Income from property

Question 1

When Do corporations recognize income

Answer 1

Coincide with fiscal period
Recognize income under an accrual basis (ITA 12(3))
Therefore, interest is included as income as it is earned on a daily basis

Question 2

When Do Individuals recognize income

Answer 2

Coincide with calendar year:
Either

the receivable method (*legally due and payable)

the cash basis (*received)

Question 3

Unlike individuals, when corporations receive Dividends from a taxable Canadian corporation they

Answer 3

are deducted when arriving at taxable income

Question 4

Foreign Corporate Dividends

Answer 4

only allowed if foreign corporations qualifies as a “foreign affiliate” when Canadian corporation owns not less than 10% of foreign corporation

Question 5

What is the Gross-up/Tax credit for private low tax rate (non-eligible dividend)

Answer 5

115%
15%-Fed
27.5%-Total

Question 6

What is the Gross-up/Tax credit for public & private high tax rate (eligible dividend)

Answer 6

138%
9.03%-Fed
13%-Total

Question 7

What is CCA on building limited to

Answer 7

restricted to total rental income before CCA (Req 1100 (11)-(20) +IT 195R4)

Question 8

How to chose what building to take CCA out on?

Answer 8

Always depreciate building you plan on selling later

Question 9

Interest expense strategy Personal vs business

Answer 9

Buy personal assets with your own funds (as interest not deductible on borrowed funds used to purchase personal assets)
Use these assets as collateral to borrow to invest in assets that earn property income (since interest will be deductible)

Question 10

Common deductions against property income

Answer 10

Investment counseling and Management fees (ITA (20(1)(bb))
Costs to obtain financing (amortized over 5 years) (ITA (20(1)(e), (e.1))
Accounting fees for record keeping
Reserves for uncollectible amounts, where interest has been accrued – (ITA (20)(1)(l))

Question 11

CARRYING CHARGES ON to vacant land held for investment purposes

Answer 11

Interest and property taxes deductible to the extent the gross revenue exceeds all other expenses.
ex parking rev = 100,000
interest = 200,000
can deduct 100,000 interest, other 100,000 will be capitalized

Question 12

Expenses attributable to Period of Construction, Renovation or Alteration

Answer 12

must be capitalized to building (Class 1) rather than deducted currently ITA18(3.1) – (3.7)
Non-deductible “Soft Costs” include interest, property taxes, legal and accounting fees, insurance, utilities, mortgage fees

“Soft Cost” are also deductible (s20(29)) to extent of income from renting the building in year pursuant to “available for use” rules (s13(28))

Landscaping, CCA and disability-related modifications are excluded from rules (hence, deductible)