CH 9 - Overview of Business Taxation Flashcards

1
Q

Are shareholders liable for the debts of a corporation?

A

No

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2
Q

2 elements of the two-tier tax system:

A
  • Corporations are subject to tax on income earned.
  • Shareholders are taxed on income distributions from the corporation
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3
Q

Net Income of a Corporation formula

A

Investment Income + Business Income + Net Taxable Capital Gains

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4
Q

Taxable Income formula

A

Net Income for Tax Purposes
Less special deductions:
* Donations to charitable organizations
* Net capital losses from other years
* Non-capital losses from other years
* Dividends from taxable Canadian corporations
* Others

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5
Q

2 Types of Corporations

A
  • Private Corporation (CCPC)
  • Public corporation
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6
Q

provinces and territories have two rates of income tax

A

a lower rate and a higher rate

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7
Q

The lower rate applies to either: (2)

A
  • the income eligible for the federal small business deduction; or
  • the income based on limits established by the particular province or territory
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8
Q

The higher rate applies to

A

all other taxable income

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9
Q

At the federal, eligible corporations benefit from an annual tax credit equal to 19% of
the lesser of: (3)

A
  • active business income earned in Canada; or
  • $500,000 business limit shared with associated corporations; or
  • taxable income
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10
Q

The objective of the integration of business income is:

A

to tax the small business owner at the same level, whether the business is incorporated or not

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11
Q

How is a shareholder loan treated for the shareholder taxwise?

A

full amount of the loan is added to the income of the shareholder in the year the loan is received unless it is repaid before the NEXT year end of the taxation year of the corporation.

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12
Q

Advantages of incorporating: (4)

A
  • deferral advantage
  • entitle the owner to the $883,384 capital gains exemption
  • Estate freezing easier
  • Limited liability
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13
Q

DISADVANTAGES OF INCORPORATION (3)

A
  • Start-up Losses: if no gains in the future, cannot take advantage of losses
  • Expensive to set up and maintain corporation
  • Potential Double Taxation at death
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14
Q

How much is the GST tax?

A

5%

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15
Q

Net GST Remittance formula

A

GST collected on sales (from customers) – Input tax credits for GST paid on purchases

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16
Q

To use the simplified method for GST remittance, you must meet the following conditions: (3)

A
  1. $500,000 or less in revenue was obtained from taxable goods and services in the
    last fiscal year,
  2. Taxable supplies amount to a total of $500,000 or less,
  3. $2 million or less in taxable purchases were made during the last fiscal year.
17
Q

Among zero-rated supplies, we find: (5)

A
  • Basic groceries
  • Medical devices
  • Prescription drugs
  • Agriculture, fishing
  • Exports
18
Q

GST Tax-exempt Supplies (4)

A
  • Most health, medical and dental services
  • Childcare services
  • Legal aid
  • Financial services
19
Q

Who has to register for the GST and collect GST on all sales of
taxable supplies?

A

All corporation pursuing commercial activities with gross revenue greater than
$30,000.

20
Q

How are donations treated when computing taxable income?

A

deduct the full amount from net income