Corporate Taxation and Structures Flashcards
RDTOH Rates
Investment income (total tax varies by province) 30.67% NERDTOH credit. given back at a rate of 38.33% when a dividend is paid.
Dividend income (from public corp or non connected private corp with grip tax)- 38.33% is credited to ERDTOH and 38.33% is given back when dividend is paid
Corporate relationships
Related - shareholders who are related must transact at fmv to avoid double taxation
Connected - hold co. owns 10% or more of op co., allows tax free dividend
-Associated - similar shareholders, must decide where to use smabud (AAII could wipe out inv deduction)
Affiliated - owned by same entity, relevant for superficial loss rules
Dividend Payout Rule
Corp can choose who to pay LRIP and GRIP dividends to
Incorporation Legal Advantages
-Liability protection (limited with professional corporations
-Easier succession planning (estate freeze)
-Perpetual structure
-Cleaner bookeeping
-Can sell shares to raise capital
Incorporation Tax Advantages
-LCGE
-Defer taxes, salary or dividends if some integration issues apply
-Capital dividend account
-Pay non-deductible expenses (cheaper after tax corp dollars)
-IPP and health spending
-Choice of year end
-Some income splitting potential
-Rollovers are easy (section 85)
-Less frequent audits
QSBC Deduction Requirements
More than 50% of fmv of assets supporting a business ran primarily in Canada (24 months before sale). 90% of assets at the time of sale. Must be owned by seller for 24 months.
Non Cap Loss Deduction Rules
ABIL - loss from small business corp. can be carried back 3 years or forward 10, if not used after 10, turns into a capital loss. (half of whatever the loss was)
-Non-cap loss - carry back 3 years or forward 20
Capital Dividend Account
-Cap gains
-Life insurance proceeds in excess of acb (premiums paid - net cost of pure insurance)
-Can be given out using cash or a promissory note (good to do immediately as cap losses can reduce cda)
