Week 5 IC - Personal tax Flashcards
Personal - Tax instalments
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
Employment income is not reported on an accrual basis?
yes
Shareholder loan
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
What are some exceptions that s.15(2) doesn’t apply - shareholder loan
- 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
What happens to a $2,500 of disability premiums paid by the company
The individual do not have a taxable benefit; only when receiving disability benefits
Attribution
Attribution is to stop individual from redistributing their income to spouse or kids to pay lower tax
Who applies to attribution
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)
The attribution rules
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)
How to account for RRSP fees and interest?
The RRSP management fees and interest paid on the RRSP loan are not deductible
Personal use property (PUP)
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
Listed personal property (LPP)
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)
How to account for capital improvements of rental property
if considered capital improvement. expenditure are not deductible immediately and will be added to the UCCo of the building.
Rental income - claiming CCA
- 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
Rental income
Rental income can deduct:
- mortgage interest
- property tax
- CCA (only if rental income greater than CCA)
Business use of home
Can deduct the following from home office:
- mortgage interest
- property tax
- Electricity
- home insurance
only portion used for business
Business income (self-employee) - vehicle expenses
Can deduct:
- CCA - class 10
- gas
- interest
- insurance
RRSP deduction
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
Personal - Common division c deduction
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 ~)
business investment loss / Allowable business investment loss (ABIL)
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
What is a small business corporation?
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)
Cumulative net investment loss (CNIL)
the excess of investment expense over investment income since 1988
it decrease the lifetime capital gain deduction claimed in division c
Capital gain deduction
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
Medical expense
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)
Charitable donation tax credit
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
