Taxation Planning Flashcards

Question

Deductible legal fees

Answer 1

-to collect wages or other remuneration are deductible -family law In order to enforce pre existing rights to interim or permanent support are deductible(both personal and spousal support) However legal cost establish spousal supports amounts or to increase the amount of spousal support are not deductible If above costs are incurred in terms of child support, then they are tax deductible

Answer 2

Only 50% of costs are deductible by company for tax purposes

Answer 3

Not taxable benefit to employee as long as it is not a general allowance If jot reimbursed, employee can deduct costs if both old and new residence are Canada. Nw location is 40km closer to new work location

Answer 4

Taxable benefit unless fess paid were untaken by employer for their benefit But employee can claim tuition fee credit on tax return

Answer 5

Employer paid premiums for group life insurance considered taxable benefit for employees Premium for sickness, accident, disability, income maintenance and paid for by employer is taxable benefit to employee

Answer 6

Deduct current expense (short period) Restores property to its original condition, replacing parts of property. Capital expense, lasting benefit or advantage (improves property beyond original condition) Advertising, insurance, management and admin fees, offixe expenses, prepaid expenses, professional fees(legal and accounting fees) property tax, repair/maintenance, salaries, bank charges, travel, utilities.. Expenses cannot deduct, land transfer taxes. Mortgage principle, penalties, value of your own labour, personal portion of expenses Taxpayer cannnot use CCA to create or increase a rental loss. Maximum that can be deducted is limited to net rental income to $0 Rental losses can be used to offset employment income or capital gains

Answer 7

Taxpayer incurs loss on disposition of capital property while identical property is purchased by taxpayer or affiliate within a period of 30 days (before or after disposition), 61 days window, the superficial loss is added to the ACB of acquired property Does not apply to Death Immigration Recognition of bad debt Expiry of option Change of use of property

Answer 8

Applies to income above $40,000 Applies on taxable gains, dividends and claims tax credit. Liability that exceed regular tax can be carried forward 7 years and can be used as deduction when futur income under regular tax calc exceeds AMT Recalculation of taxes owed by removing certain tax preferences when compared to regular tax calculation

Answer 9

Income arising from the transfer of property be taxes in the hands of transferor and not in the hands of the transferor’ spouse or minor children If sale, must be at fair market value, otherwise income/loss and capital gains/losses attributed to seller (to spouse, child sibling under 18) In the marriage breakdown, where living apart, attribution doesn’t apply Child tax beneift, although paid to parent, It is on behalf of child. So invest in benefit under child’ name will not have the ncome attributed baxk

Answer 10

Kiddie tax, however, as of Jan 1 2018, the TOSI applies to any Canadian resident 18 or over. Apply to many types of income received from private corporation, including interest, div, as well as capital gains

Answer 11

Donations of publicly traded shares in kind are exempt from capital gains tax and eligible for charitable donation tax credit based on FMV. You can claim upto 75% of net income 15% on the first $200 and 33% of balance If you have spouse, you can combine your donations and claim them on one tax return

Answer 12

Entitled to 40% credit for $200 and 54% credit for portion between $200 and $1000

Answer 13

Upto 5 years

Answer 14

Making gift now: claim upto 75% of net income Making through will: 100% Establishing charitable remainder trust or residual trust: transfer asset into inter vivos trust naming yourself as income beneficiary, and charity as capital or remainderman

Answer 15

Proceeds from sale will not all be receivable in the year of sale, you can defer portion of capital gain by claiming a reserve. At least one fifth of taxable gain must be reported in the year of sale and each of the four following years. Exception is farm, dishing properties, you can claim over max 10 years.

Answer 16

9% tax upto $500,000 15% for $500,000 and over

Answer 17

Prevents employee from incorporating his service to benefit from tax advantage if earning income through incorp. CRA considers corp to be carrying on PSB if it meets following 5 -business providing services -individual performs through corp., would be regarding as employee if corp didn’t exisi -incorp employee or specified shareholder owns more than 10% of shares -corp employees fewer than 6 full time employees -fees for service not received from associated corporation

Answer 18

Prevent taxpayer from gaining advantage of small business deduction by incorp company to earn passive income SIB is business with principle purpose to derive income from property and fewer than 5 full time employees Not eligible for small business deduction

Answer 19

Amount of retained earnings that is taxable income of corporation that has not benefited from small business deduction From this pool, corp can pay eligible dividends

Answer 20

Shareholder loan amount is made up of all capital you contributed to corp and all purchases made on behalf of corp using personal funds less cash withdrawal and personal expenses paid by company Whenever you withdraw more than above amount, you have 1 year from fiscal year end to pay it back. Interest does not have to be paid. If you don’t pay it back, CRA forces you to include principal portion as income in the following year Shareholder can receive loan from corp without having to pay tax on principle as long as agreement has made to repay the loan within reasonable time frame and it was for following purposes, home purchase, purchase of previously unissued shares of corp or purchase a car to use in work

Answer 21

Regardless of whether you earn income personally or through comb of corporately and personally taxed income, net income after all tax is paid should be the same

Answer 22

When asset do not meet 90% SBC test, shareholders can attempt to purify assets, to adjust mix of active and passive assets. Use passive assets to pay down liabilities and buy active business assets or pay div to shareholders. Meet the 90/10 ratio or active to passive

Answer 23

Can be eatablished to hold incrstment portfolio purchaed witth earnings from Opco Div paid by opco to holdco is not subject to twxation Holdco cannot use small businesses deduction, div it distributes to shareholders qualify for div gross up Advantage -creidtor protection -estate freeze -purification -income solitting -protection from legal claims against operating income -tax deferral opprotunities Disadvantage -additional costs -additional regulatory and reporting requirements -double tax might occur

Answer 24

Possible to receive tax free income upto certain threshold Div doesn’t require shareholder to be an employee of business Paying div doesn’t require personal taxes to be remitted at source, salaries require income tax, EI and cop to be withheld by employer

Answer 25

Entitle to basic personal amount If company’ taxable income exceeds its SBD, salaries can reduce exposure to corporate income tax Div recipient may be required to remit quarterly personal income tax installments in future years, this is unlikely for salaried, since tax is withheld at source If personal income is so low that div tax credit would be unused , salary may be more tax efficient Paying for employer and employee CPP contributions and EI entitles the business owner to fully indexed pension in retirement and in the event of disability, as well as income insurance in the event of involuntary job loss.

Answer 26

CDA allows for funds to be received personally tax free For ex., if corporation has capital gain, the non- taxable portion will be added to this account (and capital div received from other corp., non-taxable portion of disposition of eligible capital property, proceeds of life insurance) Deduction: capital dividend paid

Answer 27

Capital loss realized on disposition of debt or equity of CCPC ABIL=business investment loss *capital gains inclusion rate (50% now) ABIL in excess of that used to reduce income to zero can be carried back 3 years and carried forward 10 years as non-capital loss. Against capital gains, can be carried forward indefinitely Amount of ANIl can be deducted agains other income must be reduced by any capital gains exemption claimed in prior years

Answer 28

Applies to Qualified Small Business Corporation , which defined as CCPC, 90% or more assets valued at FMV are used in an active business carried on primarily in Canada OR CCPV whose assets consist of share or debt of connected CCOC that meet the definition above To qualify the CCPC shares must not have been held by anyone other than taxpayer or persons related to taxpayer throughout the 24months immediately preceding disposition, also more than 50% of corp’assrts must have been used in active business in canada or invested in other small buss corp or combination of both Also qualifying for exemption is qualified farm property and qualified prop used in fishing business At death, deceased taxpayer can use unclaimed capital gains exemption and opt out the spousal rollover provision, ultimately transferring asset to spouse at higher ACB

Answer 29

Canadian exploration expenses fully deductible in year incurred Development expenses can written off 30% declining basis and some development are fully deductible Purchase price of canadian oil and gas may be amortize on 10% declining balance basis

Answer 30

Exploration 100% development 30% expenses deductible

Answer 31

LP’ tax deduction and tax credits are generally restricted to amount actually invested and at risk in partnership. But it is possible for limited partner to claim tax deductible losses and receive cash distributions that exceed amount invested

Answer 32

Exempt will allow accumulation of investment income sheltered from tax.

Answer 33

Gains on disposition of qualified farm property and qualified fishing property are eligible for lifetime capital gains exemption l. Must demonstrate cra that at some point thr farm or fishing property will produce profit. Will not provide exemption if soley for personal use Tax free rollover is permitted on qualified farm if property was used for farming in canada immediately before the transfer by taxpayer and then transferred by sale or gift to child resident in canada

Answer 34

If never spent more than 121 days in the US in any tax year, they will never be considered US resident under this test

Answer 35

Spend less than 183 days in current year, maintain tax home or where they normally live, maintain tax home has greater value than their assets in US

Answer 36

Either A or B A, 30% on gross without any deduction B. Reduction of gross rent by ordinary expenses which is mandatory. To do this make election to IRS and tenant, and rental income must be part of canadian tax return and foreign tax credits are also available to avoid double taxation

Answer 37

If property held longer than 12 months they will pay 0-20% depending on tax bracket. If less than 12 months they pay tax based on US graduated tax rates

Answer 38

Amortization usually 15 or 30 years US mostly fixed More flexible to refinance Interest calculation monthly Downpayment 20% Points, costs in US to evaluate, prepare and submit the loan app

Answer 39

Regulation prevents Canadian opening Us brokerage account Bank accounts allowed, but interest on the accounts are exempt from US taxation No tax for Canadian owning US gov’t securities or corporate bonds Other bonds or debt instruments are 15% withholding tax US source dividend 15% withholding tax US capital gain, not taxed in US, only in Canada IA in US allowed to service Canadian for RRSP, RRIf and LIF as of 2000 but non-reg not allowed FATCA , requirements to make sure US resident that own accounts outside US are reported by those financial institutions to IR

Answer 40

Maximum tax rate of 40% No estate tax was payable on worldwide estate value $12.92 Million

Answer 41

Shares of non US corporation(even if located in US) US bank deposits Canadian MF holding US shares American Depository Receipts(ADR), foreign stocks trading in US exchange Tangible property that is merely in transit in US Life insurance proceeds

Answer 42

No estate tax paid if US assets are less than $60k No estate tax if worldwide estate is less than $12.92m

Answer 43

Annual gift exemption is $16K with no limit on number of recipients Ensure snowbird’ overall US worldwide estate is below $12.92M Consider using MF to hold US shares Consider holding US shares through Canadian corporation Consider acquiring life insurance to cover taxes at death in both Canada and US helps insure the tax liability but life insurance held personally are typically included in snowbird’ worldwide estate Real property should be held joint- rights of survivorship, so title passes tax free to surviving spouse Finance US real property using non-recourse mortgage, reduce estate value by amount of mortgage Consider holding us property through single purpose Canandian corp( does not work, only before 2004) Purchase US real property through Canadian resident discretionary trust, single person cannot be beneficiary and 21 year disposition rule apply

Answer 44

Might want to consider separate section in will that deals with US property

Answer 45

Deduct employer contribution and claim 15% federal tax credit on employee share

Answer 46

When taxable revenue exceeds $30,000 last four consecutive quarters or single quarter

Answer 47

Can file tax as late as June 15 but owing tax must be paid by Apr 30 Tax installment, required to remit in quarterly installments $3000 is tax installment threshold. Below this amount, doesn’t have to be paid in installments