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TAXX301 (ch.9)
| Question | Answer |
|---|---|
| what is subdivision d in calculating net income? | other sources of income |
| what is subdivision e in calculating net income? | deductions in computing income |
| what is subdivision f in calculating net income? | rules relating to computation of net income (e.g. 50% limit on meals and entertainment, non-arms length transactions, etc.) |
| what are the 5 examples of items that are included in subdivision d? | 1. deferred income plan inclusions/deductions 2. RRSP withdrawals 3. DPSP payments 4. RRIF withdrawals 5. homebuyers/lifelong learning plans |
| are scholarships and bursaries included in income? | yes, if they exceed the exemption exemption: amounts received in connection with: - education program where individual is a qualifying student (full time student at designated institution) - elementary/secondary school program |
| are research grants included in income? | yes, if exceed unreimbursed research costs |
| are social assistance and WCB included in income? | included in income but deducted from taxable income |
| if an employee makes the maximum CPP contribution of $4,430, how is it applied under subdivision e? | $3,356 included in tax credit, $1,074 is a deduction |
| how is CPP different for self employed individuals? | they must pay both halves ($3,356 as personal tax credit base, $1,074 deduction, $4,430 deduction) |
| how do moving expenses apply under subdivision e? | deductible if it is an eligible relocation |
| what is an eligible relocation? | relocation allowing the individual to be employed, carry on a business, or be a full time student somewhere new (must move at least 40 km closer to work location compared to old res) |
| what are the two methods for calculating vehicle/meal expenses? | detailed and simplified |
| what is the detailed method of calculating vehicle/meal expenses? | uses receipts and actual expenses |
| what is the simplified method of calculating vehicle/meal expenses? | flat rate per meal or per km (e.g. 2024 rates $24 per meal per person, $69 per person per day, $0.545 - $0.715 per km depending on province |
| what is the annual child care expense amount for a child eligible for disability credit? | $11,000 |
| what is the annual child care expense amount for a child 6 or less at year end? | $8,000 |
| what is the annual child care expense amount for a child 7-16 at year end or infirm 17+ not eligible for disability credit? | $5,000 |
| what is the periodic child care expense amount? | 1/40 or 2.5% of annual limit per week |
| what is the child care deduction available to the lower net income individual in a 2 parent family or single parent with no other supporting person? | least of: - amount actually paid - sum of annual child care expense amounts ($11k, $8k, or $5k) - 2/3 of individuals earned income |
| what child care deduction is available to higher net income individual in a 2 parent family when the lower income individual is unavailable? | least of: - amount actually paid - 2/3 of individuals earned income - periodic amounts over time lower income spouse unavailable |
| what are the 4 situations where the lower income spouse is deemed unavailable? | 1. full/part time attendance at secondary school or designated educational institution 2. in prison more than 2 weeks 3. infirm at least 2 weeks 4. separated more than 90 days |
| what is the limitation of the disability supports deduction? | least of: - qualifying costs less reimbursements (A-B) - (if at designated educational institution) least of: - $15,000 - $375 per week of attendance - amount individuals net income exceeds item 1 |
| what choice is present for the disability supports deduction? | to claim expenditures as a deduction, or claim them as a medical expense credit |
| what is the maximum transfer for pension income splitting? | 50% |
| what formula is used to calculate subdivision e deduction for annuities? | (capital outlay to purchase annuity/total payments to be received under contract) * annuity payment |
| what 3 registered savings plans do not have deductible contributions but still have significant tax opportunities? | 1. REPS's 2. RDSP's 3. TFSA's |
| what are the two types of investments in TFSA's? | 1. Qualified (public shares, mutual funds bonds, mortgages, warrants, rights) 2. Restricted (private companies and direct real estate investments) *50% tax can apply on FMV of non-qualified investments |
| what are the tax consequences of using an RESP? | - contributions not deductible - income exempt from tax - tax free accumulation limited to 35 years from establishment - no annual limit ($50,000 total for each beneficiary - withdrawals included in income of beneficiary as educational assistance |
| what is a Canada education savings grant? | federal gov contributes 20% of current year contributions to a max of $500 |
| what is the additional CESG for low income families? | fam income <$57,375: 20% fam income $57,375 - $114,750: 10% fam income $114,750<: 0% |
| what are the three types on RESP plans? | family plans: established for several siblings under 18 to allow flexibility scholarship plans: must be invested in government guaranteed investments self-directed plans: investors choose qualified investments |
| what are the tax consequences of using a RDSP? | - earnings accumulate tax free - max $2,000 contributions over disabled persons life |
| what is the underlying assumption when property is sold between persons? | FMV |
| what is assumed when property is sold between related persons? | they do not deal with each other at arms length |
| what is used as the factual non-arms length test? | "question of fact" if persons are dealing with each other at arms length |
| what are the three common indicators of factual non-arms length? | 1. common mind setting and dictating terms of transaction for both parties 2. whether parties are acting in concert without true separate interests 3. de facto control where one party has effective control or significance over the other |
| what is the problem of inadequate consideration with transactions? | sale price establishes POD and tax cost of property (so it should reflect FMV) |
| what is the exchange principle for inadequate consideration? | when property sold, POD=FMV of property received in exchange when property purchased, cost of property is FMV of consideration given up to acquire property |
| what are the two main situations addressed by inadequate consideration? | 1. donation of gifts or property where no consideration received (applies at arms length or not) 2. non-arms length transactions where consideration paid is above or below FMV |
| what is the POD for transferor when actual transaction price is at or below FMV (including nil)? | FMV (when transfer price is above FMV, POD is the actual proceeds) |
| what is the ACB for transferee when actual transfer price is at or above FMV? | FMV (when transfer price is below FMV, ACB is the actual proceeds) |
| what is an inner-vivos transfer to a spouse | ITA allows disposition of property during individuals life to a spouse, CLP, or former CLP (transferee assumes tax cost to transferor) |
| what is the position of the transferor for an inner-vivos transfer to a spouse? | non-depreciable property: deemed POD = ACB depreciable property: deemed POD = UCC |
| what is the position of the transferee in an inner-vivos transfer to a spouse? | non-depreciable property: ACB = deemed POD of transferor (or old ACB) depreciable property: cost=UCC or proportionate UCC of transferor, capital cost = old capital codst of transferor |
| what is the problem and solution with non-arms length transfers of depreciable property? | problem: non taxable portion of CG on transfer becomes deductible for CCA claims to transferee solution: for UCC, transferee limited to old cost + difference included in income formula: A + (1/2 (B-A)) B=transferees cost A=transferors capital cost |
| what are the tax consequences of inter-vivos transfers of farm or fishing properties to a child? | POD to parents = tax cost of properties child tax cost = POD to parents *depreciable properties same characteristics as inter-vivos transfers of property to a spouse |
| what are the consequences for transfer of property upon the death of a taxpayer? | non-depreciable property: - deemed disposition at FMV - beneficiary acquires at FMV depreciable property: - deemed disposition at FMV - if CC exceeds FMV, beneficiary retains old CC |
| what is the problem with income attribution rules? | most effective forms of income splitting are only available to the wealthy *if an investment property is transferred to a family member, income from property is transferred back to transferor |
| what types of income are income attribution rules applicable to? | property income (spouse/CLP or related minor) and capital gains (spouse/CLP but not related minor) |
| what is the kiddy tax? | - first version of TOSI effective 2000 - applied to passive income earned by ppl <18 - applied to split income including private corps taxable dividends, and shareholder benefits conferred by private corps |
| what is the separate income tax calculation on split income? | highest federal rate (33% and highest provincial and territorial rates apply) |
| which tax credits is TOSI limited to? | dividend, foreign, and disability |
| what can split income include (TOSI effective 2018)? | - taxable dividends from private company - shareholder benefits or loans from private company - income from partnership or trust including from related business or rental properties - capital gains on disposition of private company's shares |
| what are the three general exclusions from TOSI? | 1. capital gains eligible for CGD 2. property acquired because of breakdown of marriage/CLP 3. property acquired as result of death of parent if 18-24 |
| what are the 4 specific exclusions from TOSI? | 1. related business 2. excluded business 3. excluded shares 4. reasonable return, safe harbor capital return, and arms-length capital |
| what is a related business (exclusion from TOSI)? | business carried on by: - related individual as SP - partnership, corp, trust where a related individual actively engaged in business - partnership where related individual is partner - corp where related individual owns 10% or more FMV of all shares |
| what is an excluded business (exclusion from TOSI)? | a business where specific individual actively engaged on regular, continuous, substantial basis |
| what are excluded shares (exclusion from TOSI)? | TOSI doesn't apply to ppl 25 if divs or CG from priv. corp shares are excluded excluded shares: - owns 10%+ of shares at time SI received - can't be professional corp - <90% income from providing services - <10% income from related business |
| what is safe harbour capital? (exclusion from TOSI) (specified individuals 18-24) | based on highest of lowest quarterly prescribed rate applied to FMV contributed property |
| what is arms length capital? (individuals 18-24) (exclusion from TOSI) | test based on reasonable return on contributed arms-length capital only |
| what is reasonable return? (individuals 25+) (exclusion from TOSI) | TOSI doesn't apply to split income based on: - work performed, properly contributed, risks assumed, total amounts paid to individual in respect of related business |
| what are the 5 ways to avoid TOSI? | 1. no related business 2. business is excluded 3. shares are excluded (25+) 4. safe-harbor capital return or reasonable return on arms-length capital exceeds SI (18-24) 5. reasonable return based on labor, capital cont., other factors exceeds SI (25+) |
| what is the 7 step application of TOSI? | 1. Can. res Dec 31? (no, no TOSI) 2. rec. SI? (no, no TOSI) 3. gen. excl.? (yes, no TOSI) 4. rel. bus,? (no, no TOSI) 5. excl. bus,? (yes, no TOSI) 6. (over 25), excl. shares? (yes, no TOSI) 7. rsnbl tests apply? (yes-TOSI - amount, no-TOSI applies) |
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