Ch. 11 Property Income

Question 1

What is a personal service business?

Answer 1

business or providing serbices where an individual who performs a service on behalf of a corporation or any person related to the employee is a specified shareholder of the corporation and owns directly or indirectly more than 10% interest in the company and the incorporated employee unless the corporation employes more than 5 full-time employees or the services are provided to an associated corporation.

Question 2

Taxation of PSB

Answer 2

PSB income is not elgibile for the small business deduction
PSB income is not eligible for GRR
No outlay or expenses are deductible related to earning PSB income except:
- salary paid in the year to the incorporated employee
- the cost to the corporation of any benefits/allowances provided to the incorporated employee
- any amounts expended by the corporation to the extent that such expenses would have been deductible by an individual employee from the individual’s employment income
- legal expenses incurred in collecting fees for services rendered.

The effective tax rate for PSB is 33%

Question 3

What is included in property income?

Answer 3

rental income less eligible expenses, interest income, dividend income, and deductions from property income.

Question 4

What are non-eligible dividends

Answer 4

Paid by CCPC’s out of after-tax active business income eligible for the SBD or after-tax AII. These have a lower gross-up and DTC because they’re taxed at preferential rates.

Gross-up: 15%
DTC: 9/13

Question 5

What are eligible dividends

Answer 5

Paid by Canadian public companies out of after-tax income at the generate tax rate, income not eligible for SBD, or eligible dividends received.

Gross-up: 38%
DTC: 6/11

Question 6

What are stock dividends?

Answer 6

Dividend payments made in the form of additional shares rather than stock - this does not have any affect on cash, or SE. But affects ACB of shares

Question 7

What are capital dividends

Answer 7

These are paid out of capital dividend accounts of a CCPC and received on a tax-free basis.

CDA includes:
realized capital gains net of capital losses
untaxed gains for non-tangible assets
life insurance proceeds (company as beneficiary)
capital dividends received

Question 8

What are foreign dividends?

Answer 8

These are not grossed up, and there are no tax credits.

Question 9

What are some deductions from property income?

Answer 9

carrying changes on vacant land, soft costs (interest, legal, accounting fees, insruance, property taxes) - but they’re are not deductible during the construction, renovation, or alteration - these are added ot the ACB.

Question 10

What is the life time capital gain deduction?

Answer 10

For qualified small businesses corporation shares, you are eligible for $892,218 in capital gains tax free (not 1/2 yet).

Question 11

What is a qualified small business corporation?

Answer 11

If it meets the following criteria:

• if it was owned by you, spouse, fmaily member, or member of your organization
• 24 months prior to the sale, it was owned by us, it was a share of a CCPC and 50% of their assets were used to generate ABI in Canada, were shares or debt of connected corporations, or a combination
• 24 months prior to the sale, no one else has owned the share.