Ch.11 property income

Question 1

types

Answer 1

property income include:
•     interest
•     dividends
•     other dividends
•     rental income
•     foreign-source property income
•     royalties

Question 2

Interest income

Answer 2

return, consideration, or compensation for the use or retention by one person of a sum of money belonging to or owed to another.
Debt obligations on which interest is earned include bank accounts, term deposits, guaranteed investment certificates (GICs), Canada Savings Bonds, mortgages, corporate bonds, and loans.
Corporations, partnerships, and certain trusts use the conventional accrual method to report interest income for tax purposes.
individuals=interest earned to the anniversary date of the investment contract if the interest has not been received

Question 3

Dividend income

Answer 3

tax treatment of dividends depends on the taxpayer receiving the dividends and the type of dividend received.
Individuals must include the actual dividend plus a gross-up in income.

Question 4

Non-eligible dividends

Answer 4

both of these types of income are taxed at preferential rates, the gross-up and dividend tax credit rates on non-eligible dividends are lower than the gross-up and dividend tax credit rates on eligible dividends.

Question 5

Eligible dividends

Answer 5

Eligible dividends are paid by:
• Canadian public companies out of after-tax income taxed at the general corporate tax rate
• CCPCs out of after-tax active business income not eligible for the small business deduction
• CCPCs out of eligible dividends received

Question 6

Rental income

Answer 6

expenses include but are not limited to:
•     utilities
•     repairs
•    maintenance
•     interest
•     insurance
•     property taxes
•     advertising
•     management fees
•     capital cost allowance (CCA)

Question 7

Foreign-source property income

Answer 7

property income must be translated into Canadian dollars using the exchange rate in effect on the date that the amount is received. Foreign tax withheld is used to calculate a foreign tax credit that can be deducted against Canadian taxes payable.

Question 8

Royalties

Answer 8

production of or use of property, including amounts received from the use of patents, copyrights, franchises, and licensing arrangements. Income from royalties may be either business income or property income. If the taxpayer is the author or inventor, the royalty payments received are classified as business income. If the taxpayer purchased or inherited the right to the royalties, the royalty payments received are classified as property income.

Question 9

Deductions from property income

Answer 9

property taxes and interest on vacant land are only deductible to the extent of any income earned on the land.