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Accounting > Dumont (Tax and Accounting) > Flashcards

Dumont (Tax and Accounting) Flashcards

1
Q

What are the ways a small business owner in Canada can withdraw money from their corporation, and what are their tax implications?

A

Salary or Bonus Payments
* Taxable personally at your marginal rate.
* Deductible by the corporation.
* Contributes to CPP and RRSP contribution room.

Dividends
* Taxed at a lower rate due to the dividend tax credit.
* Not deductible by the corporation.
* Watch for Tax on Split Income (TOSI) rules.

Shareholder Loans
* Borrow funds temporarily.
* Must be repaid within one year of the corporation’s fiscal year-end to avoid personal tax.

Capital Dividends
* Paid tax-free from the Capital Dividend Account (CDA).
* Typically derived from non-taxable capital gains or life insurance proceeds.

Repayment of Shareholder Loans
* Non-taxable return of capital if you’ve loaned money to the corporation previously.

Income Splitting
* Employ family members and pay reasonable salaries.
* Must comply with CRA guidelines for fair market value.

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2
Q

What are deductible operating costs for a small business in Canada?

A

Office supplies (e.g., stationery, software subscriptions)
Utilities (electricity, heating, water)
Internet and phone (business portion only)

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3
Q

What employee-related expenses can a small business owner deduct?

A

Salaries, wages, and bonuses
Employer contributions to CPP and EI
Health benefits and group insurance plans

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4
Q

What professional services expenses are deductible for small businesses?

A

Accountant and bookkeeper fees
Lawyer fees
Business consulting fees

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5
Q

What marketing and advertising expenses are tax-deductible?

A

Online ads, social media campaigns
Website development and maintenance
Sponsorships and promotional materials

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6
Q

What travel expenses can a business deduct?

A

Transportation (flights, taxis, etc.)
Accommodation and meals (50% of meals deductible)
Vehicle expenses prorated for business use

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7
Q

What home office expenses are deductible if you work from home?

A

Rent or mortgage interest (business portion)
Utilities and maintenance (business portion)
Property taxes and home insurance (business portion)

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8
Q

What training and development expenses can be deducted?

A

Courses, certifications, and workshops related to business
Books and educational materials

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9
Q

What expenses related to financing are tax-deductible?

A

Interest on business loans or lines of credit
Bank service fees for business accounts

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10
Q

What are capital expenses, and how are they deducted?

A

Purchases of equipment, furniture, and vehicles
Claimed over time through Capital Cost Allowance (CCA)

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11
Q

What types of insurance can a small business deduct?

A

Business liability insurance
Property insurance for business assets
Vehicle insurance for business use

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12
Q

What other miscellaneous expenses are deductible?

A

Bad debts (uncollectible amounts from clients)
Memberships to professional organizations
Software and technology subscriptions

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13
Q

What portion of meals and entertainment expenses is deductible?

A

50% of meals and entertainment costs for business purposes

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14
Q

What inventory-related expenses are deductible?

A

Costs of raw materials or goods sold
Packaging, shipping, and storage

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15
Q

What rent and lease expenses are deductible?

A

Rent for a physical office or workspace
Lease payments for equipment or vehicles

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16
Q

What are the CRA’s general rules for deducting business expenses?

A

Expenses must be reasonable and directly related to earning income.
Maintain proper documentation (receipts, invoices, proof of payment).
Only deduct the business portion of mixed-use expenses.

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17
Q

What are the CRA rules for deducting company events?

A

Up to two company-wide events per year are fully deductible.
Must be open to all employees (and their guests).
Eligible costs: venue, food, entertainment, transportation, etc.
Keep proper records (receipts, attendee lists).

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18
Q

When must individuals pay tax installments in Canada?

A

When net tax owing is more than $3,000 in the current year and either of the two preceding years ($1,800 in Quebec).
Payments are due quarterly: March 15, June 15, September 15, December 15.

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19
Q

When must corporations pay tax installments in Canada?

A

When total tax payable exceeds $3,000 in the current or previous year.
Most corporations pay monthly, but some eligible CCPCs can pay quarterly.

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20
Q

When must trusts pay tax installments in Canada?

A

When net tax owing exceeds $3,000 in the current year and either of the two preceding years.
Payments are due quarterly: March 15, June 15, September 15, December 15.

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21
Q

What happens if you fail to make installment payments on time?

A

CRA charges interest on missed payments and may apply penalties for non-compliance.

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22
Q

What methods can taxpayers use to calculate installment payments?

A

Current-year method: Based on estimated tax for the current year.
Prior-year method: Based on tax from the previous year.
CRA’s suggested amounts: Provided in installment reminders.

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23
Q

Do you need to pay installments even if CRA doesn’t send a reminder?

A

Yes. It is the taxpayer’s responsibility to ensure payments are made on time.

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24
Q

How does a new corporation in Canada establish its first fiscal year-end?

A

Choose any fiscal year-end within 53 weeks (371 days) of incorporation.
Align with your business cycle or use it for tax planning (e.g., bonus deductions).
File the first T2 return from the incorporation date to the chosen year-end.
For partnerships, the fiscal year must end on December 31.
Fiscal year-end changes require CRA approval.

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25
Q

When is the filing deadline for a corporation’s T2 tax return?

A

Six months after the fiscal year-end.
Example: Fiscal year-end on March 31, filing deadline is September 30.
For non-standard year-ends, it’s six months from the exact date.

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26
Q

What happens if the filing deadline falls on a weekend or holiday?

A

Filing is considered on time if submitted by the next business day.

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27
Q

When is the balance of corporate taxes owing due?When is the balance of corporate taxes owing due?

A

Due two or three months after the fiscal year-end, depending on the corporation’s type.
Example: For a December 31 fiscal year-end, taxes could be due by February 28 or March 31.

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28
Q

When must corporations make installment payments?

A

Most corporations pay monthly instalments.
Eligible small CCPCs can pay quarterly instalments.

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29
Q

What are the consequences of missing filing or payment deadlines?

A

Penalties and interest charges may apply for late filings or payments.

30
Q

Who must register for GST?

A

Mandatory Registration:
Businesses with taxable revenues over $30,000 in the last 12 months.
Charities/public institutions earning over $50,000.

Voluntary Registration:
Small suppliers earning less than $30,000 can register to claim input tax credits (ITCs).

31
Q

What are the three categories of GST application?

A

Taxable Supplies (5%): Retail goods, professional services, rentals.
Zero-Rated Supplies (0%): Basic groceries, prescription drugs, medical devices.
Exempt Supplies: Residential rent, financial services, health care.

32
Q

What are Input Tax Credits (ITCs)?

A

ITCs allow businesses to recover GST paid on purchases and expenses related to taxable activities.

33
Q

What are the GST filing periods and deadlines?

A

Filing Periods: Monthly, quarterly, or annually (based on revenue).
Deadlines:
* Monthly/Quarterly: Due 1 month after the reporting period ends.
* Annually: Due 3 months after fiscal year-end.

34
Q

When must GST payments be made?

A

Remit GST collected minus ITCs by the same deadlines as GST return filings.

35
Q

What is the small supplier threshold for GST registration?

A

Businesses earning less than $30,000 in taxable revenues over 12 months are considered small suppliers and are not required to register.

36
Q

What is GST’s role in e-commerce?

A

Online businesses must charge GST/HST based on the customer’s location in Canada.

37
Q

What are examples of goods and services subject to 5% GST?

A

General merchandise: clothing, electronics, furniture.
Professional services: legal, accounting, consulting.
Restaurant meals: food and beverages consumed on-site.
Domestic transportation: flights, buses, trains.
Event admissions: concerts, theaters, sports.

38
Q

What are zero-rated goods and services?

A

Taxed at 0%, businesses can claim ITCs.
Examples:
Basic groceries: bread, milk, fruits, vegetables.
Prescription drugs and medical devices (e.g., wheelchairs).
Exports: goods/services sold outside Canada.
Agricultural products: grain, raw wool, tobacco leaves.

39
Q

What are exempt goods and services?

A

Not subject to GST, and businesses cannot claim ITCs.
Examples:
Residential rent.
Health and dental care services.
Educational services (degree/diploma courses).
Financial services (banking, insurance, investments).
Childcare services for children under 14.

40
Q

What is the difference between zero-rated and exempt supplies?

A

Zero-Rated Supplies: Taxed at 0%, businesses can claim ITCs.
Exempt Supplies: Not taxed, and businesses cannot claim ITCs.

41
Q

What is a T4 slip used for?

A

A T4 slip reports employment income earned from an employer, including income tax deductions, CPP contributions, and EI premiums.

42
Q

Who receives a T4A slip?

A

Individuals receiving income from self-employment, pensions, scholarships, or other non-employment sources.

43
Q

When must T4 and T4A slips be provided to recipients?

A

By the end of February following the tax year.

44
Q

What types of deductions are included on a T4 slip?

A

Income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums.

45
Q

What are Canada Pension Plan (CPP) contribution rates for employees and employers in 2024?

A

Employees contribute 5.95% of pensionable earnings, and employers match this with an additional 5.95%.

46
Q

What is the CPP contribution rate for self-employed individuals in 2024?

A

Self-employed individuals contribute 11.9% of their net business income (both employee and employer portions).

47
Q

What are Employment Insurance (EI) premium rates for employees and employers in 2024?

A

Employees pay 1.66% on insurable earnings up to $63,200, and employers pay 1.4 times the employee rate, or 2.324%.

48
Q

What is the employer’s responsibility regarding income tax deductions?

A

Employers must calculate, withhold, and remit federal and provincial income taxes based on prescribed tax tables and employee personal tax credit amounts.

49
Q

Are there additional payroll contributions or taxes in Canada at the provincial level?

A

Yes, some provinces have additional contributions, such as health premiums or workers’ compensation payments, which employers must manage.

50
Q

By what schedule must employers remit payroll deductions to the CRA?

A

Employers must remit payroll deductions according to the CRA’s specified schedules, which depend on their total average monthly withholding amount.

51
Q

What is the minimum vacation time entitlement for employees in British Columbia after 12 consecutive months of employment?

A

Employees are entitled to a minimum of two weeks of vacation time.

52
Q

How does vacation time entitlement change after five consecutive years of employment in British Columbia?How does vacation time entitlement change after five consecutive years of employment in British Columbia?

A

It increases to at least three weeks of vacation time.

53
Q

What percentage of total wages is vacation pay for employees during their first five years of employment in British Columbia?

A

At least 4% of total wages.

54
Q

After five consecutive years of employment in British Columbia, what is the minimum percentage of total wages that must be paid as vacation pay?

A

At least 6% of total wages.

55
Q

What components are included in the calculation of total wages for vacation pay in British Columbia?

A

Total wages include regular wages, overtime, statutory holiday pay, paid sick days required by the Employment Standards Act, and previously paid vacation pay.

56
Q

When must vacation pay be paid to employees in British Columbia?

A

Vacation pay must be paid at least seven days before the employee starts their annual vacation. Alternatively, if agreed upon in writing, it can be paid on each paycheque.

57
Q

What is the employer’s responsibility regarding scheduling vacation time for employees in British Columbia?

A

Employers must ensure that employees take their entitled vacation time within 12 months after earning it. While employers can schedule vacations based on business needs, they must provide the full entitlement within the specified period.

58
Q

How are vacation time and vacation pay defined under British Columbia’s Employment Standards Act?

A

Vacation time refers to the period an employee is entitled to take off work, whereas vacation pay is the compensation received during that time. Both are separate entitlements under the Act.

59
Q

What are the minimum severance requirements in B.C. for employees terminated without cause after 3 months of continuous employment?

A

3 to 12 months: 1 week of notice or compensation.
12 months to 3 years: 2 weeks of notice or compensation.
After 3 years: 3 weeks plus an additional week per year of service, up to 8 weeks.

60
Q

What factors can increase severance pay under common law in B.C.?

A

Age of the employee.
Length of service.
Seniority or specialized role.
Availability of similar employment in the job market.

61
Q

When is severance not required in British Columbia?

A

Termination for just cause (e.g., serious misconduct).
Employment lasting less than 3 months.
Specific contractual terms overriding ESA severance requirements.

62
Q

What additional notice is required for group terminations in B.C.?

A

50–100 employees: 8 weeks’ notice.
101–300 employees: 12 weeks’ notice.
More than 300 employees: 16 weeks’ notice.

63
Q

What are employers required to pay upon termination in B.C.?

A

Regular wages.
Overtime pay.
Vacation pay.
Any other owed compensation.
Timing: Final wages must be paid within 48 hours of termination.

64
Q

What is the maximum notice or severance required under the Employment Standards Act (ESA) in B.C.?

A

A maximum of 8 weeks of notice or severance is required, depending on the employee’s length of service.

65
Q

What is the remittance frequency for a quarterly remitter in B.C.?

A

Eligibility: New employers with perfect compliance and an AMWA of less than $1,000.
Frequency: Quarterly.
Due Dates:
Q1: April 15
Q2: July 15
Q3: October 15
Q4: January 15

66
Q

What is the remittance schedule for an accelerated remitter in B.C. with an AMWA of $25,000–$99,999.99?

A

Frequency: Twice monthly.
Due Dates:
1st–15th payroll: Due by the 25th of the same month.
16th–end of month payroll: Due by the 10th of the following month.

67
Q

What is the remittance schedule for an accelerated remitter with an AMWA of $100,000 or more?

A

Frequency: Four times monthly.
Due Dates:
1st–7th: Due by the 10th.
8th–14th: Due by the 17th.
15th–21st: Due by the 24th.
22nd–end of month: Due by the 3rd of the following month.

68
Q

What happens if a payroll remittance is late in B.C.?

A

Penalties range from 3% to 10%, depending on the number of days late.
Compliance history can impact future remitter type adjustments by the CRA.

69
Q

What is the rule for electronic payments exceeding $10,000 in B.C.?

A

As of January 1, 2024, all payments or remittances over $10,000 must be submitted electronically.

70
Q

What are the common salary payment schedules in B.C.?

A

Weekly: 52 pay periods per year.
Biweekly: 26 pay periods per year. (Employer Has one week time to pay to wages after the pay period)
Semimonthly: 24 pay periods per year.
Monthly: 12 pay periods per year.

Accounting (3 decks)

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