Chapter 12 Flashcards
a) ITA 110(1)(d)(d.01) Stock option deduction
b) ITA 111 Loss carryover deduction
c) ITA 110.6 Lifetime capital gains deduction
d) ITA 110(1)(f) Deduction for payments
b) ITA 111 Loss carryover deduction
The ITA 126 foreign tax credit is calculated as the lesser of two amounts. Which of the following most accurately describes the two amounts utilized in the foreign tax credit calculation?
a) Foreign taxes withheld on foreign income (converted into Canadian dollars) and Part I taxes payable for the corporation in the year
b) Actual foreign taxes paid (converted into Canadian dollars) and a prorated amount (based on the percentage of foreign income to total income) of basic federal taxes payable for the corporation in the year
c) Actual foreign taxes paid (converted into Canadian dollars) and Part I taxes payable for the corporation in the year
d) Foreign taxes withheld on foreign income (converted into Canadian dollars) and a prorated amount (based on the percentage of foreign income to total income) of basic federal taxes payable for the corporation in the year
b) Actual foreign taxes paid (converted into Canadian dollars) and a prorated amount (based on the percentage of foreign income to total income) of basic federal taxes payable for the corporation in the year
XYZ Corporation expects a net business loss for the current tax year. The loss is primarily due to a one-time terminal loss during the year. The company is considering making a charitable donation of $75,000. Which of the following is the best course of action to achieve management’s desired results as well as the most favourable tax results?
a) Do not make the donation.
b) Make the donation early in the following year without regard to expected results for the following taxation year.
c) Make the donation in the current year and carry forward the unused deduction.
d) Make the donation in the next tax year that XYZ has Net Income for Tax Purposes of $100,000 or more.
d) Make the donation in the next tax year that XYZ has Net Income for Tax Purposes of $100,000 or more.
If a corporation has non-capital loss carryovers from multiple prior tax years available to deduct against its current year’s taxable income, ________.
a) the corporation can choose to deduct the loss from any tax year(s)
b) the corporation can only deduct the loss from one prior tax year in the current year
c) the corporations must deduct losses in order, beginning with the oldest tax year
d) the corporation must deduct losses in order, beginning with losses from the most recent tax year
c) the corporations must deduct losses in order, beginning with the oldest tax year
Capital losses of a corporation can be carried ________.
a) back 2 years and forward 20 years
b) back 20 years and forward 3 years
c) back 3 years and forward indefinitely
d) back 3 years and forward 20 years
c) back 3 years and forward indefinitely
Using only the information provided here, which of the following scenarios would constitute the Danco Corporation having a permanent establishment in the province of Alberta?
a) Danco has a commissioned salesperson living in Alberta. The salesperson will travel to customers and take orders that are subsequently filled from Danco’s Quebec facility.
b) Danco has its headquarters office in Ontario. The company’s CEO lives in Alberta and works primarily from the Ontario office.
c) Danco is a road construction contractor headquartered in Ontario. The company is building a major highway in Alberta and has approximately $50 million of equipment and labour at the work site.
d) Danco’s headquarters are in Ontario. They have a subsidiary company, Abelco, which is headquartered in Alberta. Danco owns 50% of the shares of Abelco.
c) Danco is a road construction contractor headquartered in Ontario. The company is building a major highway in Alberta and has approximately $50 million of equipment and labour at the work site.
The general rate reduction applies ONLY to ________.
a) capital gains
b) income of CCPCs
c) income of corporations that is NOT subject to other tax benefits
d) property income of Canadian corporations
c) income of corporations that is NOT subject to other tax benefits
Rents, royalties, and interest are ________.
a) active business income any time they constitute more than 90% of a company’s gross revenues
b) considered active business income for a company that has less than 5 employees
c) considered active business income for a company that has more than 5 full-time employees
d) considered passive income to a corporation
c) considered active business income for a company that has more than 5 full-time employees
The ITA defines a Specified Investment Business for the purposes of ________.
a) preventing companies with significant invested assets from placing them in separate companies and taking advantage of the small business deduction
b) allowing companies with significant invested assets from placing them in separate companies and taking advantage of the small business deduction
c) applying a higher tax rate to companies that primarily earn revenues from invested capital
d) encouraging the creation of holding companies that allow large corporations to invest their excess cash
a) preventing companies with significant invested assets from placing them in separate companies and taking advantage of the small business deduction
The small business deduction is available to which of the following types of business enterprises?
a) partnerships and proprietorships
b) personal services corporations
c) professional corporations
d) Canadian public companies with less than $10 million of taxable capital employed in Canada
c) professional corporations
Which of the following foreign taxes paid would be eligible for the foreign business income tax credit?
a) foreign taxes paid on foreign earned business income
b) foreign taxes paid on income that is exempt from tax in Canada under an income tax treaty
c) foreign taxes paid on foreign earned dividends and interest
c) foreign taxes paid on dividends received from a foreign affiliate
a) foreign taxes paid on foreign earned business income
When determining if corporations are associated, control of a corporation is evidenced by ________.
a) ownership of shares that represent at least 30% of the market value of all issued and outstanding shares of the company when no other shareholder’s holding represents a higher percentage of the value
b) ownership of shares that represent 50% of the market value of all issued and outstanding shares of the company
c) ownership of shares that represent more than 50% of the market value of all issued and outstanding shares of the company
d) ownership of shares that represent at least 90% of the market value of all issued and outstanding shares of the company
c) ownership of shares that represent more than 50% of the market value of all issued and outstanding shares of the company
Which of the following is not an example of “incidental” property income included in active business income?
a) Dividend income earned from a portfolio of investments
Interest income earned on the short-term investment of excess cash received by a corporation after selling a capital asset
c) Interest income earned on a corporation’s term deposit, the purpose of which is to ensure the business can meet its payroll requirements
d) Rental income earned from the temporary rental of excess warehouse space
a) Dividend income earned from a portfolio of investments
Which of the following is an allowable deduction from a corporation’s Net Income for Tax Purposes in calculating Taxable Income?
a) ITA 110.6 Lifetime capital gains deduction
b) ITA 111 Loss carryover deduction
c) ITA 110(1)(f) Deduction for payments
d) ITA 110(1)(d)(d.01) Stock option deduction
b) ITA 111 Loss carryover deduction
Which of the following items would NOT be additions to Accounting Income on Schedule 1 of a corporation’s tax return?
a) Recapture of CCA
b) Accounting amortization and depreciation
c) Capital cost allowance (CCA)
d) 50% of business meals and entertainment expenses
c) Capital cost allowance (CCA)
Which of the following items would be a deduction from Accounting Income on Schedule 1 of a corporation’s tax return?
a) Reasonable salaries and wages paid to arm’s length employees
b) 50% of business meals and entertainment expenses
c) Accounting amortization or depreciation
d) Landscaping costs
d) Landscaping costs
Which of the following statements BEST describes the “stop loss” rules for a corporation as per ITA 112(3) and (3.01)?
a) The “stop loss” rules prevent a corporation that owns less than 5% of another corporation’s shares for less than one year, from receiving a tax-free dividend and then selling the shares and triggering a capital loss.
b) The “stop loss” rules apply to both individuals and corporations that own more than 5% of another corporation’s shares for less than one year.
c) The “stop loss” rules reduce the loss on disposition of shares held by a corporation for less than one year by the amount of dividend received on those shares.
d) The “stop loss” rules increase the loss on disposition of shares held by a corporation for less than one year by the amount of dividend received on those shares.
c) The “stop loss” rules reduce the loss on disposition of shares held by a corporation for less than one year by the amount of dividend received on those shares.
A CCPC is considered a large CCPC and is subject to a reduced annual business limit for purposes of calculating the small business deduction when ________.
a) the company has more than 100 employees
b) the company has taxable capital employed in Canada of $10 million or more in its preceding tax year
c) the company has operations outside of Canada
d) the company has net income for tax purposes in excess of $5 million
b) the company has taxable capital employed in Canada of $10 million or more in its preceding tax year
Which of the following is NOT consistent with the definition of active business income for purposes of calculating the small business deduction?
a) Active business income includes income earned from an adventure or concern in the nature of trade as well as income earned that is incidental to the business.
b) Active business income includes income earned from an adventure or concern in the nature of trade as well as property income earned by the corporation in the year.
c) Active business income excludes any income earned by a personal services business.
d) Active business income excludes any income earned by a specified investment business.
b) Active business income excludes any income earned by a personal services business.
Which of the following corporations is NOT eligible for the small business deduction?
a) Canadian-controlled private corporation earning active business income
b) A Canadian-controlled private corporation earning interest income on temporary excess cash balances resulting from active business operations
c) A Personal Services Business earning business income
d) A Canadian-controlled private corporation which earns only property income and employs more than five full-time employees throughout the year
c) A Personal Services Business earning business income
Which of the following statements BEST describes a Specified Investment Business?
a) private corporation established to operate the professional practice of an accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor referred to as a professional corporation.
b) A corporation where an individual shareholder provides services on behalf of the corporation and is referred to as an incorporated employee.
c) A corporation whose primary purpose is to earn property income and employs less than five full-time employees throughout the year.
d) A corporation whose primary purpose is to earn property income and employs five or more full-time employees throughout the year.
c) A corporation whose primary purpose is to earn property income and employs less than five full-time employees throughout the year.
The manufacturing and processing profits deduction is ___________
a) calculated based on a corporation’s manufacturing and processing profits less income aggregate investment income.
b) a special deduction that provides tax assistance to organizations involved in manufacturing and processing activities.
c) available for any corporation that derives 50% or more of its Canadian active business gross revenues from Canadian manufacturing or processing activities.
d) a special deduction in taxes available to Canadian controlled private corporations earning active business income in excess of the annual business limit.
b) a special deduction that provides tax assistance to organizations involved in manufacturing and processing activities.
The Income Tax Act defines a corporation’s tax year as ________.
a) its fiscal period (which can be any period not more than 53 weeks)
b any 52-week period
c) the calendar year
d) any period of any duration
a) its fiscal period (which can be any period not more than 53 weeks)
The carry forward with the shortest retention period for a corporation is ________.
a) net capital loss carry forwards
b) excess charitable contributions
c) non-capital loss carry forwards
d) farm loss carry forwards
b) excess charitable contributions
