Personal Taxes Payable Flashcards
Dividends- Eligible vs Non-Eligible
Eligible Dividends
- received from public corporations or from CCPC income not subject to SBD
- grossed up by 1.38 with a federal tax credit of 6/11 of gross-up
Ineligible Dividend
- received from CCPC income over SBD or from investment income
- grossed up by 1.15 and federal tax credit of 9/13 of gross-up
MUST BE RECEIVED FROM A CANADIAN CORP BY AN INDIVIDUAL
- non-resident dividends are fully taxable
Credit vs. Deduction
Credit - dollar-for-dollar reduction of tax liability
Reduction - reduces income; actual tax savings depends on rate
Automobile Allowance
- reasonable allowance (0.59 first 5k km; 0.53 thereafter) not taxable
- excess allowance is included in income
- can then deduct reasonable expenses paid based on business use
- lease costs limited to $800 plus HST/ month
Employer Owned Vehicle - Standby Charge
OWNED 2% of cost x months available LEASED 2/3 x lease payments REDUCTION - 50%+ BUSINESS USE (personal use kms / 20,004) x standby charge
Employer Owned Vehicle - Operating Benefit
Where employer pays operating costs, taxable benefit of 28 cents x personal use km
Employee Loans
Imputed Interest Benefit
- interest savings based on CRA prescribed rate
- interest benefit can be deducted if incurred to earn income
Home Relocation Loan
- Division C deduction for interest benefit on first $25,000
Employee Stock Options - CCPPC
- taxable benefit arises when resulting shares are sold
- employment income inclusion = FMV of shares at exercise date - exercise price
- Div C deduction - 50% of employment inclusion if options not in the money when granted or shares held 2 years from exercise
- ACB = exercise price + income inclusion
Employee Stock Options - non-CCPC
- taxable benefit arises when shares acquired
- inclusion = FMV at exercise date - exercise price
- Div C Deduction = 50% of inclusion if options not in the money when granted
- ACB = exercise price + income inclusion
Home Office Deduction Requirements
- place where individual principally performs work duties; OR
- used exclusively for work purposes and employee must must regularly meet customers there
Eligible Home Office Expenses - Salaried
- rent
- utilities
- maintenance
- minor repairs
Eligible Home Office Expenses - Commissioned
- rent
- utilities
- maintenance
- minor repairs
- property taxes
- insurance
Eligible Home Office Expenses - Self-Employed
- rent
- utilities
- maintenance
- minor repairs
- property taxes
- insurance
- mortgage interest
- CCA
Childcare Expenses
- deductible if incurred to earn income
- lower income parent must claim
- max $200/wk (under 6) or $125/wk (7-16) for camp or boarding school
- max expense is lesser of
- actual amount
- $5k x children 7-16 + $8k x children under 6
- 2/3 earned income
Charitable Donations
- non-refundable tax credit
- first $200 x 15%, balance at 29% (income under $200k) or 33% (income over $200k)
- limited to 75% of net income
- carry forward 5 years
Income Splitting Methods
DIRECT EMPLOYMENT
- do they have skills to provide services
- is amount reasonable given work performed
INVESTMENTS BY LOWER INCOME SPOUSE
- higher income pays expenses
- avoid attribution by paying with own money (not joint)
ISSUE SHARES TO FAMILY MEMBERS
- watch out for TOSI
TOSI Exceptions
NON-SERVICE BUSINESS
- not professional corporation
- less than 10% of income from services
- family member is 25+ and owns 10%+ shares
FAMILY MEMBER WORKS
- at least 20 hours / wk in current or 5 prior years
- amount reasonable given work performed
FAMILY MEMBER INVESTS
- family member is 25+ and has invested
- amount reasonable given investment made
Attribution
- income from property transferred to spouse or related minor is attributed to higher income payer
- to avoid, recipient must pay FMV consideration
- if consideration is by loan, interest must be charged and paid at prescribed rate
- unlike spouse, no attribution on subsequent capital gains from asset transfers to minors
Asset Disposal Triggers
- sale of asset
- change in use of asset (e.g. principal residence –> rental)
- change in ownership (e.g. gift to minor)
Superficial Loss
Loss denied if same or identical asset repurchased within 30 days
Identical Property Rule
When calculating gain (loss) on sale of shares, cost is determined by averaging ACB of all shares in the class owned at the time of disposition.
Personal Use Property
- used for personal reasons
- capital losses denied / capital gains are taxable
- both proceeds and ACB are deemed to be greater of actual amount and $1,000
Listed Personal Property
- subset of PUP
- COIN JARS (COINs, Jewelry, Art, Rare books, Stamps)
- $1,000 minimum ACB and proceeds rule applies
- capital loss allowable only to offset LPP capital gains
Principal Residence Exemption
- capital gain from property designated as principal residence is sheltered
- if multiple properties, designate more years to residence with higher gain
- one free year with CRA calculation (1+ years designated)
Employee vs Contractor
- control
- ownership of tools
- risk of profit / loss
integration / organization - specific result
