1
Q
ITA6(1)(b)(i)(A)
A
6: Section
(1): Subsection
(b): paragraph
(i): subpara
(A): Clause
2
Q
Primary source
A
— tax legislation and related legislation (federal and provincial)
— case law
3
Q
Secondary source
A
- CRA publications and documents
- Departments of Finance publications
- CPA firms publications
4
Q
Income tax folios
A
CRA’s interpretation of the law for a particular subject
5
Q
CCA calculation
A
Opening UCC
Additions
Less deductions (lesser of POD and ACB)
Net A-D
Add: Acc investment incentive (or immediate expensing)
CCA base (sum of all)
Less CCA
Less AII (or immediate expensing)
Ending UCC
6
Q
Assets to be put into separate CCA classes
A
- Luxury vehicles (limited to 36,000)
- Rental properties >$50,000 (Actual cost)
7
Q
Separate Class 8
A
- Photocopiers
- Electronic communications equipment
8
Q
CCA rate for 90% business buildings
A
6%
9
Q
CCA rate for 90% manufacturing buildings
A
10%
10
Q
Immediate expensing rules
A
- Max 1.5M
- Properties acquired after April 2021, before 2024
- NOT INCLUDING CLASSES 1-6, 14.1, 17, 47, 49, 51, and non-arms length transactions
- Only for CCPCs and proprietorships
11
Q
CCA recapture
A
Negative remaining UCC balance gets added back as income
12
Q
CCA terminal loss
A
Positive remaining UCC balance gets deducted from business income
13
Q
Special rule: Sale of land and building with terminal loss on building and gain on land
A
- If terminal loss > CG: reduce the terminal loss by the capital gain
- If CG> terminal loss: Reduce CG by the terminal loss then 50% inclusion in income
14
Q
Class 10
A
- Passenger vehicles costing up to 36K
- 30%
- ADDITONS IS THE GROSS AMOUNT (don’t take away trade-in value)
15
Q
Class 10.1
A
- Luxury vehicles >36K (CCA additions is limited to 36K)
- No recapture or terminal loss
- When immediate expensing has not been taken, they can deduct 1/2 of the CCA that otherwise would have been claimed (ie. Opening UCC x 30% x 1/2)
- If immediate expensing taken, will have adjusted proceeds added back to income (= 36,000/OG cost * Sale proceeds)
- must be put into a separate CCA class
16
Q
Class 12
A
Tools, application software <$500
100% CCA
17
Q
Class 13
A
- Leasehold improvements (lease payments are deductible)
- = Cost / 5yrs (or remaining lease term + first renewal)
18
Q
Class 14
A
Limited-life intangibles
- CCA = Cost / legal life
- No short taxation year (must claim all)
19
Q
Class 14.1
A
- Unlimited life intangibles
- or incorporation costs in excess of $3000
= 5% declining balance - NOT eligible for immediate expensing
20
Q
Class 43.1
A
Electrical vehicle charging station
- 100% CCA claim on Net additions
- 30% DB
21
Q
Class 50
A
Computer hardware and systems software
- 55% DB
22
Q
Class 53
A
- Manufacturing and processing equipment
- 50% DB
- 100% CCA on additions IMMEDIATE EXPENSe
23
Q
For assets with trade-ins
A
Take the trade-in value for the disposition amount
24
Q
Short taxation year and CCA
A
Apply AII to determine CCA base then pro-rate based on days
25
ITA 18(1) Expenses
* must be incurred for the purposes of earning income
* must be reasonable (ITA 67)
* cannot be capital in nature (unless allowed under Section 20)
* cannot be a reserve (unless allowed under Section 20)
* cannot be a personal expense
* cannot be incurred to earn tax exempt income (such as life insurance premiums unless it is required as collateral for financing by bank
26
Bond discount amortation
- not deductible
- only deducted when the bond liability is distinguished
- interest is deductible to the extent it was paid
27
Club dues and recreation
- Not deductible if it is a membership
28
Asset writedowns
- write-downs and impairment are added back to income until realized
29
Foreign advertising
not deductible for tax purposes
30
Life insurance where the corporation is the beneficiary
Not deductible UNLESS:
- it is required for collateral for a loan
- and Interest payable on the loan is deductible
31
Life insurance where the employee is the beneficiary
- Deductible for the corporation because it is taxed to the employee
32
Unpaid amounts in a non-arms length transaction
must be included in income if in 3rd year, it is still not paid
33
Unpaid bonuses
- Not deductible if unpaid AFTER 180 days after fiscal year.
- if <180 days, deduct when declared (at YE)
- if > 3years, can deduct when declared
34
Bond premium amortization
- DEDUCT from income
Interest on bonds is deductible to the extent it was paid
35
Landscaping costs
costs paid in the year are deductible if they are for the building used in business
36
Warranty reserve
= ending payable less opening payable
OR
= Warranty expense less Cash paid in the year
37
Bad debt reserve
- deductible if based on anticipated bad debts (ie. % of outstanding AR)
- Must back out PY reserve and then deduct CY reserve
38
Reserve for undelivered goods or service
- when cash is received in advance, a reasonable reserve can be claimed
-
39
Financing fees
Fees incurred for the purpose of borrowing money are deductible on a straight-line basis over five years (ie. share issuance costs)
40
Interest paid
Deductible if relates to something that is used to earn income (ie. office building)
41
Lease payments
Add back interest expense
Deduct monthly lease payments
42
Carrying costs on vacant land
- ie. property taxes, interest
- Deductible to the extent of income earned on the vacant land. Non-deductible portion is added to the cost base of the land
43
Soft costs (not deductible)
Soft costs incurred during the period of construction, renovation, or alteration of a building are not deductible.
Because they are not deductible, they are added to the cost base of the building.
Soft costs include interest, professional fees, insurance, and property taxes.
44
Eligible Dividend
- Gross up = 38%
- DTC = 6/11 of gross-up
45
Ineligible Dividend
- Gross up = 15%
- DTC = 9/13 of GU
46
Interest income for individuals
- reported the earlier of:
1. when cash is received
2. accrual on anniversary date (1day before 1 year after issued)
47
Interest income for corporation
Accrual method: report interest based on the passage of time based on the # days principal debt outstanding
= principal x interest rate
48
CCA deductions for rental
1. determine rental income for each property
2. determine CCA for each property and sum total
3. Deduct CCA up to the total net income of all properties
49
Capital versus income - factors
- intention
- relationship to the business
- nature
- number of similar transactions
- length of period of ownership
- feasibility of taxpayer's intention
- reason for sale
50
Superficial losses
- 3 conditions:
1. taxpayer, spouse, or corporation controlled by aforementioned sell prop
2. require it within 30 days
3. still own it after 30 days
- not deductible in the period (add to cost base of remaining properties)
51
Capital gains reserve
When a capital gain is recieved over time
Lesser of:
- capital gain × (proceeds not yet due / total proceeds)
- 20% of capital gain × (4 – number of preceding years ending after the disposition)
Amount to include in the year:
= (CG - reserve) * 50%
After:
= (PY reserve - CY reserve) *50%
52
Personal use property
- no capital losses
- Greater of $1000 or actual
53
Limited personal property
- Cap losses can only be applied against LPP capital gains
- carry back 3yrs and forward 7yrs
- Greater of $1000 or actual
54
Primary intention: Capital asset vs inventory
- did the taxpayer intend to use the asset as an item of inventory or as a capital asset? (if intended to hold for a long time, it is a capital asset)
55
Secondary intention: Capital asset vs inventory
- If the primary intention to use the asset as a capital asset was frustrated, did the taxpayer have a motivating intention to sell the property at the time of purchase? (if you couldn't use it as intended and could sell it at a profit when you bought it, it would be business income)
56
Intention of sale: factors
- relationship of transaction to business
- Nature of asset
- freq. of transactions
- length of period of ownership
- feasibility of taxpayer's intention
57
Capital gain
= POD - ACB - expenses of disposition
58
POD
- cash
- note receivable
- other property
- assumption of debt
59
ACB
- DEDUCT Govt grants from ACB
- Add back carrying costs on vacant land
- Add employee stock option benefit
- Add superficial losses
60
Call option
Grantee gets right to purchase (you need to call the store to but stuff), add to purchase price if property
61
Put option
Grantee gets right to sell, deducted from proceeds of sale
62
Grantee tax
UPON EXPIRATION, realized a capital loss equal to the option price
63
Grantor tax
UPON GRANTING, realized a capital gain equal to the option price
64
Aggregate investment income
- dividends from canada
- TCG
- property interest
65
Class 1
Deduct government grant from ACB
66
Sale of land
= POD
Less ACB
Less vacancy costs NET of property income
Taxation CPA
flashcards
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