Professional Documents
Culture Documents
Subsection 2(1)
2
B/S and I/S item must be matched to a GIFI index
reference number.
3
COMPUTATION OF CORPORATE
TAXES
4
COMPUTATION OF NET INCOME
5
The T2s1 is used to reconcile income from a
business:
Accounting → Tax
6
PERSONAL SERVICE BUSINESS
ss125 (7)
Employer → Employee
Employee
(Specified
shareholder)
↓ 10 % or +
Employer → Corporation
7
service business"
8
PERSONAL SERVICE BUSINESS
TAX IMPLICATIONS
9
COMPUTATION OF TAXABLE
INCOME
Net income for the year +
Less:
A) Section 110
Part VI.1 tax x 3 (preferred shares) -
+
B) Section 110.1
Charitable gifts (also Crown gifts and -
cultural gifts) +
C) Sections 112 and 113
Taxable dividends received from
112(1)(a) - taxable Canadian -
corporation
112(1)(b)- controlled corporation -
resident
in Canada
112(2) - non-resident corporation -
carrying on a business in
Canada -
(subject to special rules) +
113(1) - foreign affiliate
corporation -
(subject to special rules) -
-
D) Section 111 -
Non-capital loss carryover -
Capital loss carryover +
Farm loss carryover
10
Restricted farm loss carryover +
Limited partnership loss carryover +
Add:
E) Section 110.5
Additions for foreign tax deductions
Taxable income for the year
11
CHARITABLE DONATIONS
Gifts of securities
Ecological gifts
Cultural gifts
12
DIVIDENDS
Individual
Corporation 1
Corporation 2
↓
Corporation 3
Corporation 4
13
With multi-level organizations, the same income
could be taxed 2, 3, 4... times.
14
ACQUISITION OF CONTROL
15
ACQUISITION OF CONTROL
AOC
16
GENERAL EFFECTS OF THE
DEEMED YEAR-END
17
ACQUISITION OF CONTROL AND
EFFECTS ON LOSSES
18
occur after the AOC to years preceding the AOC
19
ACCRUED LOSSES
Non-Depreciable Property
Depreciable Property
20
rules apply as depreciable property.
21
SPECIAL ELECTION VIA PARA
111(4)(e)
22
ALLOCATION OF TAXABLE INCOME
23
ALLOCATION OF TAXABLE INCOME
Ontario
Quebec
Manitoba
Germany
24
ALLOCATION OF TAXABLE
INCOME EXAMPLE
T.I. %
Ontario 6,000 x 25 = 1,500
Quebec 6,000 x 20 = 1,200
Manitoba 6,000 x 45 = 2,700
Germany 6,000 x 10 = 600
6,000
25
TYPES OF CORPORATIONS
Canadian
Corporation
Resident in Canada
• private co.
[s.89(1)(f)]
• not controlled by • controlled by
a: a public • publicly listed
- non-resident company
- public
company
26
CALCULATION OF TAX
27
CORPORATE TAX RATES
2007
Basic rate 38.00%
Federal tax abatement
(10.00)
28.00
4% surtax 1.12
Effective tax rate 29.12%
28
GENERAL TAX REDUCTION s123.4
2007
Basic rate 38%
Federal tax
abatement (10)
28
4% Surtax 1.12
General tax
reduction (7.0)*
Effective federal
tax rate 22.12%
29
*Note: The general rate reduction will change as
follows:
2008: 7.5%; 2009: 8%; 2010: 9%; 2011:9.5%.
30
SMALL BUSINESS DEDUCTION
(SBD)
And
31
*
Note that the $400,000 business limit for the
year must be allocated among associated
corporations
32
Active Business Income ITA s125 (7)
33
TAX RATES - SBD
2007
Basic rate 38.00%
Federal tax abatement (10.00)
28.00
4% surtax 1.12
SBD on ABI *(16.00)
Effective tax rate 13.12%
34
Elimination of the Small Business
Deduction for Large CCPCs
In order to limit certain large CCPCs from benefiting
from the SBD, the annual business limit will be
reduced for certain CCPCs.
Where:
35
TAX RATES
ABI
$400,000 $400,001
and less and over
Basic rate 38.00% 38.00%
Federal tax
abatement (10.00) (10.00)
28.00 28.00
4% surtax 1.12 1.12
29.12 29.12
Effective federal
tax rate 13.12% 22.12%
36
GENERAL TAX REDUCTION FOR
Non-CCPC
Taxable Income
37
GENERAL TAX REDUCTION FOR
CCPC
Taxable Income
-SBD Base
38
DEDUCTION FOR MANUFACTURING
AND PROCESSING PROFITS
Construction
39
TAX RATES - M&P
40
M&P DEDUCTION - CALCULATION
The equations for calculating the M&P deduction are
as follows:
ADJUBI =
Adjusted business income –
Reg
5202
Cost of M&P capital = 100/85 x 10% x the
Capital cost of
Manufacturing depreciable
property
Cost of M&P labor = 100/75 x Cost of labor use
for
M&P
Cost of capital = 10% x the Capital cost
of all
depreciable property
Cost of labor = total of all salaries &
wages
41
Adjusted M&P profits = The lesser of:
A) M&P profits - SBD
base
B) Taxable income
- SBD base
- 3 times the business
foreign tax credit
(without reference to
the GRR)
- If a CCPC, the
aggregate investment
income
42
M&P DEDUCTION - EXAMPLE
Facts:
ABI, net of active business losses $
4,000,000
Total cost of depreciable property used
for M&P activities 9,000,000
Total cost of all depreciable property 12,000,000
Total cost of labor used in M&P activities 600,000
Total cost of all labor 700,000
Taxable income 3,400,000
SBD base 400,000
M&P rate 7%
43
Solution:
= $3,702,785
44
3,000,000*
$
45
FOREIGN TAX CREDIT
s126
46
FOREIGN NON-BUSINESS
INCOME TAX CREDIT
ss126(1)
47
FOREIGN BUSINESS
INCOME TAX CREDIT
c) basic corporate tax plus the surtax and less the general rate
reduction less the non-business foreign tax credit allowed under
subsection 126(1)
Note: Foreign taxes paid on foreign business income in excess of the credit
allowed can be carried back 3 years or forward 7.
48
CIRCULAR CALCULATION PROBLEM
I
Solution:
49
CIRCULAR CALCULATION PROBLEM
II
Solution:
50
ADDITIONS UNDER SECTION 110.5
51
FOREIGN TAX DEDUCTION
Solution:
100,000
52
POLITICAL CONTRIBUTION
TAX CREDIT
ss127(3)
$
401 to $ 750 $
300 plus 50% of
contributions over $ 400
$
751 to $ 1,275 $
475 plus 33-1/3% of
contributions over $ 750
$
1,276 and over $
650 maximum
deduction
53
INVESTMENT TAX CREDIT
Qualified Property
54
Investment Tax Credit - Rates
Qualified Property
In Atlantic Provinces and Gaspe
10%
Prescribed Offshore Regions (East Coast)
10%
Rest of Canada Nil
55
CAPITAL COST
56
DEDUCTION AND CARRYOVER
57
ITC - REFUND
58
PART IV TAX - INTRODUCTION
Mr. B (50%)
59
PART IV TAX - RATES
60
PART IV TAX - EXAMPLE
Mr. A
Holding Corporation
ABC Corporation
61
Holding Corp:
62
received $100,000 of income directly?
63
PART IV TAX - CONTINUED
ss186(1):
or
64
shares of the Company as well as 10%
of the value of the shares
65
Corp A
100% Dividend
5%
$
100 dividend
Corp Cs
For example:
66
Part IV tax.
67
PART IV TAX EXAMPLE
Company P
55%
Company S
Solution:
15,000 x 3 = $45,000
68
ELECTION ON CERTAIN LOSSES
Solution:
69
they should not be used in this manner but
rather they should be used to reduce Part I
tax
70
INVESTMENT INCOME AND
REFUNDABLE PORTION
OF PART I TAX
71
Effective fed. tax 9.12
72
ADDITIONAL REFUNDABLE TAX
(ART) ON INVESTMENT INCOME
EARNED BY CCPCs
Sum of
73
REFUNDABLE PORTION
OF PART I TAX
Paragraph 129(3)(a)
74
corporation must be
a CCPC throughout the year.
75
REFUNDABLE DIVIDEND
TAX ON HAND [RDTOH]
ss129(3)
RDTOH
Last year’s closing balance
- Last year dividend refund
+Refundable portion of Part I tax on
investment income 26 2/3% (20% + 6
2/3%)
+Part IV tax on dividends (33 1/3%)
____________________________________________________________________________
76
CAPITAL DIVIDEND ACCOUNT
77
DISTRIBUTION
ss83(2)
78
SALARY VS DIVIDENDS
OR
Dividend Salary
400,000 50,000
450,000
79
PART I.3 TAX - LARGE
CORPORATIONS TAX (LCT)
80
Definition of Taxable Capital for the
LCT
Contributed share capital
+
Retained earnings
+
Loans, advances, bonds, and mortgages
+
Other payables (A/P, W/P) if outstanding for 365
days or more before the Corporation’s year end
+
FIT liabilities
-
FIT assets
+
Deferred X-change gains
-
Deferred X-change losses
-
Investment Allowance
Note:
1. The above capital is reduced by an “Investment
Allowance” for investments in other Corporations,
Including debt and equity.
2. The above capital must be multiplied by the %
employed in Canada
81
SUMMARY
Type of Corporation
Canadian-Controlled Other
Liability Private Private Public
Small business
Deduction YES NO NO
Manufacturing and
processing profits
deduction YES YES YES
(except income subject
to S.B.D.)
Special refundable
tax of 6 2/3% YES NO NO
Refundable portion of
PART I tax YES NO NO
82
Paid Up Capital (Tax Basis Contributed
Capital)
83
Taxation of Dividends
84
out in the form of a non-eligible dividend. To keep track
of this income, the company will have to maintain a
LRIP (Low Rate Income Pool). Any dividend paid in the
year must first come out of the LRIP and therefore will
not benefit from the preferential treatment given to
eligible dividends.
DEEMED DIVIDENDS
85
cash dividends and are subject to the usual gross up
and tax credit procedures.
86
PRE-1972 CAPITAL SURPLUS ON
HAND (CSOH)
87
Ordering of Tax Calculation
88