Ch. 11 - Property Income

Question 1

Common types of property income:

Answer 1

1. Interest
2. Dividends
3. Rental
4. Royalties

Question 2

When to report income:

1. partnerships and corporations
2. personal

Answer 2

1. Partnerships and corporations report on accrual basis

2. individuals report on anniversary date or when received if not reported on anniversary date

Question 3

How corporations report dividends received from taxable Canadian corporations:

Answer 3

Included in net income for tax purposes and deducted under division C
There is no gross up or tax credit

Question 4

Individuals reporting dividends

Answer 4

report grossed up (taxable dividend) and receive tax credit

Question 5

Non-Eligible Dividends

• Paid by
• paid out of:
• Gross-up
• Credit

Answer 5

• CCPCs only
• Paid out of Low Rate Income Pool (SBD income or after-tax aggregate investment income)
• 15%
• 9/13 or 10.385%

Question 6

Eligible Dividends

• paid by
• paid out of
• gross up
• credit

Answer 6

• Canadian public companies, CCPC out of income not eligible for SBD, CCPCs out of eligible dividends received
• paid out of GRIP
• 38%
• 6/11 or 20.727%

Question 7

Stock Dividends:

- how taxed

Answer 7

• include gross up and credit

Question 8

Capital Dividends

• paid out of
• how taxed

Answer 8

• paid out of capital dividend account and are tax free when received

Question 9

Foreign Dividends for individuals

1. gross up and credit
2. what to include in income

Answer 9

1. no gross up or credit

2. actual amount before w/h tax is included in income

Question 10

How are Foreign Dividends taxed for corporations

1. How they’re taxed
2. Foreign Affiliate Rules

Answer 10

1. Included at pre W/H tax amount and W/H tax is used to calculate credit
2. If from a foreign affiliate, there is a Division C deduction

Question 11

Rental

1. How its taxed
2. CCA Class rule
3. Special CCA loss rules

Answer 11

• on accrual basis
• each building over $50K must be in its own CCA class
• a taxpayer cannot increase a loss by claiming CCA

Question 12

Foreign Source Income (corporations)

• types
• what’s included
• credit

Answer 12

• includes dividends, interest, royalties
• cash received plus withholding tax paid
• w/h is used to calculate tax credit

Question 13

Royalties: what type of income is a royalty (for personal and corporate)

Answer 13

• if the taxpayer is the author or inventor, it is business income
• if the taxpayer purchased or inherited the right it is property income

Question 14

Deductions from property income: Carrying Charges on Vacant Land

1. what’s included in carrying charges
2. deductibility rules

Answer 14

1. interest and property taxes

2. deductible to the extent there is interest earned on the land (anything in excess is added to cost base)

Question 15

Deductions from property income: soft costs

1. soft costs include
2. deductibility
3. when is the construction / renovation / alteration phase complete

Answer 15

1. generally include interest, legal and accounting fees, insurance, property taxes
2. Deducted to the extent that income was earned, otherwise capitalized to cost of building
3. earlier of:
   a. day it is completed;
   b. substantially all (90%) is used for its intended purpose

Question 16

Deductions from property income: Interest paid

1. Deductible if
2. Capitalization rule

Answer 16

1. deductible if the interest paid is reasonable and used to earn income or to acquire property
2. is allowed to be capitalized (Section 21) if there will be no income to carry back against, it would be beneficial

Question 17

Deductions from property income: Interest on Personal Loans

1/2. deductibility rules

Answer 17

1. must be reasonable expectation to earn income

2. a connection must be maintained between the borrowed funds and the use of the funds