Tax Accounts & Calculations

Question 1

ABIL (6)

Answer 1

Allowable Business Investment Loss

• capital loss on SBC debt/equity
• “allowable” is 50% of total loss
• can reduce ALL TYPES of income in year occurred
• excess can be carried back 3 yrs and forward 10 yrs as ABIL
• after 10 yrs, can carry forward indefinitely as net capital loss
• ABIL is reduced by previous LCGE claims (loss is split: the CGE equivalent portion can be used as a capital loss only and remainder of the loss is BIL)

Question 2

SBC (3)

Answer 2

Small Business Corporation

• private corporation
• controlled by Canadian residents
• assets are used principally (50%+) in an ACTIVE business carried on primarily (90%+) in Canada

Question 3

SBD (5)

Answer 3

Small Business Deduction

• for SBC that is a CCPC for the entire year
• reduces tax payable on first $500,000 of active business income (Fed 9%)
• not applicable to SIB (Specified Investment Business; unless >5 FT e’ees)
• not applicable to PSB (Personal Service Business; incorporated & renders a service they would normally provide as an e’ee)
• income threshhold reduced $5 for every $1 of passive income (AAII Adjusted Aggregate Investment Income) over $50,000 - eliminated by $150,000 of total passive income

Question 4

QSCBS (4)

Answer 4

Qualified Small Business Corporation Shares

• LCGE applies to gains on sale
• SBC, and
• shares owned for 24+ months prior to disposition, and
• for the 24 months prior to, >50% of the FMV of the corporation’s assets was used to carry on active business, primarily in Canada

Question 5

CCPC (3)

Answer 5

Canadian-Controlled Private Corporation

• private corporation
• no class of shares listed on prescribed stock exchange
• not controlled directly or indirectly, by 1 or more non-residents, by 1 or more public corporations, or any combination

Question 6

CGR (5)

Answer 6

Capital Gains Reserve

• if payment is spread out over years (up to 5), realizing gain can be spread out too
• at least 1/5 of taxable capital gain must be reported each year (current + 4)
• optional, can “reserve” any amount up to max reserve
• max reserve is LESSER of ((proceeds not yet due/total proceeds) * gain) OR ((1/5th of gain))* # yrs left, up to 4)
• for SBC or some farm/fish property, can be up to 10 years

Question 7

LCGE (3)

Answer 7

Lifetime Capital Gains Exemption

• available on gains on QFFP up to $1mil and QSBCS up to $892,218 (2021)
• taxable gain 50% inclusion = 50% of limit ($446,109)
• Eligible Capital Gain? deduction is LESSER of 1. unused lifetime limit OR 2. annual gains limit (NTCP adjustment) OR 3. cumulative gains limit (w/ CNIL adjustment

Question 8

CNIL (2)

Answer 8

Cumulative Net Investment Loss

• any portion that cumulative investment expenses exceed cumulative investment income = CNIL balance
• can’t claim LCGE & CNIL simultaneously -ie CNIL reduces taxable capital gain that can be sheltered by LGCE

Question 9

QFFP (5)

Answer 9

Qualified Farm & Fishing Property
- has LCGE of $1mil and special inter-generational transfer rules re ACBs/FMVs
includes:
- share of family fishing/farm corp
- interest in family fishing/farm partnership
- real property ie lands & vessels and eligible capital property ie fishing licenses or milk quotas
- real property used for farming by individual, family farm corp or partnership

Question 10

CCA (3)

Answer 10

Capital Cost Allowance

• deduction from net income for wear & tear (depreciation) of assets
• grouped in classes based on characteristics (ex Buildings 4% / Equipment 20% / Automotive 30%)
• annual amount = UCC * rate (see UCC slide)

Question 11

UCC

• calculation
• disposition of assets

Answer 11

Undepreciated Capital Cost
= UCC Balance = 
UCC balance beginning of year
ADD net additions (acquisitions + recapture - dispositions lesser of capital cost and proceeds)
LESS adjustments (tax credits etc)
EQUALS UCC before CCA
LESS this year's CCA (rate * (UCC less 1/2 net additions))
EQUALS UCC end of year

= Disposition of Assets =

• may have a CAPITAL GAIN if sale > ACB, and then
• deduct lesser of capital cost or proceeds of asset from UCC
  1. Positive UCC with assets remaining - CCA continues on with remaining UCC balance
  2. Positive UCC with no assets remaining - deduct remaining UCC as a terminal loss
  3. Negative UCC (assets or no remaining) - recapture of depreciation (ie fully taxable income amount) to bring UCC to $0

Question 12

CDA (4)

Answer 12

Capital Dividend Account
- notional corporate account (all private corps)
- amount is available for tax-free distribution to shareholders or corps
- includes
– tax-free portion of capital gains
– capital dividends from another corp
– non-taxable portion of eligible capital property disposition
– proceeds of life insurance less ACB (where corp is bene)
- reduced by capital dividends paid
(NOT connected to RDTOH considerations)