Tax Flashcards
Chapter 2 - Liability for Tax
Chapter 2 - Liability for Tax
Determining Residency
Individual - In assessing whether a taxpayer is resident in Canada, both primary and secondary residential ties are considered
(FACTUAL)
Primary factors:
• dwelling place in Canada maintained for use
• spouse in Canada (not considered a residential tie if the taxpayer and the spouse or common-law partner are separated or divorced.)
• dependants in Canada
Secondary factors: (NOT ENOUGH ALONE)
• personal property kept in Canada
• Social Ties
• Economic Ties (employed in Canada/Business in Canada/ Accounts in Canada)/ Savings in Canada)
• Other ties (seasonal ties / licenses / passport / membership in professional organizations or unions)
Temporary Absence from Canada -
the CRA looks at the following:
• the taxpayer’s intention to permanently sever ties with Canada
• visits by the taxpayer to Canada while living abroad
• whether the taxpayer has established residential ties outside of Canada
*CRA has indicated that it does not consider an intention to return to Canada alone as indicative that the individual has not severed ties with Canada
If an individual is not a resident of Canada under common law, that individual may be deemed to be a resident of Canada. Deemed residents of Canada are taxed in Canada for the full calendar year on their worldwide income
(DEEMING)
• Not factually resident, but sojourning in Canada for more than 182 days (part days are considered full days)
• a member of the Canadian armed forces
• an ambassador, minister, high commissioner, officer or servant of Canada or a province, if the individual was resident in Canada prior to his or her appointment
Corporations
(DEEMING ONLY)
• The corporation was incorporated in Canada after April 26, 1965.
• The corporation was incorporated in Canada before April 27, 1965, and it either carried on business in Canada or was resident under common law at any time after April 26, 1965.
Chapter 3 - Tax - Adminstration
Instalments
Instalments are recurring payments made to cover tax that would normally have to be paid in a lump sum. In general, if income is earned and no tax is withheld, or if there is not enough tax withheld for more than one year, tax may have to be paid by instalments.
Individuals
For individuals, if the tax payable balance due on filing will be greater than $3,000 for the current year (must be estimated in advance) and for one of the two previous years, instalments must be paid for the current year.
Instalments are due on March 15, June 15, September 15, and December 15. The amount of each of the four instalments is the least of:
i) ¼ × TP(CY)
ii) ¼ × TP(LY)
iii) first two instalments: (A) ¼ × TP(Y-2); last two instalments: ½ × TP(LY) – 2*A
Corporations
For corporations, if the balance due will be greater than $3,000 for the current year (must be estimated in advance) and prior year, monthly instalments must be paid. Corporations (excluding small CCPCs) can choose from the following three alternatives, normally choosing the option with the smallest instalments:
i) 1/12 × TP(CY)
ii) 1/12 × TP(LY)
iii) first two instalments: (A) 1/12 ×TP(Y-2) ; last 10 instalments: 1/10 × TP(LY) – 2*A
For eligible small CCPCs, instalments can be paid quarterly instead. These quarterly instalments are due on the last day of each quarter of the CCPC’s taxation year. A small CCPC must meet all the conditions listed below in order to make quarterly instalments.
An eligible CCPC is a corporation (together with associated corporations) that:
• did not have taxable income exceeding $500,000 (small business deduction limit) in either the current or previous taxation year
• had taxable capital employed in Canada of no more than $10,000,000
• claimed the small business deduction in either the current or previous year
• has a perfect compliance history (throughout the 12-month period, it had no compliance irregularities with regards to the remittance of tax and filing of returns under the ITA and GST/HST portion of the Excise Tax Act)
The amount of the instalments is calculated as the least of:
i) ¼ × TP(CY)
ii) ¼ × TP(LY)
iii) first instalment: (A) ¼ × TP(Y-2) ; last three instalments: (1/3) × TP(LY) – A
Notice of assessment
• Once a tax return has been filed, the CRA will complete an initial assessment and provide the taxpayer with a notice of assessment.
• It is important to note that the CRA has the right to further review and/or audit any tax return within certain time limits.
o For individuals, the CRA can reassess up to three years after the date on the original notice of assessment.
o For corporations, the CRA can reassess up to four years after the date on the original notice of assessment.
o For CCPCs, however, the reassessment period is three years.
• A reassessment can be made at any time if the taxpayer has done either of the following:
o made any misrepresentation that may be attributed to neglect, carelessness, or wilful default, or committed any fraud in filing the return or in supplying any information under the ITA
o filed a waiver that extends the usual reassessment period with respect to the year for any reason
Notice of objection and appeal process
• Sometimes disputes arise between taxpayers and the CRA with respect to various taxation issues. If the taxpayer disagrees with an assessment, there are a number of formal procedures that the taxpayer may undertake.
• A taxpayer who disagrees with an assessment or reassessment is entitled to file a notice of objection. The deadline to file this objection is as follows:
o for an individual or a testamentary trust, the later of:
one year after the filing due date
90 days after the date of mailing of the notice of assessment (or reassessment)
o for any other taxpayer (for example, a corporation), 90 days after the date of mailing of the notice of assessment (or reassessment)
• The objection, stating the reasons the taxpayer disagrees with the (re)assessment, may be filed using form T400A, online using the My Account, My Business Account, or Represent a Client login services, or by simply sending a letter. The CRA is required to reconsider the assessment and notify the taxpayer in writing of the results.
• If the taxpayer is still dissatisfied after the objection process, the taxpayer may appeal to the Tax Court of Canada. This appeal must be made within 90 days of the mailing date of the CRA’s reply to the objection or, if the CRA has not responded, 90 days after the notice of objection was filed.
• Either party may appeal the Tax Court’s decision to the Federal Court of Appeal. This appeal must be made within 30 days of the date on which the decision is made by the Tax Court.
• If the deadline for filing a notice of objection is missed, an application may be made to the Tax Court of Canada for an extension of the time period. The Court may grant an extension where it considers it “just and equitable” to do so.
Chapter 5 - Employee Vs Contractors
Criteria for distinguishing between employees and independent contractors
There have been a number of court cases addressing this issue. An examination of these cases indicates that there is no single test or factor that can be used to make the distinction. Instead, case facts are applied to a number of tests, and an overall conclusion is reached based on the balance of the evidence. The main tests include:
• intent – for employer-employee relationship or business relationship
• control – who has the fight to determine time, place and manner in which the work is done.
• ownership of tools
• subcontract the work or hire assistants – only contractors can do so
• financial risk – contractors bare
• responsibility for investment and management – contractors’ responsibility
• opportunity for profit – employee is set wage and can only increase by working overtime / contractor can working harder or working more efficiently.
Chapter 36 - Legal Forms
Corporation
A corporation is a legal entity that is separate and distinct from its owners (shareholders).
To set up a corporation federally, the owner(s) formally apply to Corporations Canada for federal incorporation under the Canada Business Corporations Act (CBCA). The application must include (among other items) the articles of incorporation, a list of the first Board of Directors, approval for the name, and a filing fee. In addition, every corporation subject to the CBCA must file a return with Corporations Canada each year. This annual filing is in addition to the required annual income tax return.
A Canadian-controlled private corporation (CCPC) is a corporation that:
• is resident in Canada
• is not controlled directly or indirectly by one or more non-resident corporations
• is not controlled directly or indirectly by a public corporation
• has no class of its shares listed on a stock exchange
Advantages
(i) Reasonable salaries may be paid to owner, owner’s spouse/children.
(ii) Potential for income splitting with family (be mindful of TOSI rules).
(iii) Potential for tax deferral if personal tax rates are higher than corporate tax rates
(iv) Estate or succession planning is possible.
(v) Lifetime capital gains exemption may be available.
Disadvantages
(i) Losses realized at startup are retained in corporation and cannot be used against other income of the shareholder.
(ii) Separate tax return required.
(iii) Higher administrative costs (accounting fees for tax return and financial statements, legal costs on setup and to maintain corporate minute books, and so on).
Partnership and Proprietorships
Advantages
(i) Losses from startup may be used against other income of the individual partner or proprietor.
(ii) Reasonable salaries may be paid to partner or to proprietor’s spouse/children.
(iii) No need for a full set of financial statements (income is included in the individual’s T1.
Disadvantages
(i) No tax deferral on profits.
(ii) Not a separate legal entity — no estate planning available
(iii) No lifetime capital gains exemption.
Chapter 6 - Employment Income
Employee Benefit Special Calculations -
(1) Automobile (Standby & Operating Benefit)
(2) Employee Loans
(3) Stock Option Benefit
Common Taxable Benefits
Common Deductions
Employee benefits — special calculations
(1) Automobile - Employee uses employer owner or leased vehicle
(i) Vehicle is owner - standby charge - when vehicle is used <50% for employment purposes and if
(a) Vehicle is purchased - 2% (C * D)
2% * Total sales price * (# days available to employee / 30)
*Total sales price includes sales tax
(b) Vehicle is leased - 2/3 * (C-F)
2/3 * (Lease payment for year including sales tax - any liability arising as a result of using the vehicle)
-
REDUCTION IN STANDBY CHARGE IF METS THE FOLLOWING CRITERIA
(a) Employeee is required to use the automobile for employment purposes
(b) Use for employment purposes >50%
(c) Personal-use km < 20.004km
To reduce Standby charge NEED TO MULTIPLE by: (Personal-use km) / [1,6667 /*(# days available to employee / 30)]
(ii) Operating Benefit -
(A) IF NOT USED >50% for employement purposes -> personal km * prescribed rate
(B) IF USED > 50%, LESSOR OF:
(i) personal km * prescribed rate
(ii) 1/2 of Standby Charge
(2) Employee loans
o home relocation loans
(i) Loan is not a home purchase or home-relocation loan
(Prescribed rate for the quarter - interest paid by the employee) * Amount for the loan outstanding
(ii) Loan is a home purchase or home-relocation loan
[Proposed Prescribed Rate - Interest Paid by the employee] * Amount of the laon outstanding
Proposed Prescribed Rate, Lessor of
(i) Lesser of prescribed rate in effect when the loan was made
(ii) Prescribed rate for the quarter
o other loans
(3) Stock option benefit
(A) Canadian-controlled private corporation (CCPC)
AT EXERCISE DATE: No impact
AT SELLING DATE:
(i) Employment Benefit = (FV at exercised date - Exercise Price) * # of shares acquired THAT WAS SOLD IN THE YEAR
(ii) Taxable capital gain = 50% of (FV - market price on exercise date) * Shares sold
(B) Public company
AT EXERCISE DATE: Employment Benefit = NA
AT SELLING DATE: Taxable capital gain = 50% of (FV - market price on exercise date) * Shares sold
(A) Employment Benefit = (FV at exercise date- Exercise Price) * # of shares acquired
(B) Taxable capital gain = 50% of (FV - market price on exercise date) * Shares sold
Common taxable benefits (ADD BACK)
- Allowances (unless an exception) *
* Reasonable allowance for motor vehicle or travel expenses - Board of director payments
- Gift and awards — special rules for non-cash gifts up to $500
- Recreational facilities or club dues — personal use
- Severance package
- Life insurance - when employee is the beneficiary
Common deductions
1. Sales person expenses
If a sales person then, can deduct
(i) advertising/promotion, including 50% of the cost for entertaining clients of the employer
(ii) 50% of meals while travelling
(iii) transportation cost
(iv) lodging
(v) motor vehicle operating costs/ lease costs / parking
(vi) property taxxes and insurnace on home
(vii) licences
- Travel expenses - 50% of meals / transportation costs / lodging
- Motor vehicle expenses - Employee owned used for employer
Maximum deduction lessor of:
[($800 * Total Years Leased ) / 30] - Deductions
- Total Years Leased includes current year
- ** Deductions will be provided
OR
[Total Lease payment CY including sales tax * ($30,000 + GST/PST) / 0.85(H)] - Deductions
- H is the great of (a) (100/85) * G or (b) The manufacturer’s list price (excluding sales tax)
- *Deductions will be provided
- Capital cost allowance (CCA) - vehicle and aircraft
- Workspace in home - >50% usage for employment duties or BOTH used exclusively for earning employment income AND regular/continuous basis for meeting customers in the course of performing employment duties
- Employee’s RPP
- Professional dues
Chapter 7 - Business Income
Business Income – Start with Net income and then ->
**REMEMBER TO EXCLUDE ANYTHIGN THAT ISNT BUSINESS INCOME from EARNINGS
Add back:
- Income taxes
- CRA interest and penalties
- Amortization
- Recapture
- Taxable capital gains
- Accounting losses
- Political and charitable donations
- Reserves and contingent liabilities, end of the year (general)
o Includes income not earned (deferred revenue)
- Warranties, end of the year
- Non-deductible meals and entertainment
o Exception All Employee Benefit (6 per year) – i.e Christmas Party
- Recreational facility fees and dues
o Amounts to maintain a yacht, camp, lodge, golf courses or facility
o Membership fees or dues for dining, sporting, or recreational facilities
- Unpaid remuneration (>180 days after year end)
- Financing fees — deduct over five years
DEDUCT
- Capital cost allowance (CCA)
- Terminal losses
- Financing expenses (not deducted in previous years)
- Accounting gains
- Reserves and contingent liabilities, beginning of the year
o Includes wincome not earned (deferred revenue)
- Warranties, beginning of the year
- Capitalized development costs incurred in the year
Chapter 8 - CCA
Calculation
UCC Beg. \+ Additions - Disposals (lesser of (1) Cost or (2) Proceeds) \+ AII (0.5*Net Additions) = Base amount for CCA - CCA (Base amount for CCA * Rate) - AII = UCC End
Recapture and Terminal Loss
Recapture is when remaining UCC is negative. Recapture is added back to nil the ending UCC. Also added to net income for tax purposes
Terminal Loss is when remaining UCC is positive. Terminal Loss is added back to nil the ending UCC. Also added to net income for tax purposes
Unique Situations
Straight Lines Classes
(A) Leasehold Improvements (Class 13)
Difference
(1) The Base amount for CCA is the lesser of
(i) 1/5 * Cost
(ii) 1/ (1 + Duration of Lease) *Cost
Calculation UCC Beg Adittions to Class 13 - Base amount for CCA - AII (on base amount for CCA) = Ending UCC
(B) Limited-life intangibles (Class 14)
(i) CCA claim in the year of acquisition -> (Cost of asset / Legal life) * (Year to go/Year) * 1.5 Cost of asset / Legal life of the asset
Special Rules (A) Separate class (10.1) for luxuiry passenger vehicles (>30k excluding sales taxes) - all tax payers - RULES OF RECAPTURE/TERMINAL LOSS DO NOT APPLY ON DISPOSITION (B) Seperate class electronic for electronic office equipment (8) - photocopiers/ electronic communication equipment. (C) Seperate class for rental property costing >$50,000
Sale of Land and building
When property is sold, proceeds are allocated to the land and building based on the FV of each. When it results in a terminal loss on the building and capital gain on the land, need to reallocation
(A) Terminal Loss > Capital gain: Reduce the terminal loss by the amount of the capital gain and deduct the remtaining terminal loss from net income for tax purposes
(B) Capital Gain > Terminal Loss. (vice-versa)
Chapter 9 - CCA Special Rules
When can CCA be claimed?
Available for Use - taxpayer may not claim capital cost allowance (CCA) on a depreciable capital property until
(A) the earlier of the time the depreciable capital asset is put in use or
(B) the second taxation year following the year of acquisition
Special Cases
(A) Building (A) aquired - >90% used for purpose it was acquired (B) constructed earlier of (i) construction is complete or (ii) >90% used
(B) Public company / Property other than building - used when depreciation is first recorded
(C) Moving vehicles - at time when necessary documentaion required to operate vehicle is obtained.
Short Tax Year - The CCA claim for all classes except Class 14 is restricted to the CCA otherwise available multiplied (Days in fiscal year / 365). Short taxation year rule des not apply to propty acquired for rental income
Non-arms length transactions - not considered an AII given it was the original owners used in business (rental property)
(A) Selling Price > Original Cost -> Addition to UCC is the original cost of the depreciable property to the non-arms length vendor plus the taxable capital gain released by the non-arms length vendor.
(B) Selling Price < Original Cost -> Addition to UCC is the original cost of the depreciable property to the non-arms length vendor plus the taxable capital gain released by the non-arms length vendor.
Chapter 18 - Division C Deductions - PERSONAL
Net income for tax purposes (Division B income)
Less Division C deductions:
Section 110 deductions
Employee stock options: Capital Gains from sale
Certain conditions
Non-CCPC -> options were not granted in the money
CCPC -> Options were not greated in the money or its been atleast 2 years after
Deduction for payments:
Guaranteed Income Supplement (PROVIDED)
Social assistance payments (PROVIDED)
Workers’ compensation payments (PROVIDED)
Amounts exempt from tax under a tax treaty (PROVIDED)
Section 111 deductions
Loss carryovers =
(i) Non-capital losses - Deduct any type of income
(ii) Allowable business investment Losses - Deduct any type of income
(iii) Net Capital Losses - only against the taxable capital gains realized in the year
Section 110.6 deductions (CHAPTER
Lifetime capital gains deduction - that may be claimed in 2021 is the LEAST of the following three amounts:
1. Unused lifetime deduction:
$446,109 ($892,218 × ½) less all previous capital gains deductions claimed (adjusted to the current-year capital gains inclusion rate of ½)
- Annual gains limit:
A – B, where
A is the lesser of:
a) Sum of all the net taxable capital gains
b) the net taxable capital gains from the year on the disposal of qualified farming or fishing property and QSBC sharesB is the total of: a) Net Capital Loss - ABS(a-b from above) + ABIL
- Cumulative gains limit:
The sum of all components of the annual gains limits for the current and prior years (without adjustments for changing inclusion rates) reduced by:
a) the sum of capital gains deductions claimed in prior years
b) CNIL
Section 110.7 deductions
Deductions for northern residents (PROVIDED)
Taxable income
Chapter 19 - Taxes Payable (Personal)
Step to determine Federal Tax Payable
- Get Taxable income
Net Income for tax purposes (Provided)
DEDUCT: OAS Clawback: Lessor of (i) OAS Benefit * 15% or (ii) (Net income before clawback - based amount (provided)) * 15% = Net Income after OAS Clawback
DEDUCT: EI Benefit Clawback:
Lessor of
(I) Employement benefit received *30%
(ii) (Net income before clawback - based amount (provided)) * 30%
- Division C Deductions
= Taxable Income
- Determine Federal tax before non-refundable tax credits (apply RATE) to Taxable income
- Determine non-refundable federal tax credits.
* AMOUNT and THRESHOLD hereby reference exam sheet respective amounts and thresholds **
(i) Personal Amount: full AMOUNT provided
(ii) Spousal amount:
Spousal’s net income = AMOUNT - Spousal net income
(iii) Canada Caregiver (can be applied multiple times for each dependant if not a child must be infirm, cant be applied to spouse look at vii) = AMOUNT less (Net income of care-givee - THREHOLD)
(iv) Age amount = AMOUNT - 15% * (income - THRESHOLD)
(v) Medical Expenses = Qualifying expenses - (lessor 3% of net income or THRESHOLD)
Can include
- cost of services of medical practitioners
- private health insurance
- prescrription drugs
- required medical equipment
* includes expenses of taxpayer, his or her spouse or common-law partner, and children under 18
(vi) Employment Amount = Lessor of AMOUNT or Employment Income
(vii) Canada Caregiver Credit under age 18 or infirm spouse/eligible dependant = AMOUNT
4. Other non-refundable tax credits
- Donation Tax Credit -
(A) $200 * 15% +
(B) 33% * (Lessor of (i) charitable donation less $200 or (ii) taxable income less $216,511) +
(C) 29% * excess of charitable donations over the sum of A and B - Dividened Tax credit
Eligible Dividends:
i. [Taxable portion of dividend - (Taxable portion of dividend/1.38)] * (6/11)
ii. Actual Dividend * 20.727%
Determined by:
(i) Canadian public companies out of after-tax income taxed at the general corporate rate
(ii) CCPCs out of after-tax active business incokme not eligible for the SBD
(iii) CCPCs out of eligible dividends received
Non-eligible Dividends:
i. [Taxable portion of dividend - (Taxable portion of dividend/1.15)] * (9/13)
ii. Actual Dividend * 10.385%
- Foreign non-business income tax credit & Foreign business income tax credit
* ***THE HAD BETTER GIVE YOU THIS - TOO COMPLICATED TO CALCULATE
4. Political Contribution Tax Credit (A) 75% of first $400 + (B) 50% of next $350 + (C) 33% on next $525 *maxmium credit of $650
- Basic Federal Tax (Step 2)
-Non-refundable tax credits (Step 3 & 4)
+ OAS Clawback (Step 1)
= Total federal tax payable
Chapter 23 - Division C Deductions - Corporate
Net Income for tax Purposes (Division B Income)
Less Division C Deductions:
(1) Section 110 Deductions - Charitable Donations
Up to 75% of net income for tax purposes for the year
Any charitable donations that are not used in a year — either because they exceed the 75% limit or because the corporation chooses not to claim them — may be carried forward and used in any of the following five years, subject to the limit of 75% of net income for tax purposes in those years. The oldest donations are claimed first.
Note that political contributions are not deductible in the case of corporations.
(2) Section 111 Deductions
Non-capital loss applied
Net-capital loss applied
(3) Section 112 Deductions - Dividends received by a company resident in Canada
A corporation is entitled to deduct the full amount of dividends received from taxable Canadian corporations in arriving at taxable income
Qualifying dividends include:
• dividends from taxable Canadian corporations
• dividends from taxable subsidiary corporations resident in Canada
• dividends from non-resident corporations carrying on business in Canada
• dividends from foreign affiliates that have been appropriately taxed in a foreign jurisdiction that has a treaty with Canada
= Taxable Income
Chapter 24 - Taxes Payable - Corporations
Simplied Approach
Consideration for:
(1) CCPC ABI up to the business limit
(2) CCPC AII
(3) Non-CCPC Income (and all other income)
(A) Basic Federal Part 1 Tax -> 38% for Alll
(B) Provincial Abatemetn -> (10%) for All
(C) SBD -> (19%) ONLY FOR CCPC ABI up to the Business Limit
(D) GRR (or M&P Deduction) -> (13%) ONLY FOR Non-CCPC INcome (and all other income)
(E) Refundable Part 1 tax on CCPC Investment Income (ART) -> 10.66% ONLY for CCPC AII
ONLY MEMORIZE THIS!
THEREFORE = Total Federal Part 1 -> 9% / 38.66% / 15%
(1) CCPC ABI up to the business limit
Step 1: Calculate AII
AII =
\+ Interest \+ Net Rental Income \+ Royalties \+ Dividends \+ Net Taxable Capital Gains = AII in net income (Division B Income)
Less: Division C Deductions relatd to AII
- Net Capital Loss Carryforwards deducted under Division C
- Dividends deducted under Division C
Step 2: Calculate ABI
Net Income for tax purposes (Before Divison C Deductions)
- AII in Net Income
- Foeign business income
= ABI
Step 3: Apply Rates and Calcuate Part 1 Federal Tax
Sum of:
(i) ABI > Business Limit * 15%
(ii) ABI < Business Limit * 9%
(iii) AII * 38.66%
Step 4: ADD Part IV Tax and DEDUCT dividend refund
(A) Part IV Tax -
Private corporations (whether CCPC or not) are required to pay Part IV tax on dividends received from taxable Canadian corporations.
Determined as follows:
• 38 1/3 % × dividend received from non-connected taxable Canadian corporations (referred to as portfolio dividends),
PLUS
• Investor’s share of dividend refund received by a connected corporation *
* Connected company is one where there is signifcant influenence (>20%)
(B) Dividend Refund
The private corporation will obtain a dividend refund for the year equal to the lesser of:
1. 38 1/3 % of taxable dividends paid
2. RDTOH * at the end of the year (before the dividend refund)
Eligible RDTOH (ERDTOH): This tracks refundable taxes paid on eligible dividends received by the corporation. Payment of any type of dividend (either eligible or non-eligible) can trigger a refund out of this account.
Non-eligible RDTOH (NERDTOH): Includes refundable taxes on investment income and Part IV tax on non-eligible portfolio dividends. Only payment of non-eligible dividends can trigger a refund out of this account.
Ordering rule: When non-eligible dividends are paid, the refund must come out of NERDTOH first.
NERDTOH is equal to:
NERDTOH (CY) =
NERDTOH (LY)
- Dividend Refund (LY Non-eligible ONLY)
+ Part IV Tax (CY - Non-eligible ONLY)
+ Refundable Portion of Part 1 Tax on Investments
Refundable Part I tax is equal to:
The least of:
a) 30 2/3% of AII, less:
[non-business FTC less (8% of foreign investment income)]
b) 30 2/3% of the net of the following:
Taxable income (Net Income for tax purposes - Division C Deductions)
Less: The amount eligible for the SBD
Less: 100/(38 2/3) × non-business FTC
Less: 4 × business FTC
c) Part I Federal tax (Calculated in Step 3)
ERDTOH is equal to: ERDTOH (CY) = ERDTOH (LY) - Dividend Refund (LY Either Eligible or Non-Eligible) \+ Part IV Tax (CY - eligible ONLY)
Step 5: Deduct any Installments
Chapter 40 - Sales Tax (ONLY IF TIME PERMITS)
Simplified ITC method
This method applies to the determination of ITCs only. The advantage of the method is that detailed record-keeping is not required for GST/HST paid on inputs except for GST paid on capital expenditures for real property. The ITC is determined as:
Fully taxable purchases including GST × [GST/HST rate / (100 + GST/HST rate)]
The following items are excluded from GST/HST fully taxable purchases:
• capital expenditures for real property (ITC is determined separately)
• purchases of zero-rated supplies
• purchases of exempt supplies
