AFM 202 Tax Tutorial Slides Week_4_2014.pptx

8/9/2019 AFM 202 Tax Tutorial Slides Week_4_2014.pptx

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AFM 202 Tax TutorialOct. 3, 2014


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Agenda

• Principle Residence Exemption

• Attribution

• Taxation or !orporations• "et #ncome

• Taxes Pa$able and Taxes O%in&

• 'mall (usiness )eduction• *eneral Rate Reduction

• O+erall Re+ie%


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Principle Residence Exemption

• Exemption rom capital &ains on te disposition o aprincipal residence

• !reated because omes usuall$ appreciate in +alueo+er time

• #n an$ $ear, $ou can onl$ desi&nate one propert$ ortis exemption at a time

• -ormula/ !apital &ain on te disposition o a principal residence

number o $ears tat te residence is desi&nated 1 5number o $ears te residence %as o%ned b$ tax pa$er


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Problem• Tim o%ned a ouse and a cotta&e tat e

ordinaril$ inabited trou&out is $ears o

o%nersip. 6e sold bot in 2014

• 7at amount o T!*s sould be reported or bot properties8

Home Cottage

O%nersip 2009:2014 2012:2014

Proceeds ;00,000


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Solution

1. )ra% a Timeline

2. !alculate &ain5$ear

1. 6ouse ;00,000:400,000591= 12,;00

2. !otta&e ,>>9 exempt

3. Te rest 10,000:>,>>9 =3,333 is taxable

4. T!* = 3,3330.; = 1,>>9


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Attribution• )esi&ned to stop tax pa$ers rom income

splittin& i&er income person transerrin&income to a lo%er income person in opes o

pa$in& less tax

Spouse Minors (inl.Niece/nephews)

Recei+e at A(! -?@

Attribution on #ncome es es

Attribution on !apital*ains5!B

es "o

Oter Once C1


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Taxation for Corporations

• Tax returns are due > mos. rom te iscal $earend

• # not iled on time, same penalties as indi+iduals

• Taxes o%in& a+e to be paid %itin 2 monts 3monts or !!P! ater ilin&


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Schedule !

"et #ncome $%oss& for Tax Purposes

"et #ncome ater tax or Accountin&Purposes

"on:deductible items expensed oraccountin& ex. income tax, depreciation

: )eductible items not expensed oraccountin& ex. !!A

"et #ncome or Tax Purposes


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Schedule ! Common Addbac's

• Accountin& pro+ision or income taxes

• #nterest D penalt$ on taxes Ex. assessment interest,late ilin& penalties

• Amortiation o tan&ible D intan&ible assets oraccountin& purposes

• Taxable !apital &ains

• Accountin& loss on sale o assets

• !aritable donations D &its rom 'cedule 2 Fdeduction later

• "on:deductible club ees and dues

• "on:deductible meals D entertainment expenses


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Schedule ! Common (eductions

• Accountin& &ain on sale o assets

• !apital cost allo%ance !!A rom sc


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Taxes Pa)able for a Corporation

• (asic !orporate Tax Rate 3


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Small *usiness (eduction

• "ote '() is onl$ or !!P!

• Associated !orporations a+e to sare teI;00,000 business Bimit

• Appl$ tis irst beore te *RR

• 19G Beast o/ !orporationJs !anadian Acti+e (usiness #ncome

/ (usiness Bimit ;00,000


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+eneral Rate Reduction

• A+ailable to all corporations

• 13G o eli&ible taxable income• Eli&ible means income tat as not alread$ &ot some Kind

o oter preerential tax treatment suc as te '()

• Example Taxable income=900,000

• A(# 300,000 Bimit;00,000

• Amount Eli&ible or *RR= 900,000:

300,000=400,000


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That’s it for this week’s

content!


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Review!


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Things %earned in the Course• (asics o Tax Returns Run trou& o basic return

• "on:monetar$ Transactions, -orei&n !urrenc$, and Elections

• (usiness D Propert$ #ncome• !apital *ains

• Personal #ncome Tax Administration

• !apital +s. #ncome• #dentical 'ares

• !apital *ains Reser+e

• Personal Lse Propert$

• Emplo$ment #ncome• Emplo$ed +s. 'el Emplo$ed


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Continued,• Emplo$ee 'tocK Options

• )i+idends

• #nte&ration• Oter #ncome

/ Tax deerred plans RPP, RR'P, RE'P, etc.

• )eductions

/ RR'P contribution/ ?o+in& expenses

/ !ildcare expenses

• Tax Pa$able D Tax !redits

/ ?edical or disabilit$ credit


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Propert) #ncome

• 'cedule 4

• #nterest5di+idends rom !anada t$picall$ on T3

and T; slips, sometimes T;013/ 7atJs te dierence bet%een te T3 and T;8

• -orei&n interest5di+idends also taxable, t$picall$entered on -ORE#*"

• )eductions a+ailable/ #nterest used to earn income

/ #n+estment ees

• 'pecial +acant land expenses added to A!(


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*usiness #ncome

• 'tart %it accountin& net income, reconcile totaxable income

• Examples o dierences bet%een accountin& D taxtreatment/ act, camp, lod&e, &ol course not deductible

/ ?eals and entertainment ;0G deductible

/ Lp to 2 con+entions deductible

/ -ines, tax interest D penalties not deductible

/ Reser+es not deductible unless speciall$ allo%ed

/ Bie insurance not deductible


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CCA- Example using class 0 $.0/&• L!! openin& is I10,000

• !ase 1

/ (ou&t a car or I20,000/ 'old old car ori&inal cost I2;,000 or I2,000

• !ase 2

/ 'old old car ori&inal cost I2;,000 or I2,000

/ "o oter asset in class 10

• !ase 3/ 'old old car ori&inal cost I2;,000 or I11,000

/ "o oter asset in class 10

• !ase 4/ 'ame as case 3 but sold old car or I2>,000


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CCA Example ! SolutionClass 10 (30%) Case 1 Case 2 Case 3 Case L!! openin& 10,000 10,000 10,000 10,000

Additions 20,000 0 0 0

)isposals BO!P 2,000 2,000 11,000 2;,000

Total 2


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Example- Capital +ains

• enn$ bou&t sares o Apple or I1,;00 in2012. Transaction cost o I;0.

• enn$ sold te same sares o Apple or I2,000.Transaction cost o I;0.


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Example solutionProceeds I2,000 in proceeds I2,000

A!( I1,;00I;0=I1,;;0 I1,;;0

'ellin& costs I;0 I;0!apital *ains5!apitalBosses

I2,000:I1,;;0:I;0=I400

I400

Taxable !apital*ains5Allo%able !apitalBosses

I400;0G=I200 I200


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Emplo)ment #ncome• Tests

/ Economic realit$

!ontrol, O%nersip o tools, cance o proit5loss/ #nte&ration

/ 'peciic Results

/ !ontract

• Emplo$ed

/ 'peciic deductions/ !PP 4.N;G salar$ up to ;2,;00: 3,;00

/ E# 1.


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Stoc' ptions!u"lic CC!C

• *rant date: no tax

conseHuences

• Exercise date:

/ Emplo$ment income = priceat exercise F price at &rant

o options exercised/ Add tis to te A!( o sares

• 'ale date:

/ !apital &ain5loss = proceeds :

A!(

• *rant date: no tax conseHuences

• Exercise date: no taxconseHuences

• 'ale date:

/ Emplo$ment income = priceat exercise F price at &rant o options exercised

/ Add tis to te A!( o sares

/ !apital &ain5loss = proceeds :

A!(


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(i1idends

• *rossed up %en recei+ed as indi+idualsconcept o inte&ration

• Public 3511 o &ross up

/ Pro+incial )T! ;511 o &ross up

• !!P! 1


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Tax Planning

?o+in& Expenses• 7e placed it al%a$s on te

indi+iduals %it te i&ermar&inal tax rate

!ildcare expenses• 7e placed it on te indi+idual %it te lo%er income


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Tax PlanningPension'plittin&

Tere are instances %ere spouses can sarete burden especiall$ i te spouse as alo%er ?TR

Te &o+ernment ma$ pa$ M o te !PP beneits to one spouse and a+e tem be taxedon it as taxable income PE"'#O" sarin&

'pouses can also split income tat allo%s temto recei+e te pension credit tis %ouldmean one spouse taKes a deduction and te

oter spouse includes it as taxable income


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Tax Planning)ecisions to be made

Transers bet%een

cild andparent

'pousalTranser

amounts

7etercertaincredits

sould be!5-.


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uestion 3• 7at is an RR'P8

• 7at is an RR'P contribution limit8

• 7at is te contribution limit based on8

• 7$ is te contribution limit important8

• # te usband contributes some mone$ to is

%ieJs RR'P, %ere do %e record tis amount8• # te %ie %itdra%s mone$ rom er RR'P %at appens and o% do %e treat tissituation8


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uestion 32 Solutiona An RR'P is a re&istered retirement sa+in&s plan. #t is a metod trou&

%ic indi+iduals can sa+e up or retirement %itout bein& taxed on an$amounts tat are contributed to te planQ o%e+er, an$ amounts tat are

%itdra%n are automaticall$ taxable b Tere is a maximum amount tat can be contributed to an RR'P in a

&i+en $ear. Tis amount cannot be exceeded. Te amount o te limit is based on

!urrent ear RR'P contribution limit as per $our institution in most

Huestions it is &i+enBess )eduction TaKen in te current $ear

Plus Te lesser o a 1


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uestion 32 Solutionc Te RR'P contribution limit is based on

1. Prior earJs limit

2. Te amount contributed3. Te amount tat %as deducted in te current $ear

4. )id %e o+er: contribute or not8

d Te RR'P limit is important because i %e &o o+er te limit, tereare penalties tat are applied or e+er$ amount tat remains in te

account.e 6usbandJs contributions to %ieJs RR'P %ould be recorded onusbandJs return and %e %ould maKe note o te act tat it is &oin& toa spousal RR'P

Te %ieJs %itdra%als %ould be considered income and tereore

%ould be taxed.


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*usiness4Corporate Tax

7e a+e business income

Te amount earnedtat is earned b$ te business %e can dotaxation orcorporations usin& teormat outlined persection 3

Tere are deductions5#nclusions

ust liKe an indi+idualtax return tere areamounts tat %e %ouldadd bacK and deducto te net income

noted on te inancialstatements tis isKno%n as tereconciliation

Taxable #ncome

7e a+e credits orcorporations as %elland ten %e a+e our

ederal tax andpro+incial tax pa$able

Sno% tat tis exists,mi&t be a Huestionsome%ere.


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Capital +ains

Taxed at ;0G O"B M o !* =T!*

Tere can be allo%able capital lossesapplied a&ainst T!*s

Tere must be a distinction bet%een business and capital


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Capital +ains• "o capital &ains on principle residence

• !apital &ains do exist or te purposes o a secondar$ ouse

• Reported on line 129

taKes $ou to scedule 3• 'ection 3 o 'cedule 3 sale o publicl$ traded companies

• 'ection 4 o 'cedule 3 sale o real estate

• 'ection 9 o 'cedule 3 personal propert$ sales

1 # total A!B C T!* carr$ bacK at least 3 $ears use ormT1A

2 # tere are no T!* %en looKin& at te past, carr$ or%arduntil tere are T!* or te A!B to be applied a&ainst.


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Capital 1ersus *usiness

• *ain to be made or %en tepropert$ %as eld

• Tere are bad&es o trade orspeciic criteria tat are used todetermine i te transaction isclassiied in one or te oter

!apital

• #ntention %as to earn income as aresale

• Tis %ill be considered to beincome and taxed ull$ %as tisa normal component o tecompan$Js operations8

(usiness


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AFM 202 Tax Tutorial Slides Week_4_2014.pptx

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