Tax Flashcards
What are the component to consider when calculate employer-provided vehicle benefits?
- personal used km cal- consider when used less than 50% as well as greater or equal to 50%
- standby charge (lease vs owned )
- operational cost benefits
How to calculate standby charge?
If the car is owned by the employer
- 2% x number of complete months that available to the employee x cost of the car
- the cost of the car can be greater than than 30,000 a month , this cost including the gst and pst even if the employer claimed itc.
If the car is leased by the employer
- 2/3 x lease payment paid by the employer x months that is available to the employee
- cost of the lease can be exceeded 800/months, this cost including all the gst / pst calculation even if the employer claimed itc.
How to calculate the personal used percentage for employer-vehicle provided benefits?
Business used more than or equal to 50%
- actual uses persons km / (1667 x months available to the employee)
Business used less that 50%
- all the personal used km is taxable
How to calculate the operating cost benefits from the employer-provided vehicle?
Lesser of :
- 27 cents/km of personal used and
- 50% standby charge (if vehicle used 50% or more for business)
What are the implication of the low/no - interest loans?
Loan principal is not taxable
- interest benefit based on “prescribe rate”
- reduce by any interest paid during the year
Or by January 30 the next year
Benefit deducted if loan for purchase of
- investments
- or used for Employment duties in the manner that qualified for the deduction from his/her income
- used to purchase home that is at least 40km closer to home, employee can claim it on the division c deduction
Discuss tax implication relates to stock options.
There is never any tax benefits to grant date
Exercise date
- public company- FMV - exercise price x number of shares = benefits
- Ccpcs- benefits deferred to date shares sold
Deduction of 50% of benefit
- if FMV of shares when option granted does not exceed the option exercise price or
- Ccpcs shares held for at least 2 years
What are the implications relates to employee vs contractor?
Employee
- source deductions- the employer is responsible to withheld source deductions as well as matching the cpp and ei
Contractor
- expense deductibility by the payee, the expense incurred relates to generate of income
- they also responsible to remit gst if income earned is more than 30,000 a year
In general, it is preferred to be treated as contractor due to the ability to deduct more expenses from income earned by the payee. Also the payer is also pay less source deductions (cpp and ei) however, if the cra interpret the payee as an employee then the payer is subjected to penalties and interests for failing to submit the appropriate source deduction.
What are the test that cra used to determine if a personal is an employee or a contractor ?
Test (rc 4110)
Note: there is not no rules of how many of the rules below should apply, they are all subject to interpretation.
1) control of work- the right to fire or hire, salary, decide on time, manner, and place the work to be done
2) ownership of tools- who owns the tools
3) risk of profit/loss- do you have a chance to make profits? Do you run the risk of incurring losses due to bad debts, damage to equipment or materials or delays ? Do you cover operations loss ?
4) degree of integrations- kindna the combinations of the first three, how many clients does this contractor has?
What are the allow and non allowed reserves as a deduction for tax purpose?
Disallowed:
- contingent liabilities
- warranty liability
- unfounded pension expense
Allowed:
- bad debts
- undelivered goods and services or returned goods
- unpaid amounts or deferred revenue that will be paid within 36 months
Discuss the tax implication for real estate rental.
Separate CCA class for each building costing $50,00 or more
-recapture cannot be “cushion” by acquiring other buildings
CCA limited to net rental (revenue less all other deductible expenses)
- cannot use CCA to create or increase a rental loss (except: principal business)
-impact on principle resident excemption, don’t claim the CCA on principle resident when renting it. It will impact the acb.
Discuss the Implication for personal tax dividends.
Gross-up, then you get a dividend tax credit
Dividend sources:
- eligible: non CCPCS and Grip for CCPCS
- non-eligible: CCPCS (for ABI up to SBD threshold )
Implication for dividends if a corporation ?
-Not grossed-up
-deductible if received from taxable Canadian corporations
-if recipient is a private corporation
-part IV tax at 33.33%
-add to RDTOH
No tax if Payor a connected corporation
What is the implication of capital gains reserve?
When a taxpayer realizes a capital gain but doesn’t received full payment of the proceed of disposition then a reserve is allowed. This reserve is recognized over a period of time.
Amount not due within the year is equal to
Lesser of :
- reasonable reserve based on amount not due until after the end of the year and,
- 1/5 of gain x (4- number of preceding years)
How does the personal used property get taxed?
Personal used property all losses get denied but gain must be reported and 50% taxable
How does the listed perks all property get taxed?
Personal listed property can recognized losses that allowed a carried back 3 years and forward 7 years. However losses can only be recognized in art work, jewellery, rare book, stamps and coins.
When do we have deemed depositions?
- Normally at FMV
- on change in use of property
- on death of tax payer
- by way of gift during the life time of the tax payer
- by taxpayer ceases to be resident in Canada
How to calculate ACB of partnership interest?
Add:
share of partnership income contribute by the partner
+ share of any capital dividends received
+share of net proceeds on death of life insurance policies
Less:
Shares of partnership losses
- partnership drawings
-share of charity donation /political contributions
-itcs allocated /deducted to / by the partner
ACB of partnership interest maybe negative
-no taxed as capital gain until disposition (for active general partners)
Differentiate between the different losses including the non capital loss, net capital loss, listed personal property (LPP), ABIL.
Non-capital loss is applied to any source of income
-carry back 3 years and carry forward 20 years
Net capital loss is applied only to net taxable gains
- carry back 3 years and carry forward indefinitely
Listed personal property (LPP)- can only apply against other LPP gains
-carry back 3 years and carry forward 7 years
Allowable business investment loss (ABIL)- apply to any source of income, after 10 years, may carried forward indefinitely but has to used it as capital loss carried forward after)
When is ABIL incurred ?
ABIL arises from the disposition of shares/ debts of SBC
- not applied when the two corporations are non-arm length
ABIL= 50% x BIL
Can be applied to any incomes
How does proprietorship taxed ?
Business income/ loss reported on t1
- added to other income sources
- taxed based on individual’s bracket, credits, etc
How does partnership get taxed?
Income calculate at partnership level
- allocated based on partnership agreement
- taxed in partners’ hands
