Financial Planning for Business Owners Flashcards
Rules for capital gain reinvestment?
Must buy new company shares from treasury within 120 days of year-end and must own the original shares from the previous company for 185 days (acb is reduced on new shares and company must be worth 50 million or less)
Capital Gains Reserve Formula
Pays tax on amount received or capital gain outstanding/5 - years remaining +1)
Farm Rollover to Child
Can elect any price between 0 and FMV when giving farm to child. Common to use acb + lcge as transfer price (using promissory note). Gifting machinery is common (sell for at most ucc to avoid recapture). Can include adopted or dependent children and their spouses.
Farm Rollover to Spouse
Can only roll over at ACB or sell for FMV. (No reason to rollover at less than UCC or ACB. No chance to use LCGE when rolling over at ACB or UCC. Attribution could apply when still alive is spouse not involved with farm.
Health Savings Account
Deductible to the employer (as well as admin fee), tax-free to the employee. If employee doesn’t use, it can be returned to the employer and contributed to employee’s RRSP (which is a taxable benefit)
Income Splitting for Owner
Can work using a spousal loan, children investing their own capital age 25 to buy 10% or more of votes and value opf company or over (or taking no more than dividends at the prescribed rate ex. $1000 @ 2% rate = $20 age 18-24).
LCGE Income Splitting
TOSI doesn’t apply to cap gains. Owner can own class a shares that provide them with more voting rights and provide family with class b shares that can receive dividends when tosi doesn’t apply and have slightly smaller voting rights. When business is sold, each person can use lcge.
LCGE Old Rules
Someone who used LCGE when the 100k exemption was available will have the amount they used deducted from their available LCGE going forward.
Capital Gains Deduction Reduction
Is reduced by total of CNIL and ABIL. Capital gains deduction is equal to one half of the LCGE. Once LCGE is reduced by these losses, the remaining LCGE can be used in the future, assuming that there is no CNIL or ABIL accrued over that time.
Part-Time Farming Deductions
Can deduct 2500 of losses and 50% of the next 30k of losses (17.5k max). Hobby = no deduction and full time = ful deductions
Multiple Business
-Non qualifying home office can’t be used to create a loss but can reduce income for intended business to 0. Any loss directly related to one business can be used to reduce income from another.
Section 85 Rollover
Done to corp or hold co. without tax implications (recapture, gain, etc). Must take back at least one share. Can use all shares or in combination with cash, note, or other property. Upper limit is fmv and lower is the least of acb, fmv, and ucc. value of consideration should equal fmv. ucc for corp will start as elected transfer price
How businesses are taxed. Accrual vs Cash.
Most businesses must use accrual, however, farms can use cash
TOSI
Taxed at top marginal tax rate to intended recipient (unless attribution applies). No attribution or TOSI applies after death, separation, or becoming non-resident
Shareholder loan
Taxable if outstanding at the end of the year after its made (and not deductible to other party). Interest taxable to shareholder and deductible to corp or vice versa. Deduction available if repayment made.
