Tax Planning Flashcards
How is income splitting achieved via a RRSP?
- Spousal RRSP - higher bracket taxpayer contributes to lower’s RRSP, deduction goes to higher income earner, withdrawals within 3 years taxed in hands of contributor.
When does a deceased taxpayer have to file taxes by?
- If death is between:
- Jan 1 - Oct 31 - April 30 of following year.
- Nov 1 - Dec 31 - 6 months after DOD.
What’s the deadline for tax returns?
- Taxes are due April 30 of year following tax year.
- Self-Employed - tax return due June 15, but amount owing due April 30.
How is calculate taxable income?
- Total Income = Employment, net business income, investment (interest, dividends, rent, royalties), taxable capital gains.
- Taxable Income = Total Income - Allowable deductions (RRSP con’t, union dues, child care expenses, support payments, interest charges).
What are some tax deductions and credits?
- Personal, spousal and dependent (e.g. basic federal credit).
- Tuition fees - 15% up to $5,000.
- DTC - non-refundable amount of $8,235 (worth $1,235 or 15%).
- HBP - $35,000 from RSP.
- CPP con’t - 15% credit on EE con’t only.
What qualifies spousal support as a tax deduction?
- Deductive to payer and taxable to recipient if:
- payment is an allowance based on written agreement.
- payment is made on a periodic basis.
Is there a tax deduction for child support payments?
- No - they are not deductible to the payer, and are not taxable to the recipient.
What is the standby charge for personal use of company cars?
- Taxable benefits it to EE when ER’s car is used for their personal use.
- Benefit arises from:
- Ownership = 2% of original cost of car for each month it’s available.
- Leasing = 2/3 of the lease payment. - Reduced charge = (basic standby charge) x (avg. personal use KM/month) / 1,667.
What are examples of Listed Personal Property?
- Works of art (e.g. paintings, sculptures, etc.)
- Jewelry.
- Coins.
- Stamps.
- Manuscripts, books.
What is the $1,000 rule pertaining to Personal Use Property (includes Listed PP)?
- Exempt from capital gains on disposal of PUP if amount received < $1,000.
- Amount > $1,000 is treated as capital gain.
- Capital losses for LPP are deductible only against taxable capital gains from LPP.
What is Capital Cost Allowance?
- Tax deduction for the depreciation of your business or property.
- Prescribed CCA rate = 30%.
- Can only depreciate 50% in first year.
What are the 2 types of dividend income?
- Eligible - received from public companies and CCPCs that pay high corporate tax rate (38% gross up).
- Non-eligible - received from CCPCs that pay tax at small business rate (15% gross up).
How much is the special refundable tax for dividends from CCPCs?
- 38%.
What are some examples of non-taxable income?
- Gift/inheritance.
- Life insurance proceeds.
- Profits from gambling.
- Capital dividends.
- Scholarships.
- Proceeds from accident, disability, sickness.
- Payments received from child support.
What is a superficial loss?
- Occurs when you dispose of capital property for a loss and you, or a person affiliated with you, buys the same property 30 days before or after disposition.
- This is done to prevent tax avoidance and deduction of artificial losses.
What are the income attribution rules for the transfer of gifts, sales and loans to a spouse or child over/under 18?
- Gift:
- Spouse: All sources attributed to giver.
- Child u18: Interest income and dividends attributed to giver.
- Child o18: No attribution. - Sale:
- Spouse: Must be at FMV, otherwise all attributed to seller.
- Child u18: Must be at FMV, otherwise interest income and dividends attributed to seller.
- Child o18: No attribution. - Loan:
- Spouse: Must bear interest at prescribed rate, otherwise all attributed to lender.
- Child u18: Must bear interest at prescribed rate, interest income and dividends attributed to lender.
- Child o18: If loan bears interest at prescribed rate, no attribution.
When can you split retirement income?
- If clients over 65, can split RPP, RRIF, RRSP annuity payments.
- If clients under 65, can split RPP payments only.
How is the tax credit for charitable donations calculated?
- 15% on first $200 of donation, 33% on balance.
What is the Principal Residence Exemption?
- An owner is exempt from the tax if the residential property is their principal residence.
- Can only claim on property as the principal residence exemption.
- Strategy would be to designate the property that has the highest capital gain/year as PR to shield as much growth from taxes.
What is the difference between tax avoidance, evasion and planning?
- Avoidance - actions taken to minimize tax within law.
- Evasion - ignores law and willfully evades taxes.
- Planning - carefully reduce tax liability via planning.