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CPA PEP - Taxation > Taxation > Flashcards

Taxation Flashcards

1
Q

What is the Proceeds of Disposition for depreciable capital assets?

A

The lessor of:
a) Original cost
b) Proceeds of disposal

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2
Q

What happens when you do
Opening UCC + additions - disposals
and get a NEGATIVE balance?

A

There is recapture. The negative amount is added back to UCC to make it 0, and the recapture is added to income for tax purposes.

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3
Q

What happens when you do
Opening UCC + additions - disposals
and get a POSITIVE balance, and there are no assets left in the class?

A

There is a terminal loss. The negative amount is deducted from UCC to make it 0, and the amount is deducted from income for tax purposes.

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4
Q

What belongs in Class 8?

A

Furniture and fixtures, and office equipment

Can have separate class for each piece of office equipment if you want

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5
Q

How do you calculate the Accelerated Investment Incentive?

A

It applies if Additions > Disposals.

Take the CCA amount you would have claimed and multiply by 1.5.

Cost * CCA rate * 1.5

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6
Q

What belongs in Class 10?

A

Vehicles < $34k

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7
Q

What belongs in Class 10.1?

A

Vehicles > $34k, separate class for each if cost was greater tahn $1000.

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8
Q

What belongs in Class 12?

A

Tools < $500, utensils, books, kitchenware, uniforms, etc.

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9
Q

What belongs in Class 13?

A

Leasehold improvements. Each must have their own class.

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10
Q

What belongs in Class 14?

A

Limited life intangibles

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11
Q

What belongs in Class 14.1?

A

Intangibles that don’t fit in Class 14 (Limited life intangibles) and Class 44 (Patents acquired after 1993)

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12
Q

What belongs in Class 50?

A

Computer hardware and systems

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13
Q

What belongs in Class 53?

A

Manufacturing and processing equipment

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14
Q

What is the maximum cost a rental property can be before it needs to be put in a separate class?

A

$50K

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15
Q

When land and building are sold together, how do you allocate the proceeds of disposition to each?

A

allocated to each using the relative FV’s

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16
Q

When land and building are sold together, what do you do when the allocation of Proceeds to each results in a Terminal Loss > Capital Gain?

A

Reduce the terminal loss by the amount of the capital gain and deduct the remaining terminal loss from net income for tax purposes

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17
Q

When land and building are sold together, what do you do when the allocation of Proceeds to each results in a Terminal Loss < Capital Gain?

A

Reduce the capital gain by the amount of the terminal loss and include one-half of the remaining capital gain in net income for tax purposes

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18
Q

Are pension expenses deductible under Business Income?

A

If they are related to Pension Liability (which is a reserve), then No. If they are related to actual pension contributions, then Yes (if within the day limit)

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19
Q

What is the max number of days after the end of the taxation year that a company can make pension plan contributions and they would still be deductible?

A

120 days after the end of the taxation year

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20
Q

50% of meals and entertainment is not deductible (it’s added back), except in what situations?
(HINT: there are 4)

A

1) food provided in the ordinary course of business
2) food that was billed to a client
3) meals that are included in the employee’s income as a taxable benefit
4)If all employees benefit (ex. Christmas party) for a max of 6 events a year

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21
Q

When are life insurance premiums taxable to the corporation?

A

When the corporation is the beneficiary.

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22
Q

When are life insurance premiums deductible for a corporation?

A

When the employee is the beneficiary (it’s included in their taxable income).

BUT it is not deductible unless:
- It is required by the lender as collateral for a loan, and
- Interest payable on the loan is deductible

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23
Q

Are carrying charges on vacant land deductible?

A

deductible to the extent of income earned on the vacant land, the rest is added back. (ex. Interest and property taxes)

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24
Q

Are soft costs on construction/renovation of a building (ex. Interest, professional fees, insurance, property taxes) deductible?

A

No, they are added back and taxed

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25
Q

What is the max number of days after the end of the taxation year that a company can pay bonuses and they would still be deductible?

A

180 days after the end of the fiscal year that the expense was incurred.

If not paid, then its not deductible until the year its actually paid

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26
Q

Are financing expenses (exp’s for issuing shares or borrowing money) deductible?

A

They are deductible over 5 years.

If expensed in actg income, add the entire amount back and deduct 1/5 of it for tax purposes for 5 years.

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27
Q

Is impairment deductible?

A

No, it’s added back because the loss is not deductible for tax purposes until realized.

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28
Q

Is Interest payable on a bond deductible?

A

It’s deductible up to the amount that’s legally payable in the year

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29
Q

Are Scientific research expenditures deductible?

A

Yes. Those that were capitalized fpr actg purposes need to be recorded as expenses, and can be deducted

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30
Q

Are landscaping costs deductible?

A

Yes, but only those actually paid.

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31
Q

How do you deal with Equity income on investments where the taxpayer has significant influence, therefore acct for the investment using the Equity Method?

A

You would deduct the equity income, since it was added to actg income, but it is not taxable.

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32
Q

How do you deal with Equity losses on investments accounted for using the equity method?

A

The losses reduce actg net income, so we have to add them back.

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33
Q

How do you deal with Dividends received on investments accounted for using the equity method?

A

Under actg rules, the dividends were accounted for as a reduction in the investment account so they weren’t included in actg net income. So we have to add them back now for tax. They will later be deducted under Division C.

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34
Q

Are warranties deductible?

A

No, since they are reserves. Only amounts paid to satisfy warranties are deductible, as they’re on a cash basis

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35
Q

Are bad debts deductible?

A

Estimated bad debts are not deductible, but anticipated bad debts (related to specific AR) are deductible.

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36
Q

Are Reserves for undelivered goods/services (unearned rev) deductible?

A

Yes, they are deductible. So, if unearned income is recorded for actg purposes, no adjustment for tax is needed.

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37
Q

What are the 3 things you need to assess to determine if a gain on sale should go into Business Income or Capital Gains?

A
  1. Primary intention of the seller
  2. Secondary intension of the seller
  3. Other factors
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38
Q

What are some of the Other Factors that need to be considered to determine whether a gain on sale belongs in Business Income or Capital Gains?

A
  • nature of the transaction to the taxpayer’s business
  • nature of the asset (if it can be used to produce income)
  • number and frequency of this type of transaction
  • how long the asset was owned
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39
Q

What’s the difference between a Call Option and a Put option?

A

Call option is when the grantee pays an amount for the right to BUY a property from the grantor. A put option is when a grantor pays an amount for the right to SELL a property to the grantee.

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40
Q

What is an ABIL?

A

It is the deductible portion (50%) of the loss a taxpayer incurs if they invest in shares or debt of a small Canadian business where that business subsequently encounters financial difficulties.

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41
Q

What is the definition of a Small Business Corporation?

A

A Canadian-controlled private corporation (CCPC) where all or substantially all of its assets (90%) are used in an active business carried on primarily in Canada

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42
Q

What are the criteria for a residence to be designated as a principal residence?

A
  1. Must be a housing unit
  2. Must have been inhabited at some time during the year by the taxpayer or the taxpayer’s family
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43
Q

If a taxpayer has more than one residence, how do you determine which residence should be designated the principal residence?

A

Choose the one with the highest gain per year

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44
Q

What’s the formula for the Exempt Part of the Gain when a residence is deemed as the taxpayer’s principal residence?

A

Exempt portion of the gain = Total gain × [(1 + years designated) / years the property was owned]

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45
Q

What is the difference between PUP and LPP?

A

PUP is property owned by the taxpayer that is not used for producing income, and generally decreases in value. LPP are collectibles that don’t usually depreciate in value.

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46
Q

What are examples of PUP property?

A

Boats, furniture, clothing

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47
Q

What are examples of LPP property? (HINT: remember COIN JARS)

A

Coins, Jewelery, Art, Rare books, Stamps, etc.

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48
Q

How do you determine the ACB and Proceeds of Disposal on PUP and LPP?

A
  • ACB is deemed to be the greater of:
    (a) the original cost, and
    (b) $1,000
  • Proceeds are deemed to be the greater of:
    (a) actual proceeds, and
    (b) $1,000
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49
Q

Can both PUP and LPP have capital gains and losses on disposal?

A

No, losses on PUP are denied.
50% of gains on disposal are taxable for both PUP and LPP.
50% of the losses on disposal can be deducted against taxable capital gains from disposal of LPP.

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50
Q

In a non-arm’s-length sale of a capital asset: What is the addition to UCC when the purchase price of the asset is greater than the capital cost to the vendor?

A

The addition to UCC is the original cost of the depreciable property to the NAL vendor plus the
taxable capital gain realized by the NAL vendor.

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51
Q

After a non-arm’s-length sale of a capital asset (where the purchase price was greater than the capital cost to the vendor), when the purchaser goes to sell the purchased asset to a different third party, what amount is used as the capital cost for the purposes of calculating the capital gain?

A

The capital cost to the purchaser for the
purposes of determining a future capital gain or loss on disposition of the asset will equal the price
actually paid when they bought the asset from the NAL party.

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52
Q

In a non-arm’s-length sale of a capital asset: What is the addition to UCC when the purchase price of the asset is less than the capital cost to the vendor?

A

The purchaser’s capital cost is deemed to be equal to the vendor’s original capital cost. The difference between the vendor’s capital cost and the price paid by the purchaser is
deemed to be CCA taken.

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53
Q

After a non-arm’s-length sale of a capital asset (where the purchase price was less than the capital cost to the vendor), when the purchaser goes to sell the purchased asset to a different third party, what amount is used as the capital cost for the purposes of calculating the capital gain?

A

The capital cost would be the original capital
cost to the NAL vendor.

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54
Q

What happens when a transferor disposes of a depreciable property with an accrued terminal loss to an affiliated person?

A
  • The vendor’s terminal loss is denied, and they are deemed to own a property with a capital cost equal to the denied terminal loss. They can continue to claim CCA on that amount until the asset is sold to a non-affiliated person.

The purchaser is deemed to have acquired the property at the original capital cost to the vendor, and the difference between the capital cost to the transferor and the selling price is deemed CCA taken. Therefore the UCC is equal to the selling pice.

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55
Q

What are the 3 deductions needed to bring net Income for Tax purposes to Taxable Income for a corporation?

A

1) Dividends
2) Capital loss carry-forwards
3) Charitable donations

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56
Q

What is the max Charitable donations that can be deducted under Division C for a corporation?

A

Limit is 75% of net income for tax purposes (Div B income)

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57
Q

Can charitable donations be carried forward to be deducted under Division C in future yearsn for a corporation? If so, to what extent?

A

Can claim charitable donations in the next 5 years up to 75% of the net income for tax purposes for that year

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58
Q

What is the carry-back and carry-forward period for non-capital losses and farm losses? What type of income can it be deducted against?

A

Both back 3 years, forward 20 years. Both can be deducted against any type of income. REstricted farm losses can only be used against farm income though.

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59
Q

What is the carry-back and carry-forward period for net capital losses? What type of income can it be deducted against?

A

Against taxable capital gains, back 3 years, forward indefinitely

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60
Q

What is the carry-back and carry-forward period for ABILs? What type of income can it be deducted against?

A

Against any type of income, back 3 years, forward 10 years. After 10 yrs, ABIL is converted to a capital loss.

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61
Q

What type of dividends can be fully deducted under Division C for a corporation?

A

Qualifying dividends

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62
Q

What are qualifying dividends? (Related to Division C deductions for a corporation)

A

They are dividends from:
- Canadian corps
- non-Canadian corps carrying on business in Canada
- foreign affiliates that were already taxed under foreign jurisdiction
- Canadian subsidiaries

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63
Q

What is AII (Aggregate Investment Income) made up of?

A
  • Interest
  • royalties
  • dividends
  • rental income
  • net taxable capital gains

^Sum of this, less division C deductions:
- capital loss carry-forwards
- qualifying dividends

64
Q

What is ABI (active business income) made up of?

A
  • Net income for tax purposes
  • foreign business income
  • ancillary income (income earned that’s not the company’s main revenue source, ex. interest income earned as a result of a temporary investment of excess cash)
65
Q

What is a permanent establishment (for the purposes of applying abatement)?

A

It’s a fixed place of business.
Where the corp or an employee is established, where the corp owns land, or where the corp keeps substantial machinery/equipment.

66
Q

How do you allocate taxable income to a corp’s multiple permanent residences (for the purpose of applying abatement)?

A

Get %s of the below and average them:
A. Gross revenue earned in a province / total gross revenue
B. Salaries/wages expense earned for the province / total salaries and wages for the corp

67
Q

What type of income is the general corporate rate of 38% applied to?

A

Taxable income

68
Q

What type of income is the Federal tax abatement of 10% applied to?

A

Taxable income earned in a province

69
Q

What type of income is the 19% small business deduction applied to?

A

Lessor of:
a) ABI earned in Canada
b) Taxable income, minus lessor of:
i. 4 * FTC on foreign business income
ii. 3.5 * FTC on foreign non-business income
c) SBD limit of $500,000

70
Q

The SBD limit of $500k is reduced if:

A

1) taxable capital (liabs & SHE) is greater than $10M. Get a reduced SBD if taxable capital is between $10M and $15M. After $15M, the limit is reduced to $0.
2) Passive investment income (AAII) for the previous yr was greater than $50M. Get a reduced SBD if passive investment income (AAII) is between $50M and $150M. After $150M, the limit is reduced to $0.

Take either 1) OR 2), whichever lowers the SBD limit MORE.

71
Q

What type of income is the general rate reduction of 13% applied to for a non-CCPC?

A

Taxable income

72
Q

What type of income is the general rate reduction of 13% applied to for a CCPC?

A

Taxable income, LESS:
- income eligible for SBD of $500k
- AII (since it’ll be taxed separately)

73
Q

How do you calculate AAII (passive investment income) for the purposes of reducing the SBD?

A

1) Remove capital gains/losses from assets used in active business
2) Remove capital loss carry-forwards
3) ADD portfolio dividends (dividends from non-connected corps)

74
Q

What type of income is subject to ART? Also, what type of income is 10.67% ART applied to?

A

AII is subject to ART.

ART of 10.67% is applied to the lessor of:
a) AII
b) taxable income, less amount that was eligible for the SBD

75
Q

What type of income is the M&P profits deduction of 13% applied to?

A

The lessor of:
a) M&P profits, less amt eligible for SBD
b) taxable income, less:
- amt eligible for the SBD
- 4 * FTC on business income
- AII

76
Q

How often are corporations required to make instalment payments? How is this different than the requirement for small CCPCs?

A

Corporations have to pay monthly instalments, except for small CCPCs who can pay quarterly installments (due on the last day of each quarter).

77
Q

Is Equity income on investments
accounted for using the equity
method of accounting taxable? What about dividends from equity investments?

A

Equity income on investments
accounted for using the equity
method of accounting is NOT taxable. Dividends from equity investments ARE TAXABLE, and need to be added to income.

78
Q

To what extent are gifts/awards taxable to an employee?

A

Non-cash gifts up to $500 in value aren’t taxable.
An additional $500 per year is not taxable if non-cash and give for at least 5 years of service, at incredments of 10 yrs.

79
Q

To what extent are club and recreational facility dues taxable to an employee?

A

Not taxable if they’re for the benefit of the employer.
Taxable if they’re for the benefit of the employee.

80
Q

Are reimbursements to employees taxable to the employee?

A

Not taxable if the reimbursement is for employment-related expenses. If the amount is for a personal expense, it is taxable.

81
Q

Are tools used for employment taxable?

A

Only if the employee gets to keep them. They’re not taxable if the employer keeps them

82
Q

Are tuition fees that an employer pays on behalf of an employee taxable to the employee?

A

Only taxable if the schooling is for the benefit of the employee. If for the benefit of the employer, it’s not taxable to the employee.

83
Q

Are the premiums and/or benefits received from both group plans and non-group plans a taxable benefit to the employee, if the employee pays 100% of the premiums?

A

If employee pays 100% of the premiums:
- The premiums are not deductible for the employee, but the benefits received are not taxable

84
Q

Are the premiums and/or benefits received from group plans a taxable benefit to the employee, if the employer pays 100% of the premiums?

A

If the employer pays 100% of the premium:
- the premiums paid are not taxable to the employee (since it’s a group plan), but the benefits received are

85
Q

Are the premiums and/or benefits received from non-group plans a taxable benefit to the employee, if the employer pays 100% of the premiums?

A

If the employer pays 100% of the premiums, then the premiums paid are a taxable benefit to the employee (since the plan is non-group, so specifically for that employee), but the benefits received are not taxable.

86
Q

If an employeer helps an employee with moving costs, is this a taxable benefit to the employee? (HINT: reimbursement vs. allowance)

A

1) Reimbursement: If employee pays and the employer reimburses, this is not taxable.
2) Allowance: If the employer gives an allowance, the allowance is taxable but the employee can deduct some moving exps (under Other Deductions)

87
Q

If an employee needs to move for employment purposes, and sells their house at a loss, resulting in their employer reimbursing them for some/all of the loss, how much of the reimbursement is a taxable benefit to the employee?

A

The reimbursement over $15k is half taxable.
OR use the formula:
Taxable benefit = (reimbursement - $15k) * 50%

88
Q

Are allowances for transportation paid to an employee generally a taxable benefit to the employee?

A

Generally, they are taxable unless:
They are reasonable amounts (both motor vehicle and non-motor vehicle), and spent for work purposes

89
Q

What are the requirements for motor vehicle expenses to be deemed reasonable (for the purposes of determining if they are a taxable benefit to the employee)?

A

Only reasonable if:
- they’re based on km’s travelled for business
- the employee doesn’t receive both a reimbursement and an allowance
- the employee is reimbursed an amount equal to or less than CRA’s limits (if reimbursement rates are greater than CRA’s limits, the entire amount is taxable)

90
Q

To what extent are non-motor vehicle expenses taxable?

A

If they are unreasonably high or unreasonably low. The amt is reasonable if its similar to the amt actually spent by the employee.
The exps are taxable, but the employee can deduct eligible exps.

91
Q

When does standby charge need to be calculated?

A

when employer gives employee a car

92
Q

When does the operating benefit need to be calculated?

A

When employer pays for emplyoee’s vehicle’s operating costs (ex. Fuel, insurance, registration, maintenance)

93
Q

What’s the formula for standby charge when the employer owns the car? (Include the reduction in standby charge as well)

A

2% * (full original cost * (available days/30))

Reduction is applied if employee uses the car more for business than personal, and if personal km’s are less than $20,004. Multiply the above formula by:

(personal use km’s / (1,667 * available days/30))

**if available for the full year, “avalable days/30” is 12.

94
Q

What’s the formula for standby charge when the employer leases the car? (Include the reduction in standby charge as well)

A

2/3 * (annual lease pmt - Portion of the lease payments made for insuring against loss or damages)

Reduction is applied if employee uses the car more for business than personal, and if personal km’s are less than $20,004. Multiply the above formula by:

(personal use km’s / (1,667 * available days/30))

**if available for the full year, “avalable days/30” is 12.

95
Q

What is the first thing you have to consider when you’re aboout to calculate the operating benefit?

A

Is the car used more for business or personal use?

  • This determines the formula you use
96
Q

How do you calculate the operating benefit when the car is used more for business than personal?

A

Use the lessor of:
a) personal km’s * prescribed rate
b) 50% of the standby charge

97
Q

How do you calculate the operating benefit when the car is used more for personal than business?

A

personal km’s * prescribed rate

98
Q

If an employee owns/leases a car, but the employer pays for their operating costs, how do you calculate the operating benefit?

A

% of total km’s that are for personal use * operating costs paid by the employer

**If the employEE has to reimburse the employER for the operating costs at all, the reimbursements paid by the employEE are deducted against their operating benefit.

99
Q

What is the formula for the Imputed Interest Benefit, when the loan is for a home purchase or relocation?

A

(Prescribed rate for the quarter – interest rate paid by the employee) × (number of days the loan was outstanding in the quarter ÷ 365) × amount of the loan outstanding

100
Q

What is the formula for the Imputed Interest Benefit, when the loan is for a reason other than for a home purchase or relocation?

A

[(Lesser of prescribed rate in effect when the loan was made and the prescribed rate for the quarter) – interest rate paid by the employee] × (number of days the loan was outstanding in the quarter ÷ 365) × amount of the loan outstanding

101
Q

What is the formula to calculate the employment benefit?

A

Employment benefit = (FV of the shares on the exercise date - exercise price) * # of shares

102
Q

When do you add the employment benefit to income for a public company vs a CCPC?

A

Public company: calculate the employment benefit at the exercise date.
CCPCs: calculate the employment benefit on the date of sale.

103
Q

When is a Division C deduction allowed for employee stock options, and how do you calculate it?

A

Division C deduction is 1/2 of the employment benefit.

For public companies: Div C deduction only allowed if the shares were not “in the money” on the grant date.

For CCPCs: Div C deduction only allowed if the shares were “in the money” on the grant date, OR if they were not in the money, but were held for at least 2 yrs after the exercise date, before being sold.

104
Q

What are the conditions for an employee’s expenses to be considered salesperson expenses (for the purposes of determining employment income)?
HINT: There are 6 conditions

A
  1. The employee was employed to sell or negotiate contracts
  2. The employee is paid fully or in part through commissions
  3. The employee is required to work away from the employer’s place of business
  4. The employee is required to pay their own expenses
  5. The employee doesn’t get an allowance
  6. The deductible expenses can’t exceed the commissions received during the year
105
Q

What are some expenses that can be deducted against employment income for a salesperson?

A
  • advertising and promotions, including 50% of the cost to entertain clients
  • 50% of meals, when traveling away from place of business for more than 12 hrs a day.
  • transportation, lodging, motor vehicle operating costs (ex. gas, maintenance & repairs, license and registration fees, insurance)
  • parking at client site
  • property tax/insurance on home office
106
Q

What are the conditions for an employee’s travel expenses to be deductible against employment income if they aren’t a commissioned salesperson?
HINT: There are 4 conditions

A
  1. The employee didn’t already deduct their travel expenses as a commissioned salesperson
  2. The emplyoee regularly has to work away from the employer’s place of business
  3. The employee is required to pay their own travel expenses per their contract
  4. The employee doesn’t get an allowance for travel
107
Q

What are some expenses that can be deducted against employment income for an employee (that isn’t a commissioned salesperson)?

A
  • 50% of meals, when traveling away from place of business for more than 12 hrs a day.
  • transportation, lodging
  • motor vehicle operating costs (ex. gas, maintenance & repairs, license and registration fees, insurance)
108
Q

What’s the general rule for dues and other expenses of performing employment duties to be deductible against employment income?

A

If the employee’s contract requires them to pay for their own costs (ex. salary of assistant, office rent, supplies such as office supplies, home office maintenance and cleaning, long-distance calls made for work).

109
Q

What are some of the costs deductible against employment income related to motor vehicle / aircraft costs?

A

You can deduct:
- CCA (addition to UCC is the lesser of $34k and the cost of the vehicle). Rate of 30% and AII applies.
- intereset paid on a loan used to purchase the vehicle (interest paid includes the imputed interest benefit). Interest paid is the lessor of $10 a day and the interest paid.

110
Q

What are the Conditions for home office expenses to be deductible against employment income?

A
  1. It’s where the employee mostly (more than 50% of the time) works

OR

  1. Both of:
    a) the space is used exclusively for work
    b) it’s regularly used to meet customers or other ppl for work purposes
111
Q

What types of home office expenses are allowed to be deducted against employment income if the conditions are met? What are the additional expenses that a commissioned salesperson is allowed to deduct?

A
  • utilities
  • home internet
  • repairs/maintenance
  • rent

Commissioned salesperson can also deduct:
- home insurance, property taxes

** all of the above must be prorated for the home office space as a % of the total home. Either on the basis of sq ft or number of rooms.

112
Q

What’s the limit of deductible expenses for a commissioned salesperson compared to a normal employee?

A

If you’re deducting exp’s as a commissioned salesperson, the max you can deduct is equal to the commissions you earned. For a normal employee, the max they can deduct is the emoloyment income earned.
Therefore a salesperson can choose to deduct their expenses as a normal employee instead to get a higher cap.

113
Q

Generally what amounts are taxable on deferred income plans?

A

Periodic payments made to the individuals are taxable, since contributions gererally aren’t deductible. Also lump sum withdrawals are taxable unless directly moved into another deferred income plan.

114
Q

Spouses can elect to split their CPP income equally. What is the minimum age that the non-contributing spouse can be at the time of the election?

A

60 yrs old

115
Q

What is the OAS clawback?

A

It’s when higher income earners are required to pay back some of their OAS payments received.

116
Q

How do you caluclate the OAS clawback?

A

Its the lessor of:
i) OAS benefits received in the year
ii) (Net income - OAS repayment threshold)*15%

117
Q

How does pension income splitting work?

A

A taxpayer can make a joint election w their spouse to allocate up to 50% of their eligible pension income to their
spouse. The pension income would be taken out of the transferor’s NI and added to the transferee’s NI.

** The only pension income thats eligible to someone under 65 is annuity pmt’s from RPP

118
Q

Are scholorships, bursaries, and fellowships received taxable under Other Income & Deductions?

A

No. If the student was in school full-time, then they are exempt from tax.
If they’re in school part-time, only tuition costs and program materials are exempt from tax.

119
Q

Are worker’s comp, social assistance, and guartanteed income supplement taxable?

A

They are added to income, but then deducted under Div C

120
Q

For tax benefits paid to a beneficiary after an employees death, what is the max amount of the payments that are exempt from tax?

A

$10k. It gets offered to the spouse first, and whatever is remaining of the 10k goes to other beneficiaries, if any.

121
Q

What are the 5 conditions for spousal support to be taxable to the recipient and deductible to the payer?

A
  1. pmt’s are periodic (not lump sums)
  2. payments are considered an allowance for the maintenance of the recipient
  3. payments are made during a time the spouses or former spouses were living apart as a
    result of marital breakdown
  4. recipient can use the amount in any way
  5. payments are made as a result of a court order or written agreement
122
Q

How do you determine if spousal support payments are periodic or lump sum?

A

Periodic payments may be described in a court order or agreement, and require that:
- the pmt’s are at regular intervals
- the amount of the pmt’s are fixed and predetermined (unless for medical or education, which aren’t fixed but still count as periodic if this is disclosed in the agreement)

123
Q

What are the three criteria for third party payments made on behalf of one former spouse to another are deductible to the former spouse and taxable to the latter?

A
  1. pmt’s are made inthe current or preceding yr as a result of a tribunal or written agreement
  2. the exp was incurred for the maintenance of the spouse benefiting from the funds
  3. the court order or written agreement refers to the ITA
124
Q

Is child support taxable under Other Income and Deductions?

A

Child support is not deductible to the payer or taxable to the recipient. It’s a tax-free transfer of money.

125
Q

What happens if a taxpayer is supposed to pay both spousal and child support, but the total pmt’s made in the year are lower than the required pmt’s per the agreement?

A

The amount of child support per the agreement would be subtracted from the total payments made, and the remainder would be the designated spousal support payments.

126
Q

What are the 2 scenarios in which moving expenses are deductible under Other Income and Deductions?

A
  1. Moving to a new business or employment location in Canada
  2. Moving to attend a qualifying post-secondary educational institution on a full-time basis
127
Q

What are the 3 conditions for moving expenses to be deductible under Other Income and Deductions?

A

a. move must result in new residence being at least 40 km closer to work/school

b. moving expenses can’t exceed income from the new location (if the costs exceed income, they can be carried forward and deducted against future income at the new location).

c. moveing exp’s had to have been paid by the taxpayer.

128
Q

What are some moving costs that are deductible on a qualifying move under Other Income and Deductions?

A
  • travel/lodging/meal costs (can use simplified method)
  • transportation and storage of belongings
  • cost of meals & accommodation near new or old home (up to 15 days)
  • selling costs of old home, cost to maintain home
  • cost to maintain the vacant home (property taxes, mortgage interest, etc.) up to $5,000
129
Q

What is the simplified method of claiming meals and vehicle costs for a qualifying move for the 15 day maximum?

A

Meals: flat rate of $23 per day, for $69 daily max

Vehicle exp’s: per km rate per the CRA website

130
Q

Child care expenses are allowed to be deducted under what 4 scenarios? HINT: They allow the taxpayer to do one of the following…

A
  1. be employed
  2. run a business
  3. carry on research for which a grant was rec’d
  4. attend school
131
Q

Who is allowed the deduction for child care exp’s?

A

The parent of the child or a supporting person, whoever has the lowest net income.

132
Q

If parents are separated, who is allowed to deduct child care expenses under Other Income and Deductions?

A

On separation, the higher-income earner / lower-income earner rules do not apply. They’re both considered single and can both deduct child
care expenses for themselves.

133
Q

What are the 2 additional restrictions to child care deductions?

A
  1. The child has to be below 16 yrs old, or dependent due to physical or mental impairment, and have an income below the basic personal tax credit for the year
  2. Child care pmt’s cannot have been made to a parent or other supporting person, or to
    a person claimed by the taxpayer as a dependent.
134
Q

What are the annual childcare limits for children with no disability?

A

Below 7 yrs old - $8k
From 7 to 16 yrs - $5k

135
Q

What are the annual childcare limits for children with a disability?

A

Over 16 yrs & doesn’t qualify for the Disability tax credit - $5k
Any age & does qualify for the Disability tax credit - $11k

136
Q

What’s the max amt’s that can be claimed for kids boarding/camps?
HINT: 3 groups

A

Under 7 yrs - $200 per wk
Child eligible for disibility tax credit - $275 per wk
All other children $125 per wk

137
Q

How do you calculate earned income for the purposes of determining the maximum child care deduction?

A

Include:
- Employment income before employent deductions
- training allowances & reserach grants
- net business income (excluding business losses)
- gov’t disability pension

138
Q

How do you caluclate the max deduction for the lower income spouse?

A

The lessor of 3 amts:
1. actual amount paid for child care services, other than cost of boarding/camps, but ADD limited allowed boarding/camp costs

  1. total annual limits for the kids’ age groups
  2. 2/3 of taxpayer’s earned income
139
Q

In what scenarios is the higher income spouse allowed to deduct childcare exp’s?

A

If lower income spouse is:
- in school part or full-time
- infirm for at least 2 wks
- in prison at least 2 wks
- living apart for at least 90 days due to marital breakdown

140
Q

How do you caluclate the max deduction for the higher income spouse?

A

The lessor of 3 amts:
1. actual amount paid for child care services, other than cost of boarding/camps, but ADD limited allowed boarding/camp costs

  1. total annual limits for boarding/overnight/camp (*TIMES number of weeks the lower income spouse was in school, prison, separated, infirm)
  2. 2/3 of taxpayer’s earned income
141
Q

Which spouse’s max childcare exp deduction is calculated first?

A

Calculate the higher income earner’s first, then the lower income one and deduct the total deduction for the higher income earner from the lower income earner’s max deduction.

142
Q

In what situation would the disability supports deduction be better than claiming medical exp tax credit?

A

If the individual is in any tax bracket other than the lowest tax bracket. A medical expense claim for a full-time attendant precludes the taxpayer from claiming the disability tax credit. A disability supports
deduction claim does not preclude the taxpayer from claiming a disability tax credit.

143
Q

How do you calculate the max disability supports deduction?

A

The deduction is the lessor of:
1. Total disability supports payments made

  1. Total of:
    a) employment income (before deduction), business income, scholarships. research grants
    b) if individual attends school, least of:
    i. $15k
    ii. $375 * number of wks of attendance
    iii. the amt by which the individual’s NI is greater than a).
144
Q

What are the main categories of Division C deductions for an individual?

A

1) Stock option deduction
2) Losses
3) lifetime capital gains deduction
4) deductions for welfare, worker’s comp, GIS, etc.

145
Q

For public company common shares, how do you calculate the stock option deduction, and when are you permitted to claim it?

A

Stock option deduction is half of the employment benefit, and it is only allowed to be claimed if the shares were not in the money at the grant date. Can be claimed in the year the option is exercised.

146
Q

For CCPC common shares, how do you calculate the stock option deduction, and when are you permitted to claim it?

A

Stock option deduction is half of the employment benefit, and it is only allowed to be claimed if the shares were not in the money at the grant date, OR if they were in the money, they had to have been held for at least 2 yrs after exercised.
Can be claimed in the year the option is sold.

147
Q

What are the deductions for northern residents? What are the conditions to claim the deduction?

A
  1. If living in the prescrubed area - $22 per day
  2. if living in unmaintained area - $11 per day

To claim, have to have lived in the prescribed northern or intermediate zone during the year, for at least 6 consecutive months

148
Q

What is the lifetime capital gains exemption used for?

A

Used against capital gains on disposal of QSBC shares, and qualifying farm/fishing property.

149
Q

How do you calculate the Div C deduction related to the lifetime capital gains exemption?

A

LCGE * 50% = LCGD, which is the Div C deduction

150
Q

How do you determine the lifetime capital gains deduction?

A

The lessor of:
a) unused lifetime deduction
b) annual gains limit
c) cumulative gains limit

151
Q

How do you calculate the annual gains limit?

A

A - B, where:

A is the lessor of:
a) total net capital gains for the yr
b) net taxable capital gains on QSBCS

B is the total of:
a) The difference between Aa) and Ab), aka the taxable capital gains in excess of the gains related to QSBCS
b) the ABILs realized in the yr, whether claimed or not

152
Q

What is CNIL? How is it related to the lifetime capital gains exemption?

A

The balance in the CNIL accounts is the cumulative excess of investment-related expenses over the
investment-related income.

It limits the availability of the LCGE by creating a “hole”.

153
Q

What are some types of investment-related income included in the determination of CNIL?

A
  • property income (rental income, dividends, interest)
  • net capital gains on property not eligible for the capital gains deduction
154
Q

What are some types of investment-related expenses included in the determination of CNIL?

A
  • rental losses
  • interest and other carrying charges associated with earning investment income
  • net capital losses carried over and deducted against net taxable capital gains of the carryover
    year that were not eligible for the capital gains deduction
155
Q

How can you reduce your CNIL balance through tax planning?

A

Paying out dividends to owners to increase property income and therefore reduce CNIL.

CPA PEP - Taxation (1 decks)

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