidance)
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What is the income splitting tax?
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Tax payable at the highest rates on taxable dividend or other sharholder benefits of unlisted Cdn or foreign companies that is paid to a specified individual (Cdn minor). Deductions other than dividend tax credit, such as personal deduction amounts are not allowed on this income.
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Describe attributing resulting from intervivos farm transfers to minors.
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If transfer to child at less than FMV & Child disposesof property before ate 18, gain/loss attributed back to taxpayer<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> |
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Descibe attribution rules for spouses living apart due to breakdown of relationship.
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no income attribution during period living separate &apart bc breakdown BUTcapital gains apply unless they elect out<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> |
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How is income from property transferred to spouse attributed?
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Transfer via tainted loan, below value, or gift: income is all attributable
Loan/Sale for Value: no attribution
Election to opt of rollover: the taxpayer may incur gain/loss at time of transfer, but future gain/loss attributed to spouse |
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How is income from property transferred to minor child attributed? |
Transfer via tainted loan, below value, or gift: income attributable, business/rental losses attributable, BUT Capital gains & loses not attributable Loan/Sale for Value: no attribution
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How is income from property transferred to other non arms length person attributed? |
Loan/Sale for Value: no attribution Transfer via tainted loan: income attribution, but not rental/biz losses, nor capital gains/losses Transfer below value, or gift: no attribution
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What types of income does the ITA exclude from the definition of capital gain? |
Eligible Capital Property Gains on Inventory Unpaid interest on Bonds that are sold between coupon dates Insurance policies (except the gains on seg funds) |
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How do the courts differenciate capital transactions and business transactions?
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Disposal of a true investment, one that yields a return such as interest or rent, or that offers a reasonable expectation of return, is a capital transaction, therefore 50% taxable. Activities of a speculative nature are regarded as adventures in trade, creating business income. Disposition of inventory is biz income and 100% taxable income. |
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How do you calculate capital gains on sale of shares?
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Proceeds - ACB + selling expense where Selling expenses = sale proceeds - sale price * commission rate ACB = # of shares*purchase price *(1+commission rate) |
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If ACB for small biz corp was $90K and it went bankrupt, what would be tax implication?
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Would generate an ABIL of $45K (50% inclusion rate) which must be used to reduce income in current year. If unused, balance of ABIL can be carried forward and used on other years for up to 10 yrs. Converted to net capital loss after that.
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What are the differences between ABILs, non-capital losses & net capital losses? |
ABIL: arises from loss in a small biz corp and is 50% of the loss. It may be carried forward 10 yrs as a non-capital loss if unable to reduce income to 0 in year claimed, then must be converted to net capital loss. Non-Capital loss: ABILs, employment, sole prop, rental losses (100% except ABILs) Carried forward 20 yrs except ABILS. Net-Capital Losses: this is 50% of the diff between capital gains and losses in a yr. Carried forward indefinitely. |
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When would the 50% capital gain inclusion rate not apply to losses?
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non-capital losses - loss arising from biz, employment, rental, including terminal loss of depreciable property is 100% loss EC - technically 50% applies, but because added 75% to class, 2/3rds inclusion rate applied to make the 50% rate |
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How do you determine tax implications when disposing of depreciable property such as a rental building? |
Calc Recapture: UCC at Jan 1 - lesser of (original capital cost or proceeds) If this is positive, that amount is a terminal loss If negative, recapture that amount and proceed to gains Calc Gains: Proceeds - (ACB or Cap Cost + Disposition costs) |
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What property is exclueded from the capital gain definition? |
eligible capital property EC Inventory gains Unpaid interest on bonds Insurance Policies |
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How are gains / losses of personal property calculated?
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Losses assumed to be nil $1000 on gains ACB = greater of ACB and $1000 Proceeds = greater of proceeds and $1000 |
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What are the main differences between taxation of gains for business income and capital transactions? |
Biz income is 100% taxable, whereas gapital transactions are only 50% taxable. Capital transactions are considered to be investments that yeidl returns, whereas biz income is speculative in nature. |
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What might be added or subtracted to determine ACB?
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Added: cost, capital, parnership profits, interest & property tax for land, survey/valuation, reinvested distributions, commissions Subtracted: Partnership losses, gov't grants/subsidies re aquisition (note that sale outlays are not part of ACB, but are added when calculating gains) |
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When are capital gains reserves allowed and what is the basic formula? |
Allowed to max of 4 yrs from sale if an installment sale Max reserve is lesser of: 1. (outstanding proceeds/total proceeds)*original capital gains 2. 1/5 of original capital gains *(4-n) where n is # yrs since property sold |
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When are capital gains reserves allowed for farming and fishing businesses and what is the formula? |
If sold to taxpayers child, allowed 10 yr reserves for installment sale
Max reserve is lesser of: 1. (outstanding proceeds/total proceeds)*original capital gains 2. 1/10 of original capital gains *(9-n) where n is # yrs since property sold |
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How dispositions be taxed if 1. Shares given away 2. Shares sold at less than FMV (non arms) 3. Shares sold at more than FMV(non arms) 4. Shares transfered to intervivos trust |
1. proceeds = FMV 2. proceeds = FMV to seller and purchaser 3. procees = sale price to seller and FMV to purchaser 4. proceeds =FMV |
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How does the departure tax work? |
When emigrating, you are considered to have a deemed dispostion and immiate aquiry at FMV for all capital property EXCEPT: RRSPs, RE located in canada and property permanently established in Canada owned by biz of emigrant. (note shares of that biz are taxable) |
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How is property taxed when immigrating to Canada?
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You are considered to have a deemed disposition on all assets except TCP. For example, foreign property ACB assumed to be FMV when entering Canada so only future growth taxed. No deemed disposition on property already owned in Canada, so ACB remains same as it was. |
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What are the conditions and transfer price of farm and fishing property tax deferred roll over to children?
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Child must be resident in Canada and active in business alongside parent. Price may be between ACB & FMV. If same conditions met, the rollover may occur w/i 36 mo's of death.
Includes real property, stock, partnership interest + for fishing, vessel, and for farming, land & depreicable property |
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If transferring property to a corporation in exchange for shares only, what is the lower limit for the deemed disposition? |
ACB if transferring for shares only |
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If transferring property to a corporation in exchange for shares and non-share consideration and FMV MORE than ACB , what is the lower limit for the deemed disposition? What are tax implications of disposition? |
FMV of non-share consideration . Forced to realize a gain to extent FMV of non-share consideration exceeds ACB of property. Taxpayer can take back a promissory note without realizing gain (cash out). |
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If transferring property to a corporation in exchange for shares and non-share consideration and FMV LESS than ACB , what is the lower limit for the deemed disposition? What are tax implications of disposition? |
FMV of property Forced to realize a loss if FMV of transferred property < ACB |
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What is the tax implication of taking back a promissory note that was given to a taxpayer in exchange for transfer of property to a corporation?
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No tax implicaiton. Can take back/redeem for cash without realizing a gain. |
