Tax Flashcards
Moving expenses
Conditions:
1) must be 40 kms closer to new location
2) maximum amount of expenses to be claimed in the year of the move is the income from the new business and any unused balances may be carried forward
Eligible moving expenses
● Travelling costs
● Meals and accommodations near the old/new place of residence for up to 15 days
● Lease cancellation costs at the old residence
● Selling costs of the old residence
● Legal and other costs of new residence
● Cost of revising legal documents for address change etc.
● Cost to move household items during the moving process
● Cost to store household items during the moving process
● Up to $5k of interest, property taxes, insurance, heating/utilities on the old residence while
vacant if pending a sale.
● Utility connection and disconnection fees.
Employee vs contractor: 7
- Intent (written contracts, own business insurance, no benefits)
- Control (control over time, place, and manner in which work is done)
- Tools and equipment (whether worker owns and provides tools and equipment to accomplish work)
- Subcontract (can worker subcontract or hire assistants)
- Financial risk (has some form of OH cost)
- Responsibility for investment and management (looks at whether indiv. is required to make sig. cap. investment and if he’s free to make business decisions
- Opportunity for profit and risk of loss
(EE not a flat fee, EE insurance covered)
(C: no reimbursement, can work other jobs)
Company-run day care (Employee perspective)
This would be a taxable benefit unless all of the following are met:
* The services are provided by ASI.
* ASI manages the daycare.
* It must be provided to all employees at little or no cost.
* The daycare is available only to ASI employees.
A company-run daycare would also reduce the amount that an employee could deduct for childcare expenses on their tax return, as they would not be incurring the costs.
RRSP contribution by company to match employee contributions (Employee perspective)
Contributions that company makes to an employee’s RRSP are a taxable benefit. The amount of contribution will be added to the employee’s employment income for the year, but they will be able to deduct the contribution made on their income tax return.
Spouses at the convention
The amount that we pay for the spouse’s airfare, hotel, meals and entertainment, and so on, would be considered a taxable benefit to the employee.
Non-eligible Dividends
- dividends received from a CCPC (paid out of income subject to SBD or from investment income)
- gross up 115%
- DTC = 9/13 of GU amount
Eligible dividends
2 types: dividends from 1) pub co and 2) CCPC paid out of income not SBD or investment income [paid out of GRIP]
- Gross up 138%
- DTC = 6/11 of GU amount
Bonus arragements (stardard bonus) paid within 180 days of employer’s business year end
employer deudcts when declared
employee includes when received
Bonus arragements (other bonus)
paid more than 180 days after YE to 3 years after
employer deducts when paid
employee includes when rec’d
salary deferral arrangement
paid more than 3 years after dec 31
employer deducts when declared
employee includes when services rendered
LPP
LPP gains taxable
losses only deductible against LLP gains
unused LPP losses carry back 3 years, forward 7 years
$1,000 rule (min. POD/ACB)
watch out for things “antique” as may not be qualifying item
PUP
Gains taxable
Losses not deductible AGAINST ANY OTHER CAPITAL GAINS
Cost = greater of ACB & $1k
Interest charges for Indiv. For investment loans
For investment loans, it can be deductbed if they relate to taxable account (e.g. non-registered)
eligible dependant tax credit
o Eligible Dependant Tax Credit
Conditions: you are single, divorced, separated, or widowed and you supported a dependant:
* who is under 18 (unless parent, grandparent, or infirm)
* living with the individual
* related by blood, marriage, or adoption
* resident of Canada (except child)
* dependent on individual for support
Tuition tax credit
If there is insufficient taxes payable to be reduced by the tuition credit which is common asmany students have limited income while they’re in school, the individual has two options:
○ Transfer the unused amounts for that specific taxation year to a parent, grandparent or spouse. The maximum amount is $5k per student. (subject to 15%)
Amounts over are eligible to be carried forward indefinitely
Purpose of gross up and FTC
ensure that integration works across different income types in Canada. Essentially, the CRA wants to make sure that a taxpayer is no better off receiving the income in a corporation vs. receiving it as an individual
CCA
UCC
+ additions
- disposals (lesser of proceeds and cost)
+ 50% of net additions (ACII)
= base amount for CCA
CCA @@@@@@@@@@2
Filing deadlines (corp.) & balance due & instalments
- 6 months after year end
Balance due: * 2 months after year end or 3 months after year end (CCPC)
monthly installments required if greater than 3k
if late, then interest on unpaid tax. file ASAP
Filing deadlines (indiv.) & balance due & instalments
- April 30
- June 15 if taxpayer or spouse carried on a business
- Deceased: later of 1) regular deadline and 2) 6 months from date of death
LCGD
may be claimed by an individual resident in Canada against taxable capital gains arising on the disposition of qualified small business corporation (QSBC) shares, and qualified farm or fishing property
lesser of: unused lifetime deduction, annual gains limit and CNIL
REMEMBER THAT IT IS 50% deductible against taxable capital gains.
QSBC shares
● SBC Test: CCPC with 90% of FMV of assets principally used in active business in Canada
● Throughout the past 24 months, at least 50% of the assets were used in active business in Canada
● Throughout the past 24 months, the shares have not been owned by an unrelated party.
QSBC test: assets excluded in calculation of ABI
Short-term investments
Health care premiums
EE: taxable if government plan. non-T if private
ER: deductible from taxable income (purpose of gaining or producing income from the business)
service gifts
EE: 1) cash and near cash gifts = taxable. 2) non-cash gifts/awards are not taxable up to $500.
[For gifts and awards to be non-taxable, they cannot be cash or near-cash or performance related.]
ER: gifts and awards deductible assuming they are reasonable
training
EE: 1) NT if employer main beneficiary. T if training is personal interest
ER: deductible as its form of employee compensation
Subsidized cafeteria meals
EE: subsidized meals are NT provided employee pays reasonable amount (if free, taxable)
ER: cafe rev taxable (if free, loss would be dedutible)
Recreational facilities
EE: NT if inhouse available to all employees
ER: not deductible as prohibited
Tax planning - shareholder loan
- Implication to Brokers
o Any amount lent from Brokers is not deductible to Brokers. - Implication for owners
o As long as the loan is not outstanding for two consecutive balance sheet dates, the owners will just have to report the imputed interest benefit on their personal tax returns. Otherwise, the owners will have to report the entire amount as income in the year the funds are borrowed with a corresponding deduction in the year the funds are paid back.
Tax planning - Salaries
- Implication to Brokers
o Brokers would claim an expense (deduction) for the salary paid, as well as for its share of any payroll taxes [ITA 18(1)(a)].
also withhold CPP from pay - Implications to owners
o personally taxed on their salaries at their marginal personal tax rates [ITA 5(1)].
creates RRSP room and contributing to CPP
Tax planning - bonus
- Implications to Brokers
o Bonuses are treated in the same way as a salary for the company and the employees. However, a corporation can record a bonus expense and a corresponding liability, and pay the bonus out later [ITA 78(4)]. - Implications to owners
o The bonus would be included in your income when you receive it [ITA 5(1)]. (increases taxable income and TP, same as salary)
Tax planning - dividends
- Implications to Brokers
o Dividends are not a deductible expense to the company, as they are paid out of equity/retained earnings. - Implications to owners
o Dividends have a lower effective tax rate for the owners. They are grossed up when included in the individual’s net income for tax purposes, but they generate a tax credit that more than makes up for the tax effect of the gross-up; this is intended to reflect the fact that the corporation has already paid income tax on the income earned inside the corporation.
Tax treatment of equipment
If equipment is purchased, the assets will go into various CCA pools and would qualify for immediate expensing (up to $1,500,000) in the first year.
Tax treatment of loan for corps
Interest paid on the loan will be deductible from income, as the assets purchased were used for income-earning purposes
Tax treatment of capital lease
lease payments will be deducted when they are paid, regardless of how the lease is accounted for under financial reporting standard
RRSP/TFSA/bonus
- Implication to HSE — deductible
- Implication to employee
o RRSP — deductible
o Bonus — taxable
o TFSA — taxable
Counselling
- Implication to HSE — deductible
- Implication to employee — not taxable
