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Tax CFE > Deck 2 TAX > Flashcards

Deck 2 TAX Flashcards

1
Q

What is the treatment?
Income tax - current and deferred future taxes

A

Add

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2
Q

What is the treatment?
Interest and penalties on late payments of income taxes?

A

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3
Q

What is the treatment?
Accounting amortization on intangible capital assets?

A

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4
Q

What is the treatment?
Recapture of CCA

A

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5
Q

What is the treatment?
Accounting losses on disposal of Capital assets?

A

Add back

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6
Q

What is the treatment?
Taxable Capital Gains (Sole Proprietor)

A

For individuals earning self employed business income as sole-proprietor:
Included in the Taxable Capital Gains section of the individual’s personal tax return, not in business income.

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7
Q

What is the treatment?
Taxable Capital Gain: Corporation

A

Net income includes business income and aggregate investment income. Taxable Capital gains are part of Aggregate investment income.

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8
Q

What is the treatment?
Charitable Donations : Individuals

A

Not deductible for computing Net income but are the basis for a tax credit

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9
Q

What is the treatment?
Charitable Donations; Corporations

A

Division C deduction for corporations subject to 75% net income limitation

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10
Q

What is the treatment?
Political Donations: Individuals

A

Not deductible, but treated as the basis for a tax credit for individuals

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11
Q

What is the treatment?
Political Donations: Corporations

A

Not deductible
Under the Canadian Elections Act, corporations are not permitted to make federal political contributions.

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12
Q

What is the treatment?
Reserves and Contingent Liabilities

A

Reserves and Contingent liabilities are not deductible for tax purposes.

ITA 18(1)(d)

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13
Q

What is the tax treatment?
Warranties

A

This is an example of contingent liabilities not deductible for tax purposes.
Amounts paid to satisfy warranties are deductible on a cash basis for tax purposes.
2 Ways to make adjustments
1. Add back warranty expense deducted in determining accounting income and deduct cash paid for warranties
2. Add back warranty liability at the end of the year and deduct warranty liability at the beginning of the year. ( Add end deduct beginning)

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14
Q

What is the tax treatment?

Pensions

A

Example of reserve that cannot be deducted for tax purposes.

Contributions to the company’s pension plan are deductible on a cash basis if made within 120 days of the end of the taxation year.

There are 2 ways to make the required adjustments:

  1. Add back the pension expense deducted for accounting purposes and deduct that cash transferred to the trustee of plan assets.
  2. Add back pension liability at the end of the year and deduct the pension liability at the beginning of the year.
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15
Q

What is the tax treatment?

Meals and Entertainment

Are there any exceptions?

A

50% of the meals and entertainment are not deductible and need to be added back.

Exceptions:

  1. Food and beverages are provided in the ordinary course of the taxpayer’s business ( restaurant industry)
  2. The expense is billed to the client
  3. The meals and entertainment are included in the employee’s income as a taxable benefit
  4. All employees benefit such as a Christmas party limited to 6 events in a year.
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16
Q

What is the tax treatment?

Club dues and recreation fees

A

No deduction is allowed for the following:

  • amounts to maintain a yacht, camp, lodge, golf course or facility
  • membership fees or dues for dining, sporting, or recreation
17
Q

What is the tax treatment?

Bond discount amortization

A

Interest on bonds is deductible to the extent that it is legally payable in the year (based on par value and coupon rate).

Bond discounts are added back to income over the debt term and deducted in the year the bond liability is extinguished.

18
Q

What is the tax treatment?

Automobile mileage allowances

A

Add back automobile mileage allowances unless it is a taxable benefit to the employee.

If the employee pays a tax on it (due to it being a taxable benefit), no adjustment is needed.

19
Q

Automobile Mileage payments to employees

limitation

A

Limited to

$.59 for first 5000 kms

and

$.53 for each additional km after that

20
Q

Lease cost on passenger vehicles

A

Add back lease costs on passenger vehicles in excess of the permitted amount.

21
Q

Equity losses on investments accounted for using the equity method of accounting

A

Add back

22
Q

Dividends received on investments accounted for using the equity method of accounting

A

Add back

23
Q

Asset write-downs (including impairments)

A

Add Back

24
Q

Illegal payments, fines, and penalties

A

Add back - no deduction is allowed for illegal payment, fine, or penalty.

25
Q

Foreign advertising

A
  • Add back/Not deductible, if directed at the Canadian market by engaging the services of a foreign company or media (foreign print or foreign broadcast media)
  • Deductible if directed at the non-Canadian market
26
Q

Personal and living expenses

A

Not deductible as not incurred to earn business income.

27
Q

Life insurance where the corporation is the beneficiary

A

NOT deductible unless the below are met

  1. Required as collateral for a loan
  2. Lender is a restricted financial institution
  3. Interest payable on the loan is deductible

if MET, the amount deductible is lesser of

  1. Premium paid
  2. Net cost of pure insurance

Deduction is the portion of the premium on part of the insurance policy that reasonably relates to the loan

28
Q

Conventions expenses

A

Add back unless

  1. Organized by another business or professional organization.
  2. It is attended in connection with the taxpayer’s business or professional practice.
  3. It is held at a location that may reasonably be regarded as consistent with the territorial scope of the organization.

Limited to 2 in a year (NAB + another)

29
Q

Unpaid amounts in a non-arm’s length transaction

A

If an amount remains unpaid at the end of two years after the end of the taxation year in which it was accrued, it is required to be brought back into income in the third taxation year

30
Q

Carrying charges on vacant land (including interest and property taxes)

A

Deductible to the extent of income earned on the vacant land.

Non-deductible portion is added to the cost base of the land.

31
Q

Soft costs on construction or renovation of a building

A

Soft costs incurred during the period of construction, renovation, or alteration of a building are not deductible. Because they are not deductible, they are added to the cost base of the building.

Soft costs include interest, professional fees, insurance, and property taxes.

32
Q

Reserves: Bad debts

A

Reserves for bad debts (accounting allowance for doubtful accounts) are an exception to the general rule that reserves are not deductible.

33
Q

Reserves: Bad debts

Estimated as a percentage of AR balance

A

A reserve determined as an estimated percentage of the accounts receivable balance would not be deductible.

34
Q

Reserves: Bad Debt

Based on specific identified accounts

A

Reasonable reserves are deductible if based on anticipated bad debts. For instance, specific identified accounts, such as those unpaid over 90 days, may be deducted as a reserve.

35
Q

Reserves: Bad Debt

Based on anticipated bad debt

A

If, for accounting purposes, the allowance for doubtful accounts is based on anticipated bad debts, no adjustment is required, as a reserve for bad debts based on anticipated bad debts is also deductible for tax

36
Q

Reserves: Undelivered goods or services

A

Reserves for undelivered goods or services are an exception to the general rule that reserves are not deductible

37
Q

Reserves: Undelivered goods when Cash received in Advance

A

Where the taxpayer receives cash in advance of providing goods or services to a customer, a reasonable reserve is deductible for goods / services that will be provided in the future

Tax CFE (3 decks)

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