Tax Flashcards
What is Part IV tax?
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
What are non-eligible dividends?
Dividends that are paid out from income that was taxed at a lower rate.
Eg. private companies with income lower than the SBD limit.
What are eligible dividends?
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
Which deferred income plans are not taxed on payouts?
- Registered Education Saving Plans (RESPs)
- Registered Disability Savings Plans (RDSPs)
- contribution to these plans are not deductible
- only gains accumulated within plan are taxed
What is Pension Splitting
- Different from CPP Splitting
- can split up to 50% of eligible pension income to spouse
What is the OAS Clawback?
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
What is the EI Premium tax credit?
Lesser of:
- $958
- Insurable Earnings * 1.58%
How is the annual RRSP limit calculated?
Lesser of:
- the RRSP limit of the year, and
- 18% of taxpayer’s earned income
Plus:
unused RRSP deduction room from prior year
What is the Deferred Profit Sharing Plan
- Savings plan set up by employers
- employees cannot contribute
- Employer contributions are deductible by employers
- payments are taxed on receipt
What is the non-capital loss carryforward restrictions?
- 3 years back
- 20 years forward
- can be used against any type of income
Simplified meal and motor vehicle cost calculation for moving expense
- 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
What are the conditions to deduct Moving Expenses?
- 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
How are Research Grants taxed?
Research grants in excess of research related expenses are included in income
How to use simplified method for determining tax payable for corporations?
- 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%
How do you calculate maximum deduction limit for higher-income spouse?
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
How are scholarships and educational funds taxed?
Full-time Students:
- Scholarships are completely exempt from tax
Part-time Students:
- Exempt up to tuition and program-related material costs
For an Individual, when is interest income reported?
Earlier of:
- date received
- anniversary of investment date
What are the main parts of Division C deductions for corporations?
- Charitable Donations
- Dividends
- Loss Carryovers
What is the annual childcare deduction limits?
- $11,000 per child that qualifies for disability deduction
- $8,000 per child under 7 years old
- $5,000 for every other eligible child
What is the CPP Max Contribution vs Tax Claim
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
For a corporation, when is interest income reported?
Interest is accrued on a pro-rata basis
When can you qualify for the employee stock option deduction?
- 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
How are child support taxed?
Child support is not tax deductible for payer and taxable for recipient
What is the Registered Retirement Income Fund (RRIF)
- Savings plan that receives money from RRSP once the RRSP is closed
- payments received from RRIFs are taxed
What is Net Canadian Active Business Income (ABI)
Net Income for tax purposes
Less:
- Investment Income in Net Income
- Foreign Business Income
What is Earned Income?
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
What is the EI clawback?
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
What is Additional Refundable Tax (ART)?
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
What is the stock option deduction
1/2 of income from stock option is deducted in same period
What is the allowable business loss carryforward restrictions?
- 3 years back
- 10 years forward
- can be used against any type of income
How much CPP benefits can be shared to spouse?
50% of benefits prorated by length of time couple has been living together over length of time they have been CPP contributors
What is the General Rate Income Pool (GRIP)?
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
What is the boarding school child care limit?
- $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
What is the annual gains limit for the lifetime capital gains exemption?
- if capital losses exceed non QSBC capital gains, the excess reduces the capital gains from QSBC shares
How is Spousal Support taxed?
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
How do you calculate Annuity inclusion to income?
Prorate annuity payments by amount paid to acquire annuity over total payment to be received
How do you calculate maximum deduction limit for lower-income spouse
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
What are the main parts of Division C Deduction for individuals?
- Employee Stock Option Deductions
- Loss Carryforwards
- Lifetime Capital Gains Deduction
- Northern Residents Deduction
What is Eligible Pension Income?
Under 65 yrs old - RPP payments
Over 65 yrs old - RPP, RRSP, DPSP, and RRIF payments
What is the capital loss carryforward restrictions?
- 3 years back
- indefinite years forward
- can only be used against capital gains
How are Death Benefits taxed?
- one-time $10,000 tax exemption per death
- $10,000 exemption flows first to spouse
- remaining amounts are distributed prorata if other recipients exist
How do you calculate the disability support deduction limit?
Lesser of:
- amount of disability support payments made
- the total of:
What is the Aggregate Investment Income include?
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
