Ch. 11 - Property Income Flashcards

1
Q

Common types of property income:

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

When to report income:

  1. partnerships and corporations
  2. personal
A
  1. Partnerships and corporations report on accrual basis

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

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3
Q

How corporations report dividends received from taxable Canadian corporations:

A

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

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4
Q

Individuals reporting dividends

A

report grossed up (taxable dividend) and receive tax credit

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5
Q

Non-Eligible Dividends

  • Paid by
  • paid out of:
  • Gross-up
  • Credit
A
  • CCPCs only
  • Paid out of Low Rate Income Pool (SBD income or after-tax aggregate investment income)
  • 15%
  • 9/13 or 10.385%
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6
Q

Eligible Dividends

  • paid by
  • paid out of
  • gross up
  • credit
A
  • 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%
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7
Q

Stock Dividends:

- how taxed

A
  • include gross up and credit
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8
Q

Capital Dividends

  • paid out of
  • how taxed
A
  • paid out of capital dividend account and are tax free when received
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9
Q

Foreign Dividends for individuals

  1. gross up and credit
  2. what to include in income
A
  1. no gross up or credit

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

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10
Q

How are Foreign Dividends taxed for corporations

  1. How they’re taxed
  2. Foreign Affiliate Rules
A
  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
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11
Q

Rental

  1. How its taxed
  2. CCA Class rule
  3. Special CCA loss rules
A
  • on accrual basis
  • each building over $50K must be in its own CCA class
  • a taxpayer cannot increase a loss by claiming CCA
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12
Q

Foreign Source Income (corporations)

  • types
  • what’s included
  • credit
A
  • includes dividends, interest, royalties
  • cash received plus withholding tax paid
  • w/h is used to calculate tax credit
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13
Q

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

A
  • if the taxpayer is the author or inventor, it is business income
  • if the taxpayer purchased or inherited the right it is property income
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14
Q

Deductions from property income: Carrying Charges on Vacant Land

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

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15
Q

Deductions from property income: soft costs

  1. soft costs include
  2. deductibility
  3. when is the construction / renovation / alteration phase complete
A
  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
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16
Q

Deductions from property income: Interest paid

  1. Deductible if
  2. Capitalization rule
A
  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
17
Q

Deductions from property income: Interest on Personal Loans

1/2. deductibility rules

A
  1. must be reasonable expectation to earn income

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