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Financial Reporting > Personal Taxes Payable > Flashcards

Personal Taxes Payable Flashcards

1
Q

Dividends- Eligible vs Non-Eligible

A

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

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2
Q

Credit vs. Deduction

A

Credit - dollar-for-dollar reduction of tax liability

Reduction - reduces income; actual tax savings depends on rate

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3
Q

Automobile Allowance

A
  • 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
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4
Q

Employer Owned Vehicle - Standby Charge

A 
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
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5
Q

Employer Owned Vehicle - Operating Benefit

A

Where employer pays operating costs, taxable benefit of 28 cents x personal use km

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6
Q

Employee Loans

A

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

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7
Q

Employee Stock Options - CCPPC

A
  • 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
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8
Q

Employee Stock Options - non-CCPC

A
  • 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
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9
Q

Home Office Deduction Requirements

A
  • place where individual principally performs work duties; OR
  • used exclusively for work purposes and employee must must regularly meet customers there
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10
Q

Eligible Home Office Expenses - Salaried

A
  • rent
  • utilities
  • maintenance
  • minor repairs
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11
Q

Eligible Home Office Expenses - Commissioned

A
  • rent
  • utilities
  • maintenance
  • minor repairs
  • property taxes
  • insurance
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12
Q

Eligible Home Office Expenses - Self-Employed

A
  • rent
  • utilities
  • maintenance
  • minor repairs
  • property taxes
  • insurance
  • mortgage interest
  • CCA
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13
Q

Childcare Expenses

A
  • 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
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14
Q

Charitable Donations

A
  • 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
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15
Q

Income Splitting Methods

A

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

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16
Q

TOSI Exceptions

A

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

17
Q

Attribution

A
  • 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
18
Q

Asset Disposal Triggers

A
  • sale of asset
  • change in use of asset (e.g. principal residence –> rental)
  • change in ownership (e.g. gift to minor)
19
Q

Superficial Loss

A

Loss denied if same or identical asset repurchased within 30 days

20
Q

Identical Property Rule

A

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.

21
Q

Personal Use Property

A
  • 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
22
Q

Listed Personal Property

A
  • 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
23
Q

Principal Residence Exemption

A
  • 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)
24
Q

Employee vs Contractor

A
  • control
  • ownership of tools
  • risk of profit / loss
    integration / organization
  • specific result
25
Q

Salary vs. Dividends - Salary Advantage

A
  • deductible to corporation
  • included in earned income for RRSP deduction
  • collect CPP benefits in retirement
  • 180 day deadline for bonus deduction
  • bonus tax deferral opportunities (corp gets deduction in year 1, individual pays tax in year 2)
26
Q

Salary vs. Dividends - Dividend Advantage

A
  • no requirement to do work
  • dividend tax -> lower personal tax than salary
  • do not reduce accounting income of corp
  • preferable if corp has losses that will expire
  • generate refunds if there is RDTOH
  • reduces CNIL balance, preserving capital gains exemption
27
Q

Estate Planning Options

A
  • direct sale of shares
  • share exchange using s.85 (preserves capital gain exemption)
  • share exchange using s. 86 (does not preserve capital gains exemption.
28
Q

RRSP Maximum Contribution

A

Lesser of:

  • 18% of prior year earned income; and
  • $27,230 (2020 limit)
29
Q

RPP Maximum Contribution

A

Lesser of:

  • 18% of gross employment compensation
  • $27,830 (2020 limit)
30
Q

Retiring Allowance

A
  • paid to employees in recognition of service
  • taxable in year received
  • maximum transfer to RRSP is the sum of (a) $2,000 x years employed before 1996; and $1,500 x years employed prior to 1989
  • transfer to RRSP does not use up contribution room
31
Q

Residency for Tax Purposes

A
  • preferable from a tax perspective to be a non-resident
  • 3 categories of residents in Canada:
    • full-time resident (or deemed full-time residents, i.e.
      sojourners (183+ days in Canada)
    • Part-time resident (stopped or started being a
      resident partway through taxation year
    • Non-resident
32
Q

Tax Implications of Residency

A

RESIDENT
- pay tax on worldwide income
- receive foreign tax credits for treaty income
NON-RESIDENT
- only pays tax on Canadian source income (employment, business, property disposition)
- 25% withholding tax on certain passive Canadian income (rental, interest, dividend, pension)

33
Q

Determining Residency

A 
SIGNIFICANT FACTORS / TIES (most weight)
- dwelling place in Canada
- spouse lives in Canada
- dependent children live in Canada
SECONDARY FACTORS
- personal property
- social ties
- economic ties
- medical insurance / hospital coverage
- registered vehicle
- Canadian passport
- seasonal home
NATURE OF ABSENCE
- intention to return or permanently leave
- regular visits back
34
Q

Impact of Changing Residency

A

BECOMING A RESIDENT
- deemed disposition / reacquisition of all property (other than taxable Canadian property) at FMV
- cost for tax purposes will be equal to FMV on day they became a resident
- corporation will be deemed to have a year end immediately before becoming resident
CEASING TO BE A RESIDENT
- deemed disposition / reacquisition of all property at FMV
- pay tax on accrued gains earned while resident
- exceptions to deemed disposition include:
- Canadian real property, pensions, business
assets

Financial Reporting (6 decks)

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