Business Income Flashcards
1
Q
Business Income
A
- can be earned by individual (sole prop, reported on T1, form T2125) or by corporation (reported on T2)
- income from profit for the year
- starting point is profits determined under GAAP, and adjustments are made to profit to calculate NIFTP (Sch. 1 adjustments)
2
Q
ITA vs GAAP
A
- if something (guidelines) are not included in the ITA, GAAP is followed
- however, ITA will always override GAAP in causes where there are guidelines in both
3
Q
4 types of adjustments
A
1) Deduct items that increase accounting net income but are not subject to tax (accounting gain on sale of depreciable asset)
2) Add items not included in accounting net income but are subject to tax (recapture)
3) Add items that are deductible from accounting net income but not deductible for tax (depreciation)
4) Deduct items that are not deductible for accounting but deductible for tax (CCA)
4
Q
ITA 18(1): General rules – Expenses must be…
A
- incurred for the purposes of earning income
- reasonable (ITA 67)
- cannot be capital in nature (unless allowed under s.20)
- not a personal expense
- cannot be incurred to earn tax exempt income (life insurance)
5
Q
Schedule 1: Common Add back adjustments
A
- income taxes
- CRA taxes and penalties
- amortization
- recapture
- taxable CG (investment income is part of NI)
- accounting losses
- charitable and political donations
- reserves and contingent liabilities (at the end of the year)
- warranties (ending balance)
- M&E
- recreational dues and fees
- unpaid remuneration (>180 days)
- financing fees (deduct over 5 years)
- pensions
- dividends on equity method
- automobile allowances
6
Q
Schedule 1: Common Deduction adjustments
A
- CCA
- terminal loss
- financing expenses
- accounting gains
- reserves and contingent liabilities (at the beginning of the year)
- warranties (beginning balance)
- capitalized development costs incurred in the year
- equity income for equity method investments
