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CPA > Tax > Flashcards

Tax Flashcards

1
Q

What is Part IV tax?

A

For private companies only:

if non-connected corporation (<10%)
- 38 1/3% * dividend received
if connected corporation (>10%)
- ownership % in connected corporation * dividend refund received by connected corporation

Added onto Federal Part I Tax for corporations.
Refunded when dividends are paid out to shareholders

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2
Q

What are non-eligible dividends?

A

Dividends that are paid out from income that was taxed at a lower rate.

Eg. private companies with income lower than the SBD limit.

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3
Q

What are eligible dividends?

A

Dividends that are paid out from income that was taxed at a higher rate.

Eg. public companies and private companies with income surpassing the SBD limit

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4
Q

Which deferred income plans are not taxed on payouts?

A
  • Registered Education Saving Plans (RESPs)
  • Registered Disability Savings Plans (RDSPs)
  • contribution to these plans are not deductible
  • only gains accumulated within plan are taxed
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5
Q

What is Pension Splitting

A
  • Different from CPP Splitting
  • can split up to 50% of eligible pension income to spouse
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6
Q

What is the OAS Clawback?

A

Lesser of:
- OAS benefits received
- 15% of amount net income exceeds prescribed amount

  • Claw back is deducted from net income and added to taxes payable
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7
Q

What is the EI Premium tax credit?

A

Lesser of:
- $958
- Insurable Earnings * 1.58%

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8
Q

How is the annual RRSP limit calculated?

A

Lesser of:
- the RRSP limit of the year, and
- 18% of taxpayer’s earned income

Plus:
unused RRSP deduction room from prior year

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9
Q

What is the Deferred Profit Sharing Plan

A
  • Savings plan set up by employers
  • employees cannot contribute
  • Employer contributions are deductible by employers
  • payments are taxed on receipt
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10
Q

What is the non-capital loss carryforward restrictions?

A
  • 3 years back
  • 20 years forward
  • can be used against any type of income
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11
Q

Simplified meal and motor vehicle cost calculation for moving expense

A
  • for 15-day maximum period
  • no receipts required
  • flat rate $23 per meal up to $69 a day
  • provincial per-kilometer rate from originating province
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12
Q

What are the conditions to deduct Moving Expenses?

A
  • move must be for new employment/business location in Canada
  • deducted against income from new business
  • move must result in 40km closer to new location
  • undeducted moving expenses can be carried forward
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13
Q

How are Research Grants taxed?

A

Research grants in excess of research related expenses are included in income

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14
Q

How to use simplified method for determining tax payable for corporations?

A
  • Only usable if no non-capital loss carryforwards or charitable donations

For CCPCs only:
- first $500,000 ABI * 9%
- Remaining ABI * 15%
- AII * 38 2/3%

For Non-CCPCs:
- All Income * 15%

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15
Q

How do you calculate maximum deduction limit for higher-income spouse?

A

lesser of:
- actual amount paid for child care services plus limited amount for boarding school
- boarding school rate for each child multiplied by weeks lower-income spouse was unable to provide
- two-thirds of higher-income earner’s earned income

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16
Q

How are scholarships and educational funds taxed?

A

Full-time Students:
- Scholarships are completely exempt from tax

Part-time Students:
- Exempt up to tuition and program-related material costs

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17
Q

For an Individual, when is interest income reported?

A

Earlier of:
- date received
- anniversary of investment date

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18
Q

What are the main parts of Division C deductions for corporations?

A
  • Charitable Donations
  • Dividends
  • Loss Carryovers
19
Q

What is the annual childcare deduction limits?

A
  • $11,000 per child that qualifies for disability deduction
  • $8,000 per child under 7 years old
  • $5,000 for every other eligible child
20
Q

What is the CPP Max Contribution vs Tax Claim

A

Max Contribution is $3,500

CPP Tax credit is lesser of:
- $3039
- (Insurable earnings - $3500) * 4.95%

Any difference between credit and contribution is deducted in other income

21
Q

For a corporation, when is interest income reported?

A

Interest is accrued on a pro-rata basis

22
Q

When can you qualify for the employee stock option deduction?

A
  • Shares have to be common shares
  • Shares cannot be in the money upon grant date
  • for CCPC shares, shares can be in the money on grant date but have to be held for 2 years before sale
23
Q

How are child support taxed?

A

Child support is not tax deductible for payer and taxable for recipient

24
Q

What is the Registered Retirement Income Fund (RRIF)

A
  • Savings plan that receives money from RRSP once the RRSP is closed
  • payments received from RRIFs are taxed
25
Q

What is Net Canadian Active Business Income (ABI)

A

Net Income for tax purposes
Less:
- Investment Income in Net Income
- Foreign Business Income

26
Q

What is Earned Income?

A

Consists of:
- income employment less employment deductions
- income from a business
- income from rental property
- royalty income
- support income

Reduced by:
- rental and business loss

Does not include:
- Benefits
- Investment Income like dividends and interest
- taxable capital gains

Earned Income is used in calculation RRSP and Childcare deduction limit

27
Q

What is the EI clawback?

A

30% of the lower of:
- EI benefits received
- Net income for tax purposes in excess of prescribed amount

  • Clawback is deducted from net income and added back in taxes payable
28
Q

What is Additional Refundable Tax (ART)?

A

For CCPCs only:

10 2/3% on AII not covered under small business deduction limit

Included in Part 1 tax for corporations
Refunded when dividends are paid out to shareholders

29
Q

What is the stock option deduction

A

1/2 of income from stock option is deducted in same period

30
Q

What is the allowable business loss carryforward restrictions?

A
  • 3 years back
  • 10 years forward
  • can be used against any type of income
31
Q

How much CPP benefits can be shared to spouse?

A

50% of benefits prorated by length of time couple has been living together over length of time they have been CPP contributors

32
Q

What is the General Rate Income Pool (GRIP)?

A

Balance represents the maximum amount of eligible dividends allowed to be issued by a corporation.

Determined by:
- Balance from previous year
Add:
- 72% * non-AII income in excess of SBD limit
- Eligible Dividends received from corporations
Less:
- Eligible dividends paid out in previous year

33
Q

What is the boarding school child care limit?

A
  • $200 per week per child under 7 years old
  • $275 per week per child eligible for a disability tax credit
  • $175 per week per other eligible children
34
Q

What is the annual gains limit for the lifetime capital gains exemption?

A
  • if capital losses exceed non QSBC capital gains, the excess reduces the capital gains from QSBC shares
35
Q

How is Spousal Support taxed?

A

Spousal payments are deductible to payer and taxable to recipient if all criteria are met:
- payments are made on periodic basis
- payments are for maintenance of recipient
- payments are made when spouses are separated
- recipient can use payments for anything
- payments are required through court order or written agreement

36
Q

How do you calculate Annuity inclusion to income?

A

Prorate annuity payments by amount paid to acquire annuity over total payment to be received

37
Q

How do you calculate maximum deduction limit for lower-income spouse

A

lesser of:
- actual amount paid for child care services plus limited amount for boarding school
- Total annual limit
- two-thirds of taxpayer’s earned income

  • Amount is reduced by deductions claimed by higher-income spouse
38
Q

What are the main parts of Division C Deduction for individuals?

A
  • Employee Stock Option Deductions
  • Loss Carryforwards
  • Lifetime Capital Gains Deduction
  • Northern Residents Deduction
39
Q

What is Eligible Pension Income?

A

Under 65 yrs old - RPP payments

Over 65 yrs old - RPP, RRSP, DPSP, and RRIF payments

40
Q

What is the capital loss carryforward restrictions?

A
  • 3 years back
  • indefinite years forward
  • can only be used against capital gains
41
Q

How are Death Benefits taxed?

A
  • one-time $10,000 tax exemption per death
  • $10,000 exemption flows first to spouse
  • remaining amounts are distributed prorata if other recipients exist
42
Q

How do you calculate the disability support deduction limit?

A

Lesser of:
- amount of disability support payments made
- the total of:

43
Q

What is the Aggregate Investment Income include?

A

Investment Income included in Net Income:
- Net taxable capital gains
- interest
- Net rental income
- dividends
- royalties
Less:
- Division C deductions including capital loss carryforwards and Canadian dividend deductions

Used for calculating corporate tax payable

CPA (5 decks)

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