StudyNotesExcelforInputToBrainscape Flashcards
Four methods of company valuation
Single Period Earnings, Multiple Period Earnings, PE Multiple, Relative Valuation
PE Multiple example
eg. $275 per share, with EPS of $10; = PE Multiple of 27.5; times SIMILAR company’s earnings = value of all shares
Multiple Period Earnings valuation in Excel
pv(.10, 500, 1000)
Single Period earning example in Excel
1000/.10
Retractable Bonds
Holder can sell these back to the company before maturity
Convertible bonds
Can be converted into common shares at pre-determined price
Extendible bonds
Can extend the maturity of the bond
Cash Flow - end of period consideration
Salvage value of assets should be considered
Find the implicit rate of lease in Excel
rate(30,-66000,1500000)
Other items to consider with positive NPV
Management needs, & financing needs
Which preferred shares are considered debt?
When they have redemption priveleges
NPV in excel is
NPV(.15, 200,200,200,200, 200)
Debt ot Equity is
Liabilities / Equity
Accounting treatment of convertible bonds
liability & equity components recorded separately
Current Ratio
current assets / current liabilities
Quick Ratio
Current assets less inventory / current liabilities
Inventory Turnover
COGS / avg inventory
Debt Ratio
Liabilities / Assets
Gross Profit Margin
(Sales - Gogs)/ Sales
Operating Margin
EBIT / Sales
Net profit Margin
Net profit / Sales
ROA (Return on Assets)
Net profit / Assets
ROI (Return on Investment)
Net profit / S. Equity
PE Ratio
Price per common share / Earnings per common share
WACC
Formula = debt/total liab & equity * cost of Debt * (1 - t) + equity/total liab & equity * expected Return on Equity
Objective of an Audit
To collect sufficient and appropriate evidence in order to provide an opinion on whether managements assertions about FS are materially fair
Trust return is due
90 days after year end
Late tax penalty
5% of unpaid tax + 1% for each full month (to 12 months)
CRA can reassess for how long?
7 years if no fraud involved
How long for corp Notice of Objection?
90 days from notice of assessment
How long for pers Notice of Objection?
1 year from due date or 90 days from NOA
Does income allocated to partners keep its form?
Yes
Does income allocated from a trust keep its form?
Yes
Do losses allocated from a trust keep their form?
No - losses cannot be allocated from a trust
Testamentary trusts - only one can be a
Graduated rate estate
How long does a graduated rate estate exist?
36 months
What are trust year ends? (except grad rate estates)
31-Dec
What is the top personal federal tax rate?
33%
Non residents taxed on which income?
Cdn employment, Cdn business, and C.G on dispositions of taxable Canadian Prop. and taxes witheld on rent, dividends, pension, & rrsp
Taxable Canadian Property is
real property, business assets, and shares in Cdn resource companies
Resident? Immediate family members in Canada
yes
Resident? Owns or rents a home in Canada
yes
Tax Implications: Becoming a resident
Deemed disposition of all property (other than TCP)
Tax Implications: Becoming a non-resident
Deemed disposition of all property (other than TCP & pensions)
Tax Imp. : Non-Res Disposal of Taxable Canadian Property
Witholding tax of 25%
Corporation resident of Canada? (Two factors)
Incorp in Canada and Mind and Management of Board
Carry back and forward of non-capital losses
3 years and 20
Carry back of net capital losses
3 years and indefinitely
Affiliated
yourself, your spouse, corp you control
Tax imp: Disposition toan affiliated person
capital losses are deemed to be zero
Related
self and spouse and children, grand children, and siblings - NOT cousings, aunts, uncles, neph
Tax imp: Non-monetary transactions
occur at the FMV of the assets transferred
Tax imp: health and dental
deducted by company - not taxable to employee
Tax imp: Gifts
disposed of and acquired at FMV
Tax imp: Disability insurance paid by employer
proceeds are taxable
Tax imp: Disability insurance paid by employee
proceeds are not taxable
Tax imp: foreign currency revenue & expenses
translated at average exchange rate
Tax imp: foreign currency for a transaction
translated at daily exchange rate
Tax Imp: warranty reserve or contingent liabilities
non deductible
Tax Imp: allowance for bad debts & unearned revenue
deductible
Tax Imp: recreational facilities and club dues for employees
non deductible
Tax Imp: bonuses
must be paid within 180 days to be deductible
Tax Imp: goodwill writedowns
non deductible
Tax Imp: impairment of assets
non deductible
Tax Imp: stock option expense
non deductible
Classes with no half net rule
12 and 14
Class 14
Limited life intangible assets - straight line over life
Class 12
100% - no half net - small tools under $500
Class 53
Manufacturing equipment - 50%
Class 8
20% for equipment
Class 10
Vehciles under 30,000 30%
Class 10.1
Vehicles over 30,000 30%
Class 50
Computer equipment at 55%
Class 14.1
Goodwill and other CEC at 5% (new for 2017)
Tax Impl: Financing related - legal, accoutning, banking, etc
one fifth of expenditure deductible over next five years
Gross up on eligible dividends and tax credit
38 percent and 6 11ths of the gross up
Gross up on inelegible or regular dividends
17% and 21 29ths of the gross up
Max pensionable earnings for cpp (2016)
54900 less 3500 exemption
Tax Impl: CPP on self employment income
pay both employee and employer - get deduction and tax credit respectively
When is a benefit taxable?
Primarily when it is not for the benefit of the employer
Self Employed vs Employed
control, tools, risk vs wage, dependency on single employer, evaluation job vs time
Tax Impl: Personal use of company vehicle more than 50%
2% (or 2/3 of lease p) x value x months avail + operating of .26 * pers. Km.
Tax Impl: Personal use of company vehicle less than 50%
personal km/20004 * SC + operating of 1/2 SC
Tax Impl: Non CCPC stock options
inclusion when exercised - if non in money and arms length then 1/2 deduction
Tax Impl: CCPC stock options and Arms Length
income can be deferred until shares are sold AND if held for 2 years get 1/2 deduction OR not in money and arms length 1/2 deduction
ACB of shares after stock options exercised
exercise price plus income inclusion (might only be half)
Can Goodwill be internally generated? (why or why not?)
No - Neither identifiable nor separable
PP&E - IFRS - Valuation
CHOICE of Cost or Revaluation (Increase to OCI of greater than loss)
Tax Impl: Low interest loan to employees
Interest rate lower than prescribed will be a taxable benefit
Tax Impl: Low interest loan to employees - exception
Up to $25,000 for dwelling 40km closer to work - benefit can be deducted
Tax Impl: First time home buyer
$25000 of RRSP (each) withdrawn tax free - 1/15 to be paid back each year
Tax Impl: Lifelong Learning Plan
$10000 per year of RRSP (to 20k) - withdrawn tax free - 1/10 to be paid back each year
Contribution room for RRSP is
either 18% of earned income OR ~ 26,000 plus previous room
Home Office - Reg Employees
No mort interest, prop tax, or insurance
Home Office - Comm Employees
No mort interest
Childcare Max
2/3 of earned income OR 8k for under 6 and 5k for 7 to 16 and 200 and 125 per week
Age Credit
Available if 65 or over - $7,125 reduced by net income in excess of ` $36,000
Pension Credit
Lesser of $2000 and eligible pension income - can be transferred to spouse
Personal
11474
Spousal or Equivalent to Spouse
any dependent (child under 18) or parent/grandparent or impaired persons reduced by income
Fitness Tax Credit
500 max in 2016 - gone in 2017
Arts Tax Credit
250 max in 2016 - gone in 2017
Home Accessibility Tax Credit
up to 10000 of eligible expenses
Teacher Supply Tax Credit
up to 1000
Family Caregiver Amount
Additional 2,121 for person wih impairment (either on equiv to spouse, caregiver, or elig dependent credits)
Canad Employment Credit
Up to 15% of income up to income or 1,161
Adoption Credit
15% of $15.255 per child
Medical Expense Threshold
3% of net income or $2,237
Charitable Super Credit
First time donors adds 25% of up to 1000 to regular credit
Restriction to charitable donations credit
75% of net income
Tax Impl: Gift of public shares to a charity
reduces CG from half to nil
Refundable Medical Expense Supplement
Income between 3,514 and reduced by 5% over $26,645 (to 50,725) - lesser of $1,024 & 25% of medical expenses + disab supports
Public Transit Tax credit - terms
must be monthly or longer
Disability amount (with DTC)
8,001 - can be transferred to person claiming individual as dependent
Disability supports deduction
if impairment - these are amounts paid for devices to help work or go to school
Disability Supplement
if under 18 with DTC, supplement of 4,667 - reduced by amounts over 2,654 paid for attendant care and deducted as child care, disability, or medical
EI tax credit
amounts paid - maximum of 50,800
Wokring Income Tax Benefit (REFUNDABLE)
~$1000 for an individual making from 7,000 to 11,300 then reduced (~ 1800 family from 10,250 to 15,650)
Political Donations
3/4 of first 400, 1/2 of next 350, 1/3 of next 525
OAS clawback limit
Net income is greater than 73,756
What is meant by Property income?
Passive income such as rental, interest, and dividend income
GRIP is accumulated at what rate?
72% on income without special tax treatment
Tax implications: CCPC receives an elgible dividend
increases GRIP account, brought in as income but then deducted
Tax impications: shareholder receives low interest loan
included in income unless i) repaid within 1 year of year end ii) because of also being an employee, but less than 10% sharehold, has bonafide repayment arrangments OR does have more than 10% but uses loan for a dwelling, work auto, or trasury shares with reasonable arrangments to repay
TFSA room as of 2017
over 50,000
When is a gain on an asset considered to be business income?
When the intention was to sell the asset. (it is then inventory)
Capital Gains Reserve
When not all of PofD is received in the year of sale, then lesser of ( (proceeds recevbl / total) x CG ) or 1/5 each year (1/10 for taxpayers child)
Principle residence examption
(1 + number of years designated) / Total years of ownership x capital gain
Tax Imp: Change in use of property
deemed disposition at FMV - unless from princ residence to rental
Listed Personal Property: carry back and forward
3 years and 7 (only on other LPP)
Listed Personal Property: Minimum ACB and POD
$1,000
Replacement Property Rules on Volunatry Disposition
Defer recapture or capital gains - land and building in new business within 1 year
Replacement Property Rules on Involunatry Disposition
Defer recap and CG for all capital assets - must be purchased within 2 years
Eligible small bus corp shares?
from small business corp, are treasury shares and assets not over $50m
Tax Impl: Disposition of Eligible small business shares
deferral of capital gains if PoD used to purchase other eligible shares
Qualified small business corp shares (QSBC)
Three tests: (SBC) 90% more of fmv assets in active business or invested in shares of connected sbc AND shares owned by sh or related person for 24 months AND for the 24 months 50% of assets used in active business (also a modified - more complicated test)
Tax Impl: Disposition of Qualified small business shares (Gain)
Use of lifetime capital gains deduction ($824 000 indexed for inflation)
Tax Impl: Disposition of small business corp (SBC) shares (Loss)
Loss is 1/2 allowable as an ABIL - can be used against any source of income - reduced with capital gains exemption
Tax Impl: Shareholder loan paying interest at prescribed rate
No implications
How does pension income splitting work
Any eligible pension income can be split with a spouse
Tax implication: lending or gifting assets to spouse or minors
Any CG & income attributes from spouse and any income attributes form minors
Tax implication: minor child receiving dividends from private co.
minor child reports the income and is taxed at top marginal rate
When is property income deemed to be active business income?
More than 5 full time employees or associated corp can deduct the amount
Annual business limit of $500,00 deduction available to:
CCPCs with taxable capital of less than $10m (10-15m it decreases)
Companies are associated when
One company controls the other, if both companies are controlled by same person/group, two companies controlled by related people or groups and 25% cross ownership
Why not use a Personal Service Business?
It is taxed at 33%
GRR & M&P deduction
13% on any income not given special treatment
Tax Implication: Canadian dividend earned by public company
Income then deducted
Tax Imp: Canadian divident earned by private company
Income then deducted - part IV tax (1/3) is paid - amount is added to RDTOH
Connected companies:
One controls the other or owns greater than 10 percent
Tax Imp: Canadian dividends earned by connected company
Income then deducted - part IV tax of ownership * dividend refun generated - added to RDTOH
Aggregate Investment Income is
Taxable capital gains and interest, rental, and investments
Tax Imp: Investment Income
Additional 6 and 2/3% tax (with 26 and 2/3 added to RDTOH account)
RDTOH: Public Companies or CCPCs?
CCPCs
Capital Dividend Account: Public Companies or CCPCs?
CCPs
How is a capital dividend deemed?
An election is made
CDA consists of:
Tax fee portion of capital gains, tax free life insurance proceeds received, capital dividends received
Tax Impl: Windup of a CCPC
Pay out CDA and issue dividends to take care of RDTOH
Tax Implications of Scientific Research and Development
Deductible as expenses but alo get a 15% federal or 35% CCPC REFUNDABLE tax credit (up to 3 million per year)
Tax Impl: PUC reduction
Free to tax payer - reduces pUc and reduces ACB
Tax Impl: Share Redemption for CCPC
PoD - PUC = Deemed Dividend AND PoD - Deemed Dividend = Adjusted PoD, less the ACB = C.G
Section 22 can be used for A/R when:
substantially all (90% or more) of the property used in the business is sold AND purchaser will carry on business (creates business loss)
Section 22 drawback
purchaser must include the loss in income (but then can take a reserve)
