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AFM 202 Tax Tutorial Slides Week - 4 - 2014
AFM 202 Tax Tutorial Slides Week - 4 - 2014
Oct. 3, 2014
Agenda
Principle Residence Exemption
Attribution
Taxation for Corporations
Net Income
Taxes Payable and Taxes Owing
Small Business Deduction
General Rate Reduction
Overall Review
Problem
Tim owned a house and a cottage that he
ordinarily inhabited throughout his years of
ownership. He sold both in 2014
Home
Cottage
Ownership
2007-2014
2012-2014
Proceeds
500,000
80,000
Original cost
400,000
70,000
Solution
1. Draw a Timeline
2. Calculate gain/year
1. House: (500,000-400,000)/(7+1)= 12,500
2. Cottage: (80,000-70,000)/(2+1)=3,333
Attribution
Designed to stop tax payers from income
splitting (higher income person transferring
income to a lower income person in hopes of
paying less tax)
Spouse
Minors (inl.
Niece/nephews)
Receive at:
ABC
FMV
Attribution on Income
Yes
Yes
Attribution on Capital
Gains/CL
Yes
No
Other
Once >18yrs, no
attribution
Schedule 1
Net Income (Loss) for Tax Purposes
Net Income after tax for Accounting
Purposes
+ Non-deductible items expensed for
accounting (ex. income tax, depreciation)
- Deductible items not expensed for
accounting (ex. CCA)
Net Income for Tax Purposes
Review!
Employment Income
Employed vs. Self Employed
Continued
Deductions
RRSP contribution
Moving expenses
Childcare expenses
Property Income
Schedule 4
Interest/dividends from Canada typically on T3
and T5 slips, sometimes T5013
Whats the difference between the T3 and T5?
Business Income
Start with accounting net income, reconcile to
taxable income
Examples of differences between accounting & tax
treatment
Case 4:
Same as case 3 but sold old car for $26,000
Case 1
Case 2
Case 3
Case 4
UCC (opening)
10,000
10,000
10,000
10,000
Additions
20,000
Disposals (LOCP)
(2,000)
(2,000)
(11,000)
(25,000)
Total
28,000
8,000
(1,000)
(15,000)
(9,000)
19,000
8,000
(1,000)
(15,000)
CCA available
(5,700)
N/A
9,000
Recapture
N/A
N/A
1,000
15,000
Terminal loss
N/A
(8,000)
N/A
N/A
UCC End
22,300
Capital Gain
N/A
N/A
N/A
1,000
Example solution
Proceeds
$2,000 in proceeds
$2,000
ACB
$1,500+$50=$1,550
($1,550)
Selling costs
$50
($50)
Capital Gains/Capital
Losses
$2,000-$1,550$50=$400
$400
Taxable Capital
Gains/Allowable Capital
Losses
$400*50%=$200
$200
Employment Income
Tests:
Economic reality
Control, Ownership of tools, chance of profit/loss
Integration
Specific Results
Contract
Employed:
Specific deductions
CPP: 4.95% * (salary up to 52,500- 3,500)
EI: 1.88% * (salary up to 48,600)
Self Employed:
Deduct all reasonable business expenses from income
Stock Options
Public
CCPC
Dividends
Grossed up when received as individuals
(concept o integration)
Public: 38% gross up
Federal DTC: 6/11 of gross up
Provincial DTC: 5/11 of gross up
Tax Planning
Moving Expenses
We placed it always on the
individuals with the higher
marginal tax rate
Childcare expenses
We placed it on the individual
with the lower income
Tax Planning
Pension There are instances where spouses can share
Splitting the burden especially if the spouse has a
lower MTR
Tax Planning
Decisions to be made
Whether
Transfers
Spousal
certain
between
Transfer
credits
child and
amounts should be
parent
C/F.
Question #1
What is an RRSP?
What is an RRSP contribution limit?
What is the contribution limit based on?
Why is the contribution limit important?
If the husband contributes some money to his
wifes RRSP, where do we record this amount?
If the wife withdraws money from her RRSP
what happens and how do we treat this
situation?
Question #2 Solution
a) An RRSP is a registered retirement savings plan. It is a method through
which individuals can save up for retirement without being taxed on any
amounts that are contributed to the plan; however, any amounts that are
withdrawn are automatically taxable
b) There is a maximum amount that can be contributed to an RRSP in a
given year. This amount cannot be exceeded. The amount of the limit is
based on:
Current Year RRSP contribution limit (as per your institution in most
questions it is given)
Less: Deduction Taken in the current year
Plus: The lesser of: a) 18% * Earned income
b) $23,820
Less: Un-deducted RRSP contributions carried forward
Will also be impacted by pension adjustments
Question #2 Solution
c) The RRSP contribution limit is based on:
1. Prior Years limit
2. The amount contributed
3. The amount that was deducted in the current year
4. Did we over- contribute or not?
d) The RRSP limit is important because if we go over the limit, there
are penalties that are applied for every amount that remains in the
account.
e) Husbands contributions to wifes RRSP would be recorded on
husbands return and we would make note of the fact that it is going to
a spousal RRSP
f) The wifes withdrawals would be considered income and therefore
would be taxed.
Business/Corporate Tax
We have business income
There are deductions/Inclusions
The amount earned
Taxable Income
that is earned by the
business we can do
taxation for
corporations using the
format outlined per
section 3
Capital Gains
Taxed at 50% ONLY of CG =
TCG
There can be allowable capital losses
applied against TCGs
There must be a distinction between
business and capital
Capital Gains
1) If total ACL > TCG carry back at least 3 years use form
T1A
2) If there are no TCG when looking at the past, carry forward
until there are TCG for the ACL to be applied against.
Capital
Business
QUESTIONS?
GOOD LUCK