Set 6 TX Business Income

Question 1

Define business income

Answer 1

Income from profit for the year. Starts with Accounting net income.

Question 2

What does the ITA say about expenses?

Answer 2

• must be incurred for earning income
• reasonable
• cannot be capital in nature (unless allowed under section 20)
• cannot be a reserve (unless allowed under section 20)
• cannot be personal expense
• cannot be incurred to earn tax exempt income

Question 3

Common add backs to net income

Answer 3

Income taxes
CRA interest and penalties
Amortization
Recapture
TCG
Accounting losses
Political and charitable donations
Reserves and contingent liabilities, at end of year
Pension liability, end of year OR pension expense for year
Warranties, end of year OR warranty expense for year
Non-deductible meals and entertainment (50%)
Recreational facility and dues
Unpaid remuneration (>180 days after year end)
Financing fees (deduct over 5 years)
Asset write downs
Equity losses on investments used under equity method
Dividends received on investments used under equity method
Bad debt reserve IF not using specific identification of expeses

Question 4

Common deductions from net income

Answer 4

CCA
Terminal losses
Financing expenses (not deducted in prior years)
Accounting gains
Pension liabilities, beginning of year OR cash transferred to trustee during year
Reserves and contingent liabilities, beginning of year
Warranties, beginning of year OR cash paid for warranties
Capitalized development costs incurred
Equity income on investments using equity method of accounting
Reserves for work not yet started, if included in revenue for accounting purposes