Chapter 4 - Corporate Income Tax Flashcards
How does Part IV tax work?
levied temporarily and will be refunded once the dividends are paid out of the corporation to its shareholders
two categories of dividends from taxable Canadian corporations:
eligible dividends and non-eligible dividends
An eligible dividend is: (2)
- 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
A non-eligible dividend is a dividend paid by
a CCPC from business income eligible for the small business deduction (SBD) or from investment income
A ___ is not entitled to the lifetime capital gains exemption (LCGE). Only ___ may take advantage of this exemption
corporation
individuals
allowable capital losses can be carried back ___ years or forward ___
three
indefinitely
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)
Taxable dividends received
Charitable and other donations
Net capital losses from other years
Non-capital losses from other years.
A corporation may deduct charitable donations to a maximum of % of its net income for tax purposes.
75
A non-capital loss incurred during a taxation year can be deducted from income in the prior __ and __ subsequent taxation years
three
Twenty
A non-capital loss may be used to reduce
any type of income
ALLOWABLE BUSINESS INVESTMENT LOSS The following rules apply: (3)
- 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.
A capital loss incurred as a result of the
disposition of shares or a debt of a small business corporation is a
deductible business investment loss.
BASE AMOUNT OF PART I INCOME TAX
38%
What is a specified investment business?
a business where the principal purpose is to derive income from property
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
10
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
the small business deduction.
The 38.% Part IV income tax is calculated on the sum of: (2)
- Dividends received from non-connected corporations (i.e., portfolio dividends)
- Dividends received from connected corporations but that have given rise to a dividend refund
Only dividends received from ___ are taxable
a non-connected corporation
Aggregate investment income comprises:
- 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
If the automobile is used for business more than 50% of the time, employees may opt for ___
the simplified method
dividend refund is the lesser of (2)
38% of Eligible Taxable dividends paid out
Eligible Refundable dividend tax on hand
Formula to calculate the general tax reduction
13% of
taxable income - SBD (usually 500,00k) - aggregate investment income
Part IV tax payable formula
38 1/3 % of Dividends received from non-connected corporations + Share of dividend refund received by a connected corporation
refundable portion for Part I tax purposes is the lesser of:
aggregate investment income
taxable income - SBD
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 __
38%
10%
19%
13%
10 ⅔ %
refundable portion of Part I income tax, applicable to investment income, is __ %.
30⅔
The refundable portion of Part I income tax is equal to the least of:
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
aggregate investment income, on which the refundable portion of Part I income tax is calculated,
does not include ___
dividend income.
Restricted farm losses carried over can only be applied to ___
income from farming
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)
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)
some other corporations are subject to a special tax of 38⅓% under Part IV of the Income Tax Act on dividends from ___
a non-connected corporation
