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Taxation Planning Flashcards

1
Q

T3

A

Statement of trust income, lists the amount of income (interest, dividends, capital gains) distributed to investors holding mutual funds trust units in non-reg

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2
Q

T4

A

Statement of remuneration paid, total compensation

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3
Q

T5

A

Statement of investment income, usually issued by financial institution, and report interest, dividends and capital gains

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4
Q

Corp tax rates

A

38% of taxable income
9% for CCPC

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5
Q

Residency for corporations

A

Common law is resident in country in which its central management and control is exercised

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6
Q

Organizations don’t file tax

A

-tax exempt crown corporation
-hutterite colonies
-registered charities

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7
Q

Taxes filing

A

Personal: Apr 30
Self-employed: june 15, with any amount owing due apr 40

Tax due for corporation: due 6 months after their fiscal year end, tax owing due 60 days after fiscal year end and 90 days for corporation claiming small business deduction

Trust , due 90 days after year end

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8
Q

Tax installment payments

A

Not to pay advance but tax that would ordinarily be due.

Due on last day of each month

For incorp, make quarterly payments

Farming income, due end of year only

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9
Q

Federal basic personal amount

A

$15,000 in 2023 (under no tax)

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10
Q

Child care expenses?

A

$8000 annually child under 7

$5000 to age 16

$11,000 for child qualifies for DTC and overall limit is 2/3 of earned income of lower income spouse

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11
Q

When can higher income earner use child care expenses deduction?

A

Higher income earner can claim deduction when lower income spouse is

-attending designated education institute

-infirm and unable to care for children

-confined to prison or living apart for a least 90 days due to marital breakdown

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12
Q

Canada Child Benefit

A

$7437 per year under 6

$6275 aged 6-17

Under $32,797, earn maximum

$32,797-$71,060, reduced by 7% greater than $32797

Over $71060, reduced by $2678+3.2% of greater than $71060

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13
Q

Tuition fees credit

A

15% of tuition, books.

You can transfer upto $5000 to spouse, parent or grandparent or you can carry them forward

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14
Q

Disability tax credit

A

$8870 and 15%

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15
Q

Home buyer’s plan

A

$35,000 deduct from RRSP, must be rapid over the next 15 years

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16
Q

CPP contributions credit

A

15% tax credit on CPP contributions

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17
Q

Refundable tax credit

A

Treated as actually been paid, negative sum , balance will be refunded to tax payer

-refundable medical expense supplement
-refund of investment tax credit
-employer and partner GST rebate
-working income tax benefit for low income families who have earned income from employment or business

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18
Q

Non-refundable tax credit

A

Worthless once taxes reach zero

-EI contributions
-medical expenses over specified percentage (3%) of net income
-claim expenses paid in any 12 months period ending in the taxation year and not claimed in the previous year (medical expenses, combine all and have higher income spouse claim)
-pension income amount
-age amount over 65
-public transit
-charitable donations, limited to 75% of taxpayer’s net income, 100% in year of death

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19
Q

Attendant Care deduction

A

Deduct lessor of eligible attendant care expenses paid during the year and 2/3 of earned income

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20
Q

Business investment loss deduction

A

Includes loss on sale of share
50% of such loss can be deducted against all sources of income

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21
Q

Moving expenses deduction

A

To be eligible, new location must be at least 40 km closer to new work

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22
Q

Eligible child and spousal payments

A

Spousal support-deductible to payer and taxable to recipient if they meet one of followings, written agreement, paid periodic basis, living apart

Child support, payments are not deductible, not taxable to recipient

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23
Q

Carrying charges

A

Deduct carrying charges incurred to earn investment income

Include fees for mgmt.,accounting fees for recording investment income, investment counselling fees with reg specific investment

To be eligible for interest to be deductible, securities purchased with borrowed funds is not tax exempt

Interest on student loans are not tax deductible

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24
Q

Home office expenses

A

Deductible if it is the place where individual principally performs duties of employment over 50%

Reasonable proportion of eligible expenses are deductible on prorated basis
-according to floor space
-according number of rooms in house

Home maintenance
Insurance
Property tax
Mortgage interest (not interest)
CCA-not recommended
Rent

Employee, on home maintenance and rent

Employee (commission based) all above except mortgage interest and CCa

Maximum deductible amount is equal to net income earned. You cannot create a business loss through use of at home office expenses

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25
Q

Deductible legal fees

A

-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

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26
Q

Businesses meal and entertainment expenses

A

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

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27
Q

Reimbursement of employee’ moving cost

A

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

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28
Q

Reimbursement of education for employee

A

Taxable benefit unless fess paid were untaken by employer for their benefit

But employee can claim tuition fee credit on tax return

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29
Q

Group insurance

A

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

30
Q

Rental income

A

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

31
Q

Superficial loss

A

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

32
Q

Alternative minimum tax

A

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

33
Q

Income attribution rules

A

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

34
Q

Tax On Split Income (TOSI)

A

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

35
Q

Charitable donation

A

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

36
Q

First time donor’ super credit

A

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

37
Q

Donation can be carried forward

A

Upto 5 years

38
Q

Charitable giving as part of estate planning

A

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

39
Q

Capital gains reserve

A

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.

40
Q

Canandian CCPC
(Canandian controlled private company)

A

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

41
Q

Personal service business

A

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

42
Q

Specified investment business

A

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

43
Q

General Rate income Pool (GRIP)

A

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

44
Q

Loans to shareholder (method by business owner drawing income from canadian controlled private corp)

A

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

45
Q

Theory of intergration

A

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

46
Q

Purify

A

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

47
Q

Utilyzing holdco

A

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

48
Q

Dividend advantages

A

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

49
Q

Salary advtanges

A

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.

50
Q

Capital Dividend Account

A

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

51
Q

Allowable Business Investment Losses (ABIL)

A

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

52
Q

Lifetime Business Capital Gains Exemption

A

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

53
Q

Tax shelter for oil and gas ventures

A

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

54
Q

Tax shelter for mining exploration investment

A

Exploration 100% development 30% expenses deductible

55
Q

Tax shelter for limited partnership constraints

A

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

56
Q

Tax shelter for whole and universal life insurance

A

Exempt will allow accumulation of investment income sheltered from tax.

57
Q

Tax shelter for farming and fishing property

A

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

58
Q

US snowbird

A

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

59
Q

Residency exemption
Closer Connection

A

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

60
Q

US property, tax of rental income

A

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

61
Q

Taxation on sale of us real oroperty

A

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

62
Q

US mortgage

A

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

63
Q

Banking, money management in US

A

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

64
Q

US estate tax

A

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

65
Q

US Estate tax exclusion

A

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

66
Q

Snowbird’ estate tax of US asset

A

No estate tax paid if US assets are less than $60k

No estate tax if worldwide estate is less than $12.92m

67
Q

Estate tax planning strategies for Canadian in US

A

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

68
Q

Will planning for snowbird

A

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

69
Q

CPP taxation

A

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

70
Q

When do you register GST/HST

A

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

71
Q

Self employed filing tax

A

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

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