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00 CFE Prep > Tax > Flashcards

Tax Flashcards

1
Q

Membership / Club Dues (EE and ER implications)

A

ER:
- not deductible expense
EE:
- non-taxable only if this benefit is offered to all employees

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2
Q

Tuition Fees (EE and ER implications)

A 
ER:
- tax deductible
EE: is the course work related?
- work related: not taxable
- non-work related: taxable
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3
Q

Gifts (EE and ER implications)

A

ER:
- tax deductible
EE: performance related? >$500? cash/near cash gift?
- gift = performance related -> taxable
- gift = cash or near cash gift -> taxable
- gift = non-perf and non-cash, but $500/yr -> taxable

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4
Q

CCA - which classes are NOT subject to 1/2 year rule?

A

Class 12 - china, cutlery, linen, uniforms, dies, jigs, moulds, cutting or shaping parts of a machine, tools, computer software
Class 52 - Computer hardware equipment and systems software, as well as its ancillary data processing equipment, bought after January 27, 2009 and before February 2011, is included here.

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5
Q

When does terminal loss occur?

A 
The lower of Proceed or Cost - UCC = Negative
Terminal loss arises when there is a balance of UCC in the class but there are no assets remaining, the UCC can be claimed as a terminal loss (capital loss cannot arise on the disposition of depreciable property
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6
Q

When does recapture occur?

A 
The lower of Proceed or Cost - UCC = Positive
Recapture arises when the balance in the class is negative (i.e. when the adjustment re: disposal is in excess of the UCC) and is taken into income
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7
Q

Explain the tax implication of shareholder loan.

A
  • Shareholder loan is the loan provided to shareholder
  • Not included as shareholder’s personal income if the shareholder repay the loan back before the end of next year’s reporting period.
  • If it’s not repaid by then, it should be included as shareholder’s personal income in the year which the loan is borrowed
  • If the loan is interest-free, income should be included for the portion of interest that would’ve been paid at the market rate
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8
Q

Explain the tax implications of retirement allowance (also known as severance).

A

Severance payment consists of:
• Unpaid vacation or leave
• Amount paid to employee for their lengths of service or damages
Severance can be rollover to RPP or RRSP for year of service prior to 1996.
• 1989-1996: $2000/yr
• Before 1989: $1500/yr

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9
Q

Determine EE vs. Contractor

A

1) Economic Reality / Entrepreneur Test
a. Control - over hours, location, what and how work is being performed
b. Tools - ownership and who supplies them
c. Risk of profit and loss
d. ability to subcontract workers
2) Integration / Organizational Test
- economically dependent on the organization?
3) Specific results test
- Does the relationship end when the work completes?

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10
Q

ER give owned vehicle for EE to use. Explain tax implication.

A

If car is used < 50% of the times for employment, then standby charge will be:
2% x # months x Cost of Vehicle (HST/GST)
PLUS
Op Benefit
$0.27/km x personal km used

If car is used > 50% of the times for employment, then standby charge will be:
2% x # months x Cost of Vehicle (HST/GST)
X
personal km / (1667 km x # months)
PLUS
Op Benefit - lesser of:
1/2 standby charge OR $0.27/km x personal km used

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11
Q

ER give leased vehicle for EE to use. Explain tax implication.

A 
If car is used < 50% of the times for employment, then standby charge will be:
2/3 x # months x monthly lease payment
PLUS
Op Benefit
$0.27/km x personal km used

If car is used > 50% of the times for employment, then standby charge will be:
2/3 x # months x monthly lease payment
X
personal km / (1667 km x # months)
PLUS
Op Benefit - lesser of:
1/2 standby charge OR $0.27/km x personal km used

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12
Q

In order for a corporation to be a resident of Canada, what are some of the requirements?

A

1) Incorporated in Canada (after April 26, 1965)

2) If BoD meets and makes decision on company policy in Canada, even though it’s not incorporated in Canada

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13
Q

How is a CCPC defined?

A 
CCPC (Canadian-Controlled Private Corp)
- private corporation
- is a Canadian corporation
- not control by any of:
 o one or more non-resident persons
 o one or more public corporations; or 
 o any combination of the two
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14
Q

What are the two types of partnerships?

A

General Partnerships
- business arrangement between two or more individual sharing the profits and liabilities of the business
Limited Partnerships
- one or more general partners (unlimited liability)
- one or more limited partners (limited liability) - and depends on contribution to partnership

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15
Q

What are the 5 basic source of income?

A

1) Employment
2) Business
3) Property
4) Capital gain or losses
5) Other Income

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16
Q

What is the difference between net capital loss vs. non capital loss?

A

Net Capital Loss: Allowable capital loss > taxable capital gain
Non Capital Loss (?): Income < Losses (loss from employment/business/property/ABIL)

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17
Q

What are the loss carry-back and carry-forward for:

a) Net Capital Loss?
b) Non-Capital Loss?

A

a) Net Capital Loss: back 3, forward indefinitely

b) Non-Capital Loss: back 3, forward 20 tax years

18
Q

What are the 7 criteria to determine Employee vs. Self-Employed?

A

1) Control Test: set schedule or make your own schedule, location of work
2) Relationship Test: does relationship end when work ends?
3) Ownership of Tools: does the person supply own tools
4) Integration Test
5) Risk of Profit or Loss
6) Specific Result Test
7) Ability to hire helpers

19
Q

Cash gift - explain tax implication

A

All cash gifts are taxable benefit

- according to CRA, EE may receive non-cash gifts or award tax free

20
Q

Tax Return paid by ER - explain tax implication

A

Tax return paid for by the ER is considered a taxable benefit

21
Q

BoD Fees - explain tax implication

A

BoD Fees paid by the company is considered to be an income

22
Q

Home relocation loan - explain tax implication
ie. ER offer $100K interest-free relocation loan, and the market interest rate is 1%, what’s the taxable benefit? what’s the deductions?

A

[benefit]
Imputed interest benefit = 1% x $100K
Since this loan qualifies as home purchase loan, interest rate is capped at the rate in effect when the loan was made (ie. now)

the loan qualifies for relocation when:

  • commence work in new location in Canada
  • moved from former residence to new one
  • move was 40km closer to new work location
[deductions]
home relocation deducts benefit, based on the last of the following:
1) imputed interest benefit
2) $25,000 x mkt interest rate
3) imputed interest
23
Q

Provide a list of common ER contributions that are not considered a taxable benefit

A
  • registered pension plan
  • group sickness/accident insurance plan
  • private health service plans
  • supplementary unemployment benefit plans
  • deferred profit sharing plans
  • employee life and health trusts
  • counseling services to mental/physical health of EE
  • discounts on merchandise (ie. TD perks)
  • subsidized meal provided in ER facilities
  • use of ER in-house recreational facilities or membership fees to other gyms (as long as it’s provided to all EE)
  • reimbursement of certain moving expenses (?!)
  • premiums under private health services plan
  • EE professional membership fees or dues (must be req’d for employment)
24
Q

Provide a list of common ER benefit that are considered taxable benefit

A
  • allowance for personal/living expenses (or other purpose)
  • director’s or other fees
  • allocation under profit sharing plans
  • standby charge of automobiles
  • wage loss replacement (if ER pays for the premium)
  • employee benefit plans
  • automobile operating expense benefit
  • reimbursement or awards >$500 (or any amount of cash/near-cash awards or performance related awards)
  • ER paid education costs
  • amount relates to low interest loans
  • financial counseling and income tax return prep
  • ## group term life insurance (?!)
25
Q

Automobile supplied by the ER - what is the upper limit price of the vehicle (owned and leased) to calculate taxable benefit for EE and deductibility for ER?

A 
Taxable benefit for EE
- no upper limit
Deductibility for ER
- $30,000+ tax for owned
- $800+tax for leased

ie. if ER provide EE with auto that cost $150K, EE ‘s benefit will be based on $150K while ER can only deduct CCA on $30K

26
Q

Provide tax planning advice regarding employer provided cars.

A

1) ER leased is typically cheaper than ER owned
- 2/3 of lease payment is typically cheaper than 2% of the car cost
2) ER should have a policy of EE to return car when they are away (so the EE will not incur taxable benefit)
3) Record keeping - it is very important to track employment vs. personal km. If absent, EE may charge with full stand by charge even if employment mileage > 50%
4) Ways to lower standby charge
- longest possible lease / larger deposit
- older vehicle to purchase (lower cost)
5) ER Cars costing < $30K
- EE does not have upper limit for taxable benefit on standby charge (ie. if ER owned luxury vehicle was used, 2% of the full cost of the luxury vehicle will be used to calculate standby charge)

27
Q

What is the prescribed rate for vehicle allowance as of 2015? What’s the tax implication for this kind of allowance?

A

First 5000km @ $0.55/km
Thereafter @ $0.49/km

If allowance is lump sum (ie. $4000 per year), since it’s not related to mileage, it should be included as income and cost are deductible

If allowance is based on per km, and it is higher than CRA prescribed rate, it should be included as income and cost are deductible

If allowance is based on per km, and it is lower than CRA prescribed rate, it cannot be included as income and the costs are not deductible

28
Q

If the prescribed rate of vehicle allowance is $0.55/km (first 5000km) and then $0.49/km there after, what is the tax implication if ER pays an allowance of $5000 per year and the EE has operating cost of $3000? (personal km 10,000 / total mileage 18,000km)

A

Since allowance is not tied to mileage, full amount of allowance required to be included as income.

Operating cost are deductible.

+$5000
-$3000 x 8000km/18,000km
= $3667

29
Q

If the prescribed rate of vehicle allowance is $0.55/km (first 5000km) and then $0.49/km there after, what is the tax implication if ER pays $0.20/km and the EE has operating cost of $3000? (personal km 10,000 / total mileage 18,000km)

A

Since the allowance mileage rate < prescribed rate, income cannot be included and operating cost cannot be deducted.

30
Q

What is the tax treatment for life insurance benefit to EE?

A

Life insurance is a taxable benefit when the premiums are paid by the ER.

In the event of EE’s death, benefit will not be taxable by the estate.

31
Q

What is the tax treatment for disability insurance benefit to EE?

A

1) EE pays for premium
- benefit payout - not a taxable benefit
- premium - not deductible, but can offset benefit payout

2) ER pays for premium
* if benefit covers wage loss and ER pays premium periodically
- benefit payout - taxable benefit
- premium - not taxable benefit
- EE contribution - not deductible, but can offset benefit payout

  • if not,
  • benefit payout - not taxable benefit
  • premium - taxable benefit
  • EE contribution - not deductible
32
Q

What is the tax treatment for private health care plan to EE?

A
  • premium paid by ER - not a taxable benefit
  • beneift received by EE - not a taxable benefit
  • EE contribution - eligible for medical expense credit
33
Q

For stock option to EE, what is the difference if the ER is CCPC vs. Public Companies?

A

Stock option

  • > received: does not have tax implications
  • > exercise: incurs taxable benefit
  • > sold: incurs capital gain benefit

CCPC does not trade stock publicly. Therefore, if the ER is a CCPC, the stock option benefit is deferred when option is exercised (ie. if stock option is exercised in 2015 and incurs $5000 benefit, it will not be included in income until the the year when the stocks are sold. The $5000 benefit will be deferred.)

34
Q

What is the purpose of tax treaties?

A

It is an agreement between two countries for the purposes of avoiding double taxation and preventing evasion.

To the extent that a taxpayer is subject to tax in Canada and also in another jurisdiction, the provisions of the treaty between these two jurisdictions are used to determine the tax liability. Typically, the terms of the treaty take precedence over the provisions of the ITA.

35
Q

Who are the individuals that requires to pay tax in Canada?

A
  • Factual full-time residents: Taxed on worldwide income for the year.
  • Factual part-year residents: Taxed on worldwide income for the part of the year they are resident in Canada.
  • Deemed full-time residents: Taxed on worldwide income for the year.
  • Non-residents: taxed on canadian-source income
    • employed in canada
    • carried business in canada at a permanent location in canada
    • disposed of taxable canadian property
36
Q

How does CRA determine residency for full-time and part-time residents?

A

Primary Residential Ties

  1. Dwelling in Canada maintained for taxpayer’s use
  2. Spouse / Common Law of taxpayer
  3. Dependent of taxpayer

Secondary Residential Ties

  1. Personal Properties kept in Canada (ie. car, clothes, furnitures)
  2. Social Ties (ie. club membership)
  3. Economic Ties (ie. employment, canadian business, bank accounts & credit cards, savings plan)
  4. Other Ties (ie. cottage, DL, passport, part of professional org / union)

None of the secondary residential ties alone are sufficient to establish Canadian residency. The CRA would consider a combination of secondary ties together with primary residential ties in determining whether an individual is a Canadian resident under common law.

37
Q

What are deemed residents?

A
  • an individual who sojourns* in Canada for a total of 183 days or more in the year (for the purposes of this rule, 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

*A sojourner is an individual who travels in and out of Canada in a year and, because of those travels, is in Canada for a total of at least 183 days in the year. Sojourners are taxed in Canada on their worldwide income for the year.

38
Q

For part-year residents, what is the CRA rule determine the date in which they become non-resident?

A

the later of:

  • the date the individual leaves Canada
  • the date the individual’s spouse and/or dependants leave Canada
  • the date the individual becomes a resident of the new country he or she has emigrated to
39
Q

Corporations - how are the deemed resident of Canada?

What about non-resident corporations?

A
  • 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.
  • The corporation was incorporated in Canada after April 26, 1965.
  • A corporation that was not incorporated in Canada may still be considered a Canadian resident under common-law principle if its central management and control is located in Canada. Central management and control is located where the Board of Directors of the company meets to make decisions on how the corporation is to be run.
  • If a non-resident corporation carries on business in Canada, it is subject to tax in Canada on its Canadian-source business income.

A corporation is generally considered to be carrying on business in Canada if the business is run through a permanent establishment located in Canada.

40
Q

What are the tax filing deadlines?
Individual
Deceased
Corporation

A

Individual

  • April 30
  • June 15 if taxpayer or spouse carried a business

Deceased - later of…

  • regular deadline OR
  • 6 month from date of death

Corporation
- 6 months after year end

41
Q

What are the balance owing due dates?

A

Individual
- Apr 30

Corporations

  • 2 months after year end OR
  • 3 months after year end for certain CCPCs

00 CFE Prep (6 decks)

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