Corporate Taxes Payable

Question 1

Calculation Steps - Corporate Taxes Payable

Answer 1

Net Income for Accounting Purposes
  Add (Subtract) Accounting - Tax Differences
Income for Tax Purposes
  Subtract Division C Deductions
Taxable Income
  Multiply by Tax Rate
Taxes Payable

Question 2

Common Division C Deductions

Answer 2

• Taxable Canadian Dividends
• Charitable Donations
• Loss Carryforwards

Question 3

Common Schedule 1 Adjustments

Answer 3

• Related Party Transactions - Accounting Gain (Loss) on Sale of Asset - M&E and Membership Fees - Stock Options - Asset Write-downs - Employee Vehicle Costs - Interest and Penalties - Donations - Unreasonable / Personal Expenses - Accrued Bonus Unpaid 180 Days - Reserves and Contingencies - Financing Costs - Amortization - Leasehold Inducements - SRED - Dividends

Question 4

Cost / Amortization of Capital Assets

Answer 4

• Amortization is replaced with CCA
• All costs to acquire, including soft costs of building, are included in cost of asset
• Repairs and maintenance are expensed

Question 5

CCA Class 1

Answer 5

Buildings

Question 6

CCA Class 8

Answer 6

Furniture, equipment and tools $500 or more

Question 7

CCA Class 10

Answer 7

Automobiles and computer equipment

Question 8

CCA Class 10.1

Answer 8

Each vehicle costing more than $30k plus tax

• maximum for each entry is $30k plus tax
• no recapture or terminal loss

Question 9

CCA Class 12

Answer 9

Software and tools under $500

Question 10

CCA Class 13

Answer 10

Leasehold Improvements

Question 11

CCA Class 14

Answer 11

Intangible assets such as patents, franchises and limited life licenses

Question 12

CCA Class 14.1

Answer 12

Other intangible assets

Question 13

CCA Class 29/43

Answer 13

Manufacturing and processing equpiment

• 29 is for equipment purchased March 19, 2007 - 2014
• 29 is available by election
• Straight line over 2 years - half net rule applies

Question 14

Gains (Losses) on Sale of Assets

Answer 14

• replace accounting gain (NBV) with tax gain (ACB/UCC)
• consider whether nature of sale is income or capital
• consider superficial loss / identical property rules

Question 15

Sale of Land and Building

Answer 15

• fair value of proceeds must be allocated to land and building
• cannot have terminal loss on building and capital gain on land; if this occurs must reallocate

Question 16

Stock Options

Answer 16

• fair value of options must be estimated and compensation expense recorded for accounting purposes
• stock option expense is never deductible for tax purposes as it doesn’t result in a cash outflow

Question 17

Employee Vehicle Costs

Answer 17

• Maximum of $800 +HST/ month for each employee vehicle lease
• $30,000 + HST for purchased vehicle
• Excess amount is not deductible for tax purposes unless included in employee income

Question 18

Donations

Answer 18

Division C Deduction

• limited to 75% of net income for tax purposes (carry forward excess 5 years)
• non-cash donations equal FMV of property
• capital gain or loss results from donation except public securities
• no federal political contributions

Question 19

Allowable Reserves / Contingencies

Answer 19

• bad debts
• estimated returns
• unearned revenue
• inventory obsolescence

Question 20

Finance Costs

Answer 20

Financing costs related to debt or equity issue amortized over 5 years for tax purposes

Question 21

Leases and Lease Inducements

Answer 21

• Leases are always operating for tax purposes
• For capital leases, add back interest and amortization expense, then deduct lease payments
• No deduction for inducements (e.g. free rent)

Question 22

Dividends

Answer 22

• dividends (not capital) received from other Canadian corporations are included in income but deducted under Div C
• capital dividends are deducted in calculating income for tax purposes