CH 9 - Overview of Business Taxation Flashcards
Are shareholders liable for the debts of a corporation?
No
2 elements of the two-tier tax system:
- Corporations are subject to tax on income earned.
- Shareholders are taxed on income distributions from the corporation
Net Income of a Corporation formula
Investment Income + Business Income + Net Taxable Capital Gains
Taxable Income formula
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
2 Types of Corporations
- Private Corporation (CCPC)
- Public corporation
provinces and territories have two rates of income tax
a lower rate and a higher rate
The lower rate applies to either: (2)
- the income eligible for the federal small business deduction; or
- the income based on limits established by the particular province or territory
The higher rate applies to
all other taxable income
At the federal, eligible corporations benefit from an annual tax credit equal to 19% of
the lesser of: (3)
- active business income earned in Canada; or
- $500,000 business limit shared with associated corporations; or
- taxable income
The objective of the integration of business income is:
to tax the small business owner at the same level, whether the business is incorporated or not
How is a shareholder loan treated for the shareholder taxwise?
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.
Advantages of incorporating: (4)
- deferral advantage
- entitle the owner to the $883,384 capital gains exemption
- Estate freezing easier
- Limited liability
DISADVANTAGES OF INCORPORATION (3)
- 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
How much is the GST tax?
5%
Net GST Remittance formula
GST collected on sales (from customers) – Input tax credits for GST paid on purchases