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Taxation CPA > Unit 1 > Flashcards

Unit 1 Flashcards

1
Q

ITA6(1)(b)(i)(A)

A

6: Section
(1): Subsection
(b): paragraph
(i): subpara
(A): Clause

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2
Q

Primary source

A

— tax legislation and related legislation (federal and provincial)
— case law

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3
Q

Secondary source

A
  • CRA publications and documents
  • Departments of Finance publications
  • CPA firms publications
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4
Q

Income tax folios

A

CRA’s interpretation of the law for a particular subject

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5
Q

CCA calculation

A

Opening UCC
Additions
Less deductions (lesser of POD and ACB)
Net A-D
Add: Acc investment incentive (or immediate expensing)
CCA base (sum of all)
Less CCA
Less AII (or immediate expensing)
Ending UCC

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6
Q

Assets to be put into separate CCA classes

A
  • Luxury vehicles (limited to 36,000)
  • Rental properties >$50,000 (Actual cost)
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7
Q

Separate Class 8

A
  • Photocopiers
  • Electronic communications equipment
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8
Q

CCA rate for 90% business buildings

A

6%

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9
Q

CCA rate for 90% manufacturing buildings

A

10%

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10
Q

Immediate expensing rules

A
  • Max 1.5M
  • Properties acquired after April 2021, before 2024
  • NOT INCLUDING CLASSES 1-6, 14.1, 17, 47, 49, 51, and non-arms length transactions
  • Only for CCPCs and proprietorships
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11
Q

CCA recapture

A

Negative remaining UCC balance gets added back as income

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12
Q

CCA terminal loss

A

Positive remaining UCC balance gets deducted from business income

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13
Q

Special rule: Sale of land and building with terminal loss on building and gain on land

A
  • If terminal loss > CG: reduce the terminal loss by the capital gain
  • If CG> terminal loss: Reduce CG by the terminal loss then 50% inclusion in income
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14
Q

Class 10

A
  • Passenger vehicles costing up to 36K
  • 30%
  • ADDITONS IS THE GROSS AMOUNT (don’t take away trade-in value)
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15
Q

Class 10.1

A
  • Luxury vehicles >36K (CCA additions is limited to 36K)
  • No recapture or terminal loss
  • When immediate expensing has not been taken, they can deduct 1/2 of the CCA that otherwise would have been claimed (ie. Opening UCC x 30% x 1/2)
  • If immediate expensing taken, will have adjusted proceeds added back to income (= 36,000/OG cost * Sale proceeds)
  • must be put into a separate CCA class
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16
Q

Class 12

A

Tools, application software <$500
100% CCA

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17
Q

Class 13

A
  • Leasehold improvements (lease payments are deductible)
  • = Cost / 5yrs (or remaining lease term + first renewal)
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18
Q

Class 14

A

Limited-life intangibles
- CCA = Cost / legal life
- No short taxation year (must claim all)

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19
Q

Class 14.1

A
  • Unlimited life intangibles
  • or incorporation costs in excess of $3000
    = 5% declining balance
  • NOT eligible for immediate expensing
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20
Q

Class 43.1

A

Electrical vehicle charging station
- 100% CCA claim on Net additions
- 30% DB

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21
Q

Class 50

A

Computer hardware and systems software
- 55% DB

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22
Q

Class 53

A
  • Manufacturing and processing equipment
  • 50% DB
  • 100% CCA on additions IMMEDIATE EXPENSe
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23
Q

For assets with trade-ins

A

Take the trade-in value for the disposition amount

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24
Q

Short taxation year and CCA

A

Apply AII to determine CCA base then pro-rate based on days

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25
Q

ITA 18(1) Expenses

A
  • must be incurred for the purposes of earning income
  • must be reasonable (ITA 67)
  • cannot be capital in nature (unless allowed under Section 20)
  • cannot be a reserve (unless allowed under Section 20)
  • cannot be a personal expense
  • cannot be incurred to earn tax exempt income (such as life insurance premiums unless it is required as collateral for financing by bank
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26
Q

Bond discount amortation

A
  • not deductible
  • only deducted when the bond liability is distinguished
  • interest is deductible to the extent it was paid
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27
Q

Club dues and recreation

A
  • Not deductible if it is a membership
28
Q

Asset writedowns

A
  • write-downs and impairment are added back to income until realized
29
Q

Foreign advertising

A

not deductible for tax purposes

30
Q

Life insurance where the corporation is the beneficiary

A

Not deductible UNLESS:
- it is required for collateral for a loan
- and Interest payable on the loan is deductible

31
Q

Life insurance where the employee is the beneficiary

A
  • Deductible for the corporation because it is taxed to the employee
32
Q

Unpaid amounts in a non-arms length transaction

A

must be included in income if in 3rd year, it is still not paid

33
Q

Unpaid bonuses

A
  • Not deductible if unpaid AFTER 180 days after fiscal year.
  • if <180 days, deduct when declared (at YE)
  • if > 3years, can deduct when declared
34
Q

Bond premium amortization

A
  • DEDUCT from income
    Interest on bonds is deductible to the extent it was paid
35
Q

Landscaping costs

A

costs paid in the year are deductible if they are for the building used in business

36
Q

Warranty reserve

A

= ending payable less opening payable
OR
= Warranty expense less Cash paid in the year

37
Q

Bad debt reserve

A
  • deductible if based on anticipated bad debts (ie. % of outstanding AR)
  • Must back out PY reserve and then deduct CY reserve
38
Q

Reserve for undelivered goods or service

A
  • ## when cash is received in advance, a reasonable reserve can be claimed
39
Q

Financing fees

A

Fees incurred for the purpose of borrowing money are deductible on a straight-line basis over five years (ie. share issuance costs)

40
Q

Interest paid

A

Deductible if relates to something that is used to earn income (ie. office building)

41
Q

Lease payments

A

Add back interest expense
Deduct monthly lease payments

42
Q

Carrying costs on vacant land

A
  • ie. property taxes, interest
  • Deductible to the extent of income earned on the vacant land. Non-deductible portion is added to the cost base of the land
43
Q

Soft costs (not deductible)

A

Soft costs incurred during the period of construction, renovation, or alteration of a building are not deductible.
Because they are not deductible, they are added to the cost base of the building.
Soft costs include interest, professional fees, insurance, and property taxes.

44
Q

Eligible Dividend

A
  • Gross up = 38%
  • DTC = 6/11 of gross-up
45
Q

Ineligible Dividend

A
  • Gross up = 15%
  • DTC = 9/13 of GU
46
Q

Interest income for individuals

A
  • reported the earlier of:
    1. when cash is received
    2. accrual on anniversary date (1day before 1 year after issued)
47
Q

Interest income for corporation

A

Accrual method: report interest based on the passage of time based on the # days principal debt outstanding
= principal x interest rate

48
Q

CCA deductions for rental

A
  1. determine rental income for each property
  2. determine CCA for each property and sum total
  3. Deduct CCA up to the total net income of all properties
49
Q

Capital versus income - factors

A
  • intention
  • relationship to the business
  • nature
  • number of similar transactions
  • length of period of ownership
  • feasibility of taxpayer’s intention
  • reason for sale
50
Q

Superficial losses

A
  • 3 conditions:
    1. taxpayer, spouse, or corporation controlled by aforementioned sell prop
    2. require it within 30 days
    3. still own it after 30 days
  • not deductible in the period (add to cost base of remaining properties)
51
Q

Capital gains reserve

A

When a capital gain is recieved over time
Lesser of:
- capital gain × (proceeds not yet due / total proceeds)
- 20% of capital gain × (4 – number of preceding years ending after the disposition)

Amount to include in the year:
= (CG - reserve) * 50%
After:
= (PY reserve - CY reserve) *50%

52
Q

Personal use property

A
  • no capital losses
  • Greater of $1000 or actual
53
Q

Limited personal property

A
  • Cap losses can only be applied against LPP capital gains
  • carry back 3yrs and forward 7yrs
  • Greater of $1000 or actual
54
Q

Primary intention: Capital asset vs inventory

A
  • did the taxpayer intend to use the asset as an item of inventory or as a capital asset? (if intended to hold for a long time, it is a capital asset)
55
Q

Secondary intention: Capital asset vs inventory

A
  • If the primary intention to use the asset as a capital asset was frustrated, did the taxpayer have a motivating intention to sell the property at the time of purchase? (if you couldn’t use it as intended and could sell it at a profit when you bought it, it would be business income)
56
Q

Intention of sale: factors

A
  • relationship of transaction to business
  • Nature of asset
  • freq. of transactions
  • length of period of ownership
  • feasibility of taxpayer’s intention
57
Q

Capital gain

A

= POD - ACB - expenses of disposition

58
Q

POD

A
  • cash
  • note receivable
  • other property
  • assumption of debt
59
Q

ACB

A
  • DEDUCT Govt grants from ACB
  • Add back carrying costs on vacant land
  • Add employee stock option benefit
  • Add superficial losses
60
Q

Call option

A

Grantee gets right to purchase (you need to call the store to but stuff), add to purchase price if property

61
Q

Put option

A

Grantee gets right to sell, deducted from proceeds of sale

62
Q

Grantee tax

A

UPON EXPIRATION, realized a capital loss equal to the option price

63
Q

Grantor tax

A

UPON GRANTING, realized a capital gain equal to the option price

64
Q

Aggregate investment income

A
  • dividends from canada
  • TCG
  • property interest
65
Q

Class 1

A

Deduct government grant from ACB

66
Q

Sale of land

A

= POD
Less ACB
Less vacancy costs NET of property income

Taxation CPA (3 decks)

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