Week 5 IC - Personal tax

Question 1

Personal - Tax instalments

Answer 1

When individual exceed $3,000 tax payment (total tax less amount withheld at source. Instalment may be reduce if you are expecting you have sufficient income tax withheld from your pay throughout the year or your total income to decrease

Question 2

Employment income is not reported on an accrual basis?

Answer 2

yes

Question 3

Shareholder loan

Answer 3

s. 15(2) - required shareholder loan owed to the company that appeared on company’s BS for 2 consecutive year must be included in shareholder’s income for the year in which the loan was made.
e. g. the loan appeared in the year ending Dec 31, 2015 and Dec 31, 2016, therefore will be included in the Income for tax purpose for 2015

If principal amount is included - no imputed interest benefit related to a low-rate or interest free loan

Question 4

What are some exceptions that s.15(2) doesn’t apply - shareholder loan

Answer 4

• Employee/shareholder owns less than 10% of the shares of the corporation.
• loan is made to enable the employee/shareholder to purchase any of the following - a home to live; shares of the corporation(or related); a motor vehicle to be used during employment

Question 5

What happens to a $2,500 of disability premiums paid by the company

Answer 5

The individual do not have a taxable benefit; only when receiving disability benefits

Question 6

Attribution

Answer 6

Attribution is to stop individual from redistributing their income to spouse or kids to pay lower tax

Question 7

Who applies to attribution

Answer 7

1) spouse or common-law partner
2) children under the age of 18 who does not deal at arms-length with the transferor

For attribution purpose nieces and nephews are considered non-arms length (even though not related elsewhere in the tax act)

Question 8

The attribution rules

Answer 8

If transfer to spouse

• at the point of transfer - automatic roll over at ACB/UCC (adjusted cost bases)
• income attributed back - property income and capital gain

If transfer to minor

• at the point of transfer - deemed disposal @ FMV - capital gain/CCA recapture to the transferor
• Income attributed back - only property income - future capital gains do not get attributed since it was transferred at FMV already)

Question 9

How to account for RRSP fees and interest?

Answer 9

The RRSP management fees and interest paid on the RRSP loan are not deductible

Question 10

Personal use property (PUP)

Answer 10

ITA s.40(2)(g)

PUP includes - property that is used primarily for personal use or enjoyment of the taxpayer

loss cannot be claimed unless it’s LPP.

• Deemed cost of PUP purchased less than $1,000 is $1,000.
• Deemed proceeds from sale of PUP sold for less than $1,000 are deemed to be $1,000.
• any capital improvement cost related to PUP would increase the ACB of the property.
• if PUP purchased with the intent of reselling at a profit, gain would be a business transaction and entire profit is taxable

Question 11

Listed personal property (LPP)

Answer 11

ITA s.3(b)(ii)

Includes:

• print, etching, drawing, painting, sculpture
• jewellery
• rare folio, manuscript, book
• stamp
• coin
• Deemed cost of LPP purchased for less than $1,000 is $1,000.
• CG from LPP can be reduced by the CL carried forward (even if not from LPP)
• CL from LPP can only be used to reduce gain from the sale of other LPP (CB 3 yrs, CF 7 yrs)

Question 12

How to account for capital improvements of rental property

Answer 12

if considered capital improvement. expenditure are not deductible immediately and will be added to the UCCo of the building.

Question 13

Rental income - claiming CCA

Answer 13

• If repair amounts are considered rental property betterment, the amount should be included in UCC
• CCA claimed for rental income should not increase or create a loss for rental income

Question 14

Rental income

Answer 14

Rental income can deduct:

• mortgage interest
• property tax
• CCA (only if rental income greater than CCA)

Question 15

Business use of home

Answer 15

Can deduct the following from home office:

• mortgage interest
• property tax
• Electricity
• home insurance

only portion used for business

Question 16

Business income (self-employee) - vehicle expenses

Answer 16

Can deduct:

• CCA - class 10
• gas
• interest
• insurance

Question 17

RRSP deduction

Answer 17

undeducted contribution - 2015
Additional contribution in 2016
(both yourself and spouse)

Lesser of total contribution and contribution limit

• the deadline to contribute to RRPS is march 1

Question 18

Personal - Common division c deduction

Answer 18

1) stock option deduction = 1/2 * stock option benefit
2) Social assistance and workers’ compensation
3) home relocation loans for the first 5 years
4) Lifetime QSBC CG exemptions

• gross amount = 848, 252
• previous ABIL and CNIL claimed will reduce the capital gain exemption amount

5) loss carry forward

• non- capital losses (back 3 fwd 20)
• net capital losses (back 3 fwd ~)

Question 19

business investment loss / Allowable business investment loss (ABIL)

Answer 19

ABIL = 50% * BIL

• Current yr ABIL can be deducted any sources of income
• usused ABIL becomes non-capital loss carryover
• end of 10 yrs will become net-capital loss carryover

Question 20

What is a small business corporation?

Answer 20

CCPC of which all or substantially all (=>90%) of the fair market value of its asset are:

• used in active business carried primarily (>50%) in canada or:
• Invest in shares/debt of a connected small business corporation (ownership of >10% of the voting shares)

Question 21

Cumulative net investment loss (CNIL)

Answer 21

the excess of investment expense over investment income since 1988

it decrease the lifetime capital gain deduction claimed in division c

Question 22

Capital gain deduction

Answer 22

1) unused capital gain exemptions (824,176 X0.5)
2) annual gain limit
TCG - ACL

3) Cumulative gain limit
- same as annual gain limit since LCGE never used
Less:
- CNIL
- capital gain deduction used in previous yr

Question 23

Medical expense

Answer 23

claim medical expense by the spouse with lower income
-
Ex:
- group medical premiums (on T4 slip)
- cholesterol testing
- family dental expenses

Less the lesser of:

1) $2,237 (2016)
2) 3% of net income (from that one spouse)

Question 24

Charitable donation tax credit

Answer 24

15% of first $200 of donations + 29% of remaining amount of donations

max donation = 75% of net income

unused donations can be carried forward by 5 years

Question 25

Political contribution tax credit

Answer 25

75% of first $400
50% of next $350
33.5% of remaining

max credit at $650

Question 26

Foreign tax credit

Answer 26

the lesser of:

1) US withholding tax - US account ($450 X 1.034)
Limited to 15% of foreign non-business income ($2,500 x 1.034 x 15%)

2) (Foreign income / net income) X tax otherwise payable (2500 x 1.034 / 345494) x $85,846

Question 27

Is personal life insurance a taxable benefit?

Answer 27

Yes

Question 28

Is vehicle allowance for an employee a taxable benefit?

Answer 28

yes

Question 29

Child care benefit

Answer 29

replaces universal child care benefit in 2016

The new CCB is not taxable

The CCB, a tax-free monthly payment, provides a maximum benefit of $6,400* per child under 6 and $5,400* per child aged 6 through 17. The benefit is reduced when adjusted family net income is over $30,000

Question 30

Child care expense

Answer 30

max $8000 per child

or 2/3 of earned income