Core Curriculum Chapter 9 Flashcards
TAX BASICS - What is Adjusted Cost Base (ACB)?
The original purchase price of an asset plus acquisition costs, adjusted for reinvested dividends and other expenses.
ALTERNATIVE MINIMUM TAX -What is the purpose of Alternative Minimum Tax (AMT)?
Ensures high-income earners using tax deductions still pay a minimum level of tax.
ARM’S LENGTH TRANSACTIONS - What is the difference between arm’s length and non-arm’s length transactions?
Arm’s length transactions occur between unrelated parties; non-arm’s length transactions involve related parties and may be subject to tax scrutiny.
INCOME ATTRIBUTION -What is income attribution?
A tax rule that prevents shifting income to lower-taxed family members by attributing certain types of income back to the original taxpayer.
ATTRIBUTION RULES - When do income attribution rules apply?
When income-producing assets are transferred to a spouse, minor child, or related party without fair market value consideration.
BUSINESS EXPENSES - What types of expenses are tax-deductible for businesses?
Advertising, rent, salaries, utilities, office supplies, travel expenses, and professional fees.
BUSINESS LOSSES - How can business losses be applied for tax purposes?
Business losses can be carried back 3 years or forward 20 years to offset taxable income.
CAPITAL GAINS - How are capital gains taxed in Canada?
50% of capital gains are included in taxable income and taxed at the individual’s marginal rate.
CAPITAL COST ALLOWANCE -What is Capital Cost Allowance (CCA)?
A tax deduction allowing businesses to depreciate assets over time.
PRINCIPAL RESIDENCE EXEMPTION - How does the principal residence exemption work?
Capital gains on the sale of a primary residence are exempt from taxation.
RENTAL PROPERTY -What expenses are deductible for rental properties?
Mortgage interest, property taxes, maintenance costs, insurance, and utility costs if paid by the landlord.
PENSION INCOME SPLITTING -What is pension income splitting?
Allows married couples to allocate up to 50% of eligible pension income to the lower-income spouse to reduce tax liability.
MEDICAL EXPENSE TAX CREDIT - What is the Medical Expense Tax Credit (METC)?
A tax credit for eligible medical expenses exceeding a set percentage of net income.
FOREIGN INCOME - How is foreign income taxed in Canada?
Foreign income is subject to Canadian tax, but foreign tax credits may apply to avoid double taxation.
TAX SHELTERS - What are tax shelters?
Investments structured to defer or reduce taxes, often scrutinized by the CRA for potential abuse.
STOCK OPTIONS -How are stock options taxed?
Taxed when exercised, with special rules for Canadian-Controlled Private Corporations (CCPCs).
DEATH & TAXES - What happens to a taxpayer’s assets upon death?
Assets are deemed disposed at fair market value, triggering potential capital gains tax.
TAX ROLLOVERS -What is a tax rollover?
A provision allowing assets to be transferred to a spouse or corporation without triggering immediate tax consequences.
GENERAL ANTI-AVOIDANCE RULE - What is the purpose of GAAR?
Prevents transactions structured solely to avoid taxes while appearing legal.
CRA DISPUTES - How can taxpayers challenge a CRA assessment?
File a Notice of Objection within the specified deadline to dispute a reassessment.
