Chapter 4 - Corporate Income Tax

Question 1

How does Part IV tax work?

Answer 1

levied temporarily and will be refunded once the dividends are paid out of the corporation to its shareholders

Question 2

two categories of dividends from taxable Canadian corporations:

Answer 2

eligible dividends and non-eligible dividends

Question 3

An eligible dividend is: (2)

Answer 3

• A dividend paid by a public corporation that is resident in Canada
• A dividend paid (including a deemed dividend) by any other corporation resident in Canada from active business income that was not eligible for the small business deduction or from eligible dividends received from other corporations

Question 4

A non-eligible dividend is a dividend paid by

Answer 4

a CCPC from business income eligible for the small business deduction (SBD) or from investment income

Question 5

A ___ is not entitled to the lifetime capital gains exemption (LCGE). Only ___ may take advantage of this exemption

Answer 5

corporation
individuals

Question 6

allowable capital losses can be carried back ___ years or forward ___

Answer 6

three
indefinitely

Question 7

Corporate taxable income, subject to Part I income tax, is normally determined as follows:
Net income for income tax purposes
Less: ___ (4) = Taxable Income (cannot be negative)

Answer 7

Taxable dividends received
Charitable and other donations
Net capital losses from other years
Non-capital losses from other years.

Question 8

A corporation may deduct charitable donations to a maximum of % of its net income for tax purposes.

Answer 8

75

Question 8

A non-capital loss incurred during a taxation year can be deducted from income in the prior __ and __ subsequent taxation years

Answer 8

three
Twenty

Question 8

A non-capital loss may be used to reduce

Answer 8

any type of income

Question 9

ALLOWABLE BUSINESS INVESTMENT LOSS The following rules apply: (3)

Answer 9

• Business investment losses may be used to reduce income from all sources earned during the year.
• Any balance remaining after the year in which the loss occurs becomes a non-capital loss, and may be carried back to the prior three taxation years or carried forward to the subsequent ten taxation years.
• If the business investment loss cannot be deducted as a non-capital loss within the stipulated time limits (i.e., ten years), the unused portion then becomes a net capital loss and, consequently, may be carried forward indefinitely. Once it reverts to a net capital loss, it can only be applied to reduce net taxable capital gains in any given year.

Question 10

A capital loss incurred as a result of the
disposition of shares or a debt of a small business corporation is a

Answer 10

deductible business investment loss.

Question 11

BASE AMOUNT OF PART I INCOME TAX

Answer 11

38%

Question 12

What is a specified investment business?

Answer 12

a business where the principal purpose is to derive income from property

Question 13

The Income Tax Act defines a personal services business as a business that provides services where an individual who performs services on behalf of the corporation holds at least % of the shares of any class of shares of the corporation

Answer 13

10

Question 14

if the company employs more than five people
all year long, either directly or through an associated corporation, then the income from a specified investment business or from a personal services business is considered income from an active business and gives rise to

Answer 14

the small business deduction.

Question 15

The 38.% Part IV income tax is calculated on the sum of: (2)

Answer 15

• Dividends received from non-connected corporations (i.e., portfolio dividends)
• Dividends received from connected corporations but that have given rise to a dividend refund

Question 16

Only dividends received from ___ are taxable

Answer 16

a non-connected corporation

Question 17

Aggregate investment income comprises:

Answer 17

• Taxable capital gains for the year, less net capital losses from other years, deducted in calculating taxable income.
• Interest income
• Rent, royalties, and other property income, including income from a specified investment business

Question 18

If the automobile is used for business more than 50% of the time, employees may opt for ___

Answer 18

the simplified method

Question 19

dividend refund is the lesser of (2)

Answer 19

38% of Eligible Taxable dividends paid out
Eligible Refundable dividend tax on hand

Question 20

Formula to calculate the general tax reduction

Answer 20

13% of

taxable income - SBD (usually 500,00k) - aggregate investment income

Question 21

Part IV tax payable formula

Answer 21

38 1/3 % of Dividends received from non-connected corporations + Share of dividend refund received by a connected corporation

Question 22

refundable portion for Part I tax purposes is the lesser of:

Answer 22

aggregate investment income
taxable income - SBD

Question 23

rates for each of the following:

Base rate for Part I income tax __
Federal income tax abatement __
Small business deduction on the first $500,000 of income from an active business carried on in Canada __
General __ tax reduction
Additional income tax on aggregate investment income __

Answer 23

38%
10%
19%
13%
10 ⅔ %

Question 24

refundable portion of Part I income tax, applicable to investment income, is __ %.

Answer 24

30⅔

Question 25

The refundable portion of Part I income tax is equal to the least of:

Answer 25

i. 30⅔% of aggregate investment income
ii. 30⅔% of the surplus of taxable income over the amount eligible for the SBD
iii. Part I income tax payable

Question 26

aggregate investment income, on which the refundable portion of Part I income tax is calculated,
does not include ___

Answer 26

dividend income.

Question 27

Restricted farm losses carried over can only be applied to ___

Answer 27

income from farming

Question 28

RESTRICTED FARM LOSS - When the chief source of income for a taxation year is neither farming nor a combination of farming, the corporation may deduct only a part of the farm loss from income of other sources for that year. The deductible farm loss is equal to the least of: (2)

Answer 28

i. The farm loss (if less than $2,500)
ii. $2,500 (plus half the amount of the farm loss exceeding $2,500 up to $32,500)

Question 29

some other corporations are subject to a special tax of 38⅓% under Part IV of the Income Tax Act on dividends from ___

Answer 29

a non-connected corporation