Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFE > Business Income > Flashcards

Business Income Flashcards

1
Q

Income tax — current and deferred / future taxes

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Interest and penalties on late payment of income taxes

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Accounting amortization on tangible and intangible capital assets

A

Add back

CCA is a permitted deduction for tax purposes, so accounting amortization is not deductible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Recapture of CCA

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Accounting losses on disposal of capital assets

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Taxable capital gains

A

Add back

For an individual
-earning self-employed business income as a sole proprietor, taxable capital gains are included in the taxable capital gains section of the individual’s personal tax return

For a corporation
Taxable capital gains are classified as aggregate investment income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Charitable donations

A

Add back

Not deductible when computing net income for tax purpose, but treated as:
• the basis for a tax credit for individuals (see eBook chapter on tax credits)
• a Division C deduction for corporations (see eBook chapter on taxable income for corporations), subject to 75% net income limitation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Political donations

A

Add back

Not deductible, but treated as the basis for a tax credit for individuals
Under the Canadian Elections Act, corporations are not permitted to make federal political contributions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Scientific research expenditures deducted for accounting purposes

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Reserves and contingent liabilities

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Warranties

A

A warranty liability is an example of a reserve that is not deductible for tax purposes. Amounts paid to satisfy warranties are deductible on a cash basis for tax purposes.

There are two ways to make the required adjustments for warranties:
• Add back warranty expense deducted in determining accounting income, and deduct cash paid for warranties.
• Add back the warranty liability at the end of the year, and deduct the warranty liability at the beginning of the year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Pensions

A

A pension liability is another example of a reserve that is not deductible for tax purposes.

Contributions to a company pension plan are deductible on a cash basis if made within 120 days of the end of the taxation year.

There are two ways to make the required adjustments for pensions:

  • Add back the pension expense deducted in determining accounting income, and deduct cash transferred to the trustee of plan assets.
  • Add back the pension liability at the end of the year, and deduct the pension liability at the beginning of the year.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Meals and entertainment expenses

A

Add back 50%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Club dues and recreation fees

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Bond discount amortization

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Automobile mileage allowances, unless the allowances are a taxable benefit to the employee, in which case no adjustment is required

A

Add back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Lease costs on a passenger vehicle in excess of the permitted amount

A

Add back

18
Q

Equity losses on investments accounted for using the equity method of accounting

A

Add back

19
Q

Dividends received on investments accounted for using the equity method

A

Add back

20
Q

Asset write-downs (including impairments)

A

Add back

21
Q

Illegal payments, fines, and penalties

A

Add back

22
Q

Foreign advertising

A

Add back

Not deductible for tax purpose if the expenditures are made for advertising in foreign print or foreign broadcast media and the advertising is directed primarily at the Canadian market.

Deductible if the advertising is directed to a non-Canadian market.

23
Q

Personal or living expenses

A

Add back

Not deductible for tax purposes, as they are not incurred to earn business income.

24
Q

Life insurance where the corporation is the beneficiary

A

Add back

Not deductible unless the following requirements are met:
• It is required by the lender as collateral for a loan.
• The lender is a “restricted financial institution.”
• Interest payable on the loan is deductible.

If these requirements are met, the amount deductible is the lesser of:
• premiums paid
• the net cost of “pure insurance”
In addition, the deduction is the portion of premiums on the part of the life insurance policy that reasonably relates to the loan.

25
Q

Convention expenses

A

Add back

Not deductible unless all of the following criteria apply:

  • It is held by a business or professional organization.
  • It is attended in connection with the taxpayer’s business or professional practice.
  • It is held at a location that may reasonably be regarded as consistent with the territorial scope of the organization.

Limited to two conventions per year.

26
Q

Foreign taxes paid

A

Add back

Not deductible to the extent they are claimed as a tax credit.

27
Q

Unpaid amounts in a non-arm’s length transaction

A

Add back

If an amount remains unpaid at the end of two years after the end of the taxation year in which it was accrued, it is required to be brought back into income in the third taxation year.

28
Q

Carrying charges on vacant land (including interest and property taxes)

A

Add back

Deductible to the extent of income earned on the vacant land. Non-deductible portion is added to the cost base of the land.

29
Q

Soft costs on construction or renovation of a building

A

Add back

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.

30
Q

Reserves

A

Add back

Exceptions
Reserves for bad debts
-Reasonable reserves are deductible if based on anticipated bad debts.
-A reserve determined as an estimated percentage of the accounts receivable balance would not be deductible.

Reserves: Undelivered goods or services
Where the taxpayer receives cash in advance of providing goods or services to a customer, a reasonable reserve is deductible for goods / services that will be provided in the future.
If a reserve has been claimed for accounting purposes (amount received is included in unearned income or revenue), no adjustment is required.

Reserves for an amount not due under an instalment sales contract

A reasonable reserve may be claimed for an amount not due under an instalment sales contract. The reserve may be claimed for three years (including the year of the sale).
A reserve that is deducted in one year must be brought back into income in the following year, and a new reserve may be claimed if some of the proceeds are not yet due. Due means an enforceable right to immediate payment.

31
Q

Unpaid remuneration

A

Add back

32
Q

CCA

A

Deduct

33
Q

Terminal losses

A

Deduct

34
Q

Financing expenses

A

Deduct

Costs incurred for the purposes of issuing shares or borrowing money are deductible on a straight-line basis over five years [20(1)(e) deduction].

If the loan is paid off (prior to five years), any remaining amount may be deducted in that year.

35
Q

Bond premium amortization

A

Deduct

36
Q

Accounting gains on disposal of capital assets

A

Deduct

37
Q

Allowable capital losses

A

Deduct

38
Q

Scientific research expenditures deductible for tax purposes

A

Deduct

39
Q

Pension contributions to the trustee of the pension plan assets

A

Deduct

40
Q

Allowable business investment losses

A

Deduct

41
Q

Landscaping costs that have not been deducted in determining accounting net income

A

Landscaping costs paid in the year are deductible for tax purposes if they are paid for landscaping around a building used in the business.

42
Q

Equity income on investments accounted for using the equity method of accounting

A

Deduct

CFE (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions