CONTENTS The textbook is published in two Volumes: Volume I = Chapters 1 to 10 Volume II = Chapters 11 to 21 Chapter I Chapter II 1 Introduction To Federal Taxation In Canada 11 Taxable Income and Tax Payable For Individuals Revisited 2 Procedures and Administration 12 Taxable Income and Tax Payable For Corporations 3 Income Or Loss From An Office Or Employment 13 Taxation of Corporate Investment Income 4 Taxable Income and Tax Payable For Individuals 14 Other Issues In Corporate Taxation 5 Capital Cost Allowances And Cumulative Eligible Capital 15 Corporate Taxation and Management Decisions 6 Income Or Loss From A Business 16 Rollovers Under Section 85 7 Income From Property 8 Capital Gains And Capital Losses 9 Other Income, Other Deductions And Other Issues 17 Other Rollovers and Sale Of An Incorporated Business 18 Partnerships 19 Trusts And Estate Planning 10 Retirement Savings And Other Special Income Arrangements 20 International Issues In Taxation The detailed contents of both Volume I and II follow. 21 GST/HST
Detailed Table Of Contents For Both Volumes (Page 2) I CHAPTER 1 Introduction To Federal Taxation In Canada The Canadian Tax System.......... 1 Alternative Tax Bases.......... 1 Taxable Entities In Canada........ 2 Federal Taxation And The Provinces.... 4 Tax Policy Concepts............. 5 Taxation And Economic Policy....... 5 Taxation And Income Levels....... 6 Tax Incidence............. 8 Tax Expenditures............ 8 Qualitative Characteristics Of Tax Systems.. 9 Income Tax Reference Materials...... 11 Introduction............. 11 The Income Tax Act.......... 11 Other Income Tax Legislation...... 14 Other Sources Of Income Tax Information. 16 Liability For Income Tax.......... 18 Charging Provision For Canadian Residents. 18 Charging Provision For Non-Residents... 19 Alternative Concepts Of Income...... 21 The Economist s View......... 21 The Accountant s View......... 21 The Income Tax Act View........ 21 Net Income For Tax Purposes....... 21 Structure............... 21 Components............. 22 Combining The Components - ITA Section 3. 23 Loss Carry Overs........... 25 Net Income For Tax Purposes - Example.. 26 Net Income To Taxable Income...... 27 Principles Of Tax Planning......... 27 Introduction............. 27 Tax Avoidance Or Reduction....... 28 Tax Deferral............. 28 Income Splitting............ 29 Abbreviations To Be Used......... 30 Key Terms Used In This Chapter..... 31 References................. 31 Problems For Self Study.......... 32 Assignment Problems........... 34 CHAPTER 2 Procedures And Administration Administration Of The Department.... 37 Returns And Payments - Individuals... 38 Requirement To File - ITA 150...... 38 Due Date For Individual Returns..... 39 Withholdings For Income Tax - ITA 153.. 40 Instalment Payments For Individuals - ITA 156 41 Interest............... 44 Penalties............... 46 DueDateForBalanceOwing- Individuals. 46 Final Returns For Deceased Taxpayers... 47 Returns And Payments - Corporations... 47 DueDateForCorporateReturns-ITA150. 47 Filing Alternatives For Corporations.... 47 Instalment Payments For Corporations... 48 DueDateForBalanceOwing-Corporations. 50 Interest And Penalties For Corporations... 50 Returns And Payments - Trusts...... 51 Income Tax Information Returns..... 52 Refunds................... 52 Books And Records............. 53 Assessments................ 53 Adjustments To Income Tax Returns... 54 Appeals................... 54 Consent Form............. 54 Informal Request For Adjustments..... 55 Notice Of Objection.......... 55 Tax Court Of Canada.......... 56 Federal Court And Supreme Court Of Canada 57 Tax Evasion, Avoidance And Planning... 58 Tax Evasion............. 58 Tax Avoidance And Tax Planning..... 58 General Anti-Avoidance Rule (GAAR)... 58 Collection And Enforcement........ 60 Taxpayer Relief Provisions (Fairness Package) 62 Key Terms Used In This Chapter..... 64 References................. 64 Problems For Self Study.......... 66 Assignment Problems........... 68
Detailed Table Of Contents For Both Volumes (Page 3) I CHAPTER 3 Income Or Loss From An Office Or Employment Employment Income Defined....... 73 Cash Basis And The Use Of Bonus Arrangements 74 Net Concept............. 75 Employee Versus Self-Employed...... 75 Employee Perspective......... 76 Employer Perspective.......... 78 Making The Distinction......... 78 Inclusions - Salaries And Wages...... 80 Inclusions - Fringe Benefits........ 80 Amounts To Be Included In Income - ITA 6(1) 80 CRA Administrative Practice On Fringe Benefits (IT-470R).............. 81 Tax Planning Considerations....... 85 Inclusions - GST/HST/PST On Taxable Benefits 86 Inclusions - Board And Lodging...... 87 Inclusions - Automobile Benefits..... 87 Employees And Automobiles....... 87 Taxable Benefits - Standby Charge..... 89 Operating Cost Benefit......... 91 Summary Of Automobile Benefit Calculations 92 Payments By Employee For Automobile Use. 92 Example - Employer Owned Automobile.. 93 Example - Employer Leased Vehicle.... 93 Employer Provided Cars And Tax Planning. 94 Inclusions - Allowances.......... 96 Allowance Vs. Reimbursement...... 96 Taxable Vs. Non-Taxable Allowances.... 96 Reasonable Allowances For Motor Vehicles. 97 Employer s Perspective Of Allowances... 98 Employee s Perspective Of Allowances... 98 Inclusions - Employee Insurance Benefits. 99 Life Insurance............. 99 Disability Insurance (a.k.a. Group Sickness Or Accident Insurance Plan)...... 99 Health Care Insurance......... 101 Loans To Employees........... 101 General Rules............ 101 Home Relocation Loans........ 102 Tax Planning For Interest Free Loans... 103 (continued) CHAPTER 3, continued Inclusions - Stock Option Benefits.... 105 CCPCs Vs. Public Companies...... 107 Rules For Public Companies....... 107 Rules For CCPCs........... 109 Other Inclusions............. 110 Payments By Employer To Employee... 110 Forgiveness Of Employee Loans..... 110 Housing Loss Reimbursement...... 110 Discounts On Employer s Merchandise.. 111 Club Dues And Recreational Facilities... 111 Specific Deductions............ 111 Salesperson s Expenses Under ITA 8(1)(f).. 113 Travel Expenses And Motor Vehicle Costs. 114 The Salesperson's Dilemma....... 114 Automobile And Aircraft Expenses.... 115 Work Space In Home Costs For Employees. 116 Key Terms Used In This Chapter..... 117 References................. 117 Problems For Self Study......... 118 Assignment Problems........... 127 CHAPTER 4 Taxable Income And Tax Payable For Individuals Introduction................ 137 Taxable Income Of Individuals...... 138 Available Deductions......... 138 Ordering Of Deductions........ 138 Deductions For Payments - ITA 110(1)(f).. 139 Home Relocation Loan - ITA 110(1)(j)... 139 Northern Residents Deductions - ITA 110.7. 140 Calculation Of Tax Payable........ 140 Federal Tax Payable Before Credits.... 140 Provincial Tax Payable Before Credits... 141 Types Of Income........... 142 Taxes On Income Not Earned In A Province 143 Calculating Tax Credits.......... 143 Federal Amounts........... 143 Provincial Amounts.......... 144 (continued)
Detailed Table Of Contents For Both Volumes (Page 4) I CHAPTER 4, continued Personal Tax Credits - ITA 118(1).... 144 A Note On The Family Caregiver Amount. 144 Individuals With A Spouse Or Common-Law Partner........ 145 Individuals Supporting Dependent Person. 146 Child Tax Credit........... 148 Single Persons............ 148 Caregiver Tax Credit......... 149 Infirm Dependant Over 17 Tax Credit... 149 Interaction: Eligible Dependant Credit Vs. Caregiver Or Infirm Dependant Over 17 Credits...... 150 Caregiver Vs. Infirm Dependant Over 17. 151 Other Tax Credits For Individuals.... 152 Age Tax Credit............ 152 Pension Income Tax Credit....... 153 Canada Employment Tax Credit..... 153 Adoption Expenses Tax Credit...... 153 Public Transit Passes Tax Credit..... 155 Child Fitness Tax Credit And Children s Arts Tax Credit....... 155 First Time Home Buyer s Tax Credit.... 157 Volunteer Firefighters Tax Credit..... 157 Charitable Donations Tax Credit..... 157 Medical Expense Tax Credit....... 159 Disability Tax Credit......... 163 Education Related Tax Credits...... 165 Employment Insurance (EI) And Canada Pension Plan (CPP) Tax Credits.. 169 Overpayment Of EI And CPP Contributions 169 Transfers To Spouse Or Common-Law Partner 170 Political Contributions Tax Credits.... 170 Labour Sponsored Funds Tax Credit... 171 Refundable Credits............ 172 Refundable GST/HST Credit - ITA 122.5.. 172 Working Income Tax Benefit - ITA 122.7.. 173 Canada Child Tax Benefit........ 174 Social Benefits Repayment (OAS And EI). 175 Comprehensive Example......... 176 Key Terms Used In This Chapter..... 179 References................. 179 Sample Tax Return For Chapter 4.... 181 Problems For Self Study......... 181 Assignment Problems........... 188 Tax Software Assignment Problems... 195 CHAPTER 5 Capital Cost Allowances And Cumulative Eligible Capital Capital Cost Allowance System...... 201 Additions To Capital Cost......... 203 Determination Of Amounts....... 203 Available For Use Rules........ 205 Segregation Into Classes........ 205 Capital Cost Allowances......... 206 Rates For Commonly Used CCA Classes.. 207 Half-Year Rules (a.k.a. First Year Rules).. 209 Short Fiscal Periods.......... 211 Tax Planning Considerations...... 212 Dispositions Of Depreciable Assets... 213 Capital Gains............ 214 Recapture Of Capital Cost Allowance... 215 Terminal Losses........... 216 Summary Of Tax Consequences..... 217 CCA Schedule............... 217 CCA Determination - Special Situations. 218 Separate Class Election......... 218 Cumulative Eligible Capital (CEC).... 220 Eligible Capital Expenditures Defined... 220 Additions, Amortization, And Dispositions. 220 Key Terms Used In This Chapter..... 225 References................. 225 Appendix - CCA Rates For Selected Assets 226 Problems For Self Study......... 228 Assignment Problems........... 233 CHAPTER 6 Income Or Loss From A Business Overview................. 239 Classification Of Income........ 240 Business Income Vs. Property Income.. 242 Tax Consequences Of Classification.... 242 Business Income Defined........ 243 Property Income Defined........ 244 (continued)
Detailed Table Of Contents For Both Volumes (Page 5) I CHAPTER 6, continued Business Income Vs. Capital Gains.... 244 Tax Consequences Of Classification.... 244 Capital Gains Defined......... 245 Criteria For Identifying Capital Gains... 245 Business Income And GAAP....... 247 Business Income - Inclusions (Revenues) 248 Amounts Received And Receivable.... 248 Reserves.............. 249 Limitations On Deductions From Business And Property Income............ 252 Specific Limiting Items Under ITA 18... 253 Foreign Media Advertising - ITA 19 And 19.1 258 Provincial Capital And Payroll Taxes... 259 Limitations On Deductions From Business, Property, And Employment Income.. 259 Reasonableness........... 259 Meals And Entertainment........ 260 Luxury Automobile Costs....... 261 Automobiles Owned By The Taxpayer... 261 Automobile Leasing Costs....... 262 Leasing Property........... 264 Illegal Payments, Fines And Penalties... 264 Business Income - Specific Deductions. 265 Inventory Valuation (Cost Of Sales).... 265 Other Deductions.......... 266 Reconciliation Schedule......... 268 Business Income - Example........ 270 Taxation Year............... 271 General Rules............ 271 Unincorporated Businesses - Non-Calendar Fiscal Year...... 271 Special Business Income Situations... 273 Income For Farmers.......... 273 Professional Income (Billed Basis)..... 275 Sale Of A Business.......... 276 Key Terms Used In This Chapter..... 278 References................. 278 Problems For Self Study......... 280 Assignment Problems........... 290 Tax Software Assignment Problem For Chapter 6.............. 303 CHAPTER 7 Income From Property Property Income: General Concept... 307 Interest As A Deduction......... 308 The Singleton And Ludco Court Cases... 309 IT-533 - Interest Deductibility..... 309 Discount And Premium On Issued Debt.. 312 Interest Income.............. 314 Individuals - Modified Accrual Method.. 315 Discount And Premium On Debt Holdings. 316 Prescribed Debt Obligations....... 316 Accrued Interest At Transfer....... 317 Payments Based On Production Or Use (Royalties)............... 318 Rental Income............... 318 Capital Cost Allowances........ 319 Rental Income Example........ 320 Cash Dividends From Taxable Canadian Corporations.............. 321 The Concept Of Integration....... 321 Eligible Vs. Non-Eligible Dividends.... 322 Gross Up And Tax Credit Procedures - Non-Eligible Dividends....... 323 - Eligible Dividends......... 326 Comparison Of Investment Returns.... 329 Income Trusts............... 330 How Do Trusts Work?......... 330 Investments In Publicly Traded Trusts... 330 Basis For Popularity.......... 331 Taxation Of Income Trusts....... 333 Mutual Funds............... 334 Distributions............. 334 Adjusted Cost Base.......... 335 Stock And Capital Dividends....... 336 Foreign Source Income.......... 337 Shareholder Benefits........... 339 Key Terms Used In This Chapter..... 340 References................. 340 Problems For Self Study......... 341 Assignment Problems........... 347 Tax Software Assignment Problem For Chapter 7.............. 354
Detailed Table Of Contents For Both Volumes (Page 6) I CHAPTER 8 Capital Gains And Capital Losses Economic Background.......... 357 General Rules............... 358 Capital Gains Defined......... 359 Dispositions............. 359 Proceeds Of Disposition........ 360 Adjusted Cost Base.......... 361 Calculating The Capital Gain Or Loss... 362 Detailed Application Of The Rules.... 363 Identical Properties.......... 363 Partial Dispositions.......... 364 Warranties On Capital Assets...... 364 Capital Gains Reserves......... 365 Bad Debts On Sales Of Capital Property.. 367 Special Rule For Sales Of Real Property.. 368 Provisions For Special Assets....... 370 Principal Residence.......... 370 Personal Use Property......... 372 Listed Personal Property........ 373 Gains And Losses On Foreign Currency.. 374 Options.............. 376 Deemed Dispositions - Change In Use.. 377 Example - Change In Use........ 378 Special Rules For Principal Residences... 380 Special Rules For Automobiles...... 382 Deemed Dispositions - Departures From Canada....... 383 Small Business Investments - Deferral.. 384 Replacement Property - Deferral..... 385 Voluntary And Involuntary Dispositions.. 386 Timing Considerations......... 386 Application Of ITA 44(1) To Capital Gains. 387 Application Of ITA 13(4) To Recapture.. 388 Combined Application Of ITA 13(4) And 44(1) 389 Capital Gains And Tax Planning..... 392 Key Terms Used In This Chapter..... 392 References................. 393 Problems For Self Study......... 394 Assignment Problems........... 404 Tax Software Assignment Problem For Chapter 8.............. 413 CHAPTER 9 Other Income, Other Deductions, And Other Issues Introduction................ 415 Other Income - Subdivision d Inclusions 416 Pension Benefits........... 416 Retiring Allowances.......... 417 Death Benefits............ 417 Income Inclusions From Deferred Income Plans 418 Scholarships And Prizes........ 418 Research Grants........... 418 Social Assistance And Workers Compensation 418 Universal Child Care Benefit...... 419 Other Deductions - Subdivision e.... 419 CPP Contributions On Self-Employed Earnings 419 Moving Expenses........... 420 Child Care Expenses......... 422 Disability Supports Deduction...... 426 Related Inclusions And Deductions... 428 Employment Insurance Benefits..... 429 Pension Income Splitting........ 429 Spousal And Child Support....... 430 Annuity Payments Received...... 432 Registered Savings Plans......... 434 Registered Education Savings Plans (RESPs). 435 Registered Disability Savings Plans (RDSPs). 439 Tax Free Savings Accounts (TFSAs).... 440 Non-Arm s Length Transfers Of Property 442 Inadequate Considerations....... 442 Inter Vivos Transfers To A Spouse..... 445 Transfers Of Depreciable Assets..... 447 Transfer Of Farm Or Fishing Property To Child 449 Death Of A Taxpayer........... 450 Income Attribution............ 452 Basic Rules............. 453 Avoiding Income Attribution...... 454 Tax Planning And Income Attribution... 458 Key Terms Used In This Chapter..... 459 References................. 459 Problems For Self Study......... 460 Assignment Problems........... 470 Tax Software Assignment Problem For Chapter 9.............. 481
Detailed Table Of Contents For Both Volumes (Page 7) I CHAPTER 10 Retirement Savings And Other Special Income Arrangements Planning For Retirement......... 483 Tax Deferred Savings......... 484 Defined Benefit Vs. Money Purchase Plans. 486 Registered Retirement Savings Plans (RRSPs)487 RRSP Deduction Limit......... 489 Examples Of RRSP Deduction Calculations. 496 Undeducted RRSP Contributions..... 498 RRSP And RRIF Administration Fees.... 500 RRSP Withdrawals And Voluntary Conversions 500 Involuntary Termination Due To Age... 501 Spousal RRSP............ 501 Home Buyers Plan (HBP)....... 503 Lifelong Learning Plan (LLP)....... 505 Departure From Canada........ 506 Death Of The RRSP Registrant...... 507 Registered Pension Plans (RPPs)..... 509 Employer Contributions To The RPP... 509 Employee Contributions To The RPP... 510 Options At Retirement......... 510 Phased Retirement.......... 510 Pooled Registered Pension Plans (PRPPs).. 511 Glossary The Glossary can be found: at the back of the separate paper Study Guide, and on the Student CD-ROM within the FITAC version of Canadian Tax Principles. Supplementary Readings The Supplementary Readings can be found on the Student CD-ROM. No. 1 - Application Of The Median Rule No. 2 - Stock Option Shares Deemed Not Identical Property No. 3 - Determining M&P Profits No. 4 - SR & ED Expenditures No. 5 - Final Returns For Deceased Taxpayers No. 6 - Business Valuations No. 7 - Tax Shelters No.8-TransferPricing Registered Retirement Income Funds (RRIFs)512 RRIF Withdrawals........... 512 Death Of The RRIF Registrant...... 513 Evaluation Of RRIFs.......... 514 Deferred Profit Sharing Plans....... 514 Profit Sharing Plans............ 515 Transfers Between Plans......... 515 Retiring Allowances.......... 516 Retirement Compensation Arrangements 517 Arrangements Defined......... 517 Part XI.3 Refundable Tax........ 517 Salary Deferral Arrangements...... 518 Key Terms Used In This Chapter..... 519 References................. 520 Problems For Self Study......... 522 Assignment Problems........... 530 Tax Software Assignment Problem For Chapter 10............. 539
Detailed Table Of Contents For Both Volumes (Page 8) II CHAPTER 11 Taxable Income And Tax Payable For Individuals Revisited Introduction................ 541 Lump-Sum Payments........... 543 Treatment Of Losses........... 544 Carry Over Provisions......... 544 Personal Use Property Losses...... 546 Listed Personal Property Losses..... 546 Non-Capital Losses.......... 547 Net Capital Losses.......... 548 Net Capital Losses At Death....... 550 Allowable Business Investment Losses... 551 Farm Losses............. 553 Lifetime Capital Gains Deduction.... 554 Qualified Property.......... 554 Determining The Deductible Amount... 555 Comprehensive Example........ 558 Ordering Of Deductions And Losses... 559 Significance Of Ordering........ 559 Ordering In Computing Net Income For Tax Purposes..... 560 Ordering In Computing Taxable Income.. 560 Example.............. 561 Tax Payable Overview.......... 562 Tax On Split Income........... 563 Tax Credits Revisited........... 565 Transfer Of Dividends To A Spouse Or Common-Law Partner....... 565 Charitable Donations Credit Revisited... 566 Foreign Tax Credits Revisited...... 571 Alternative Minimum Tax......... 573 General Concept........... 573 Minimum Tax Calculation....... 573 Tax Credits For AMT......... 574 AMT Carry Forward - ITA 120.2..... 575 Key Terms Used In This Chapter..... 575 References................. 576 Sample Tax Return For Chapter 11.... 577 Problems For Self Study......... 577 Assignment Problems........... 587 Tax Software Assignment Problems... 598 CHAPTER 12 Taxable Income And Tax Payable For Corporations Computation Of Net Income....... 605 Computation Of Taxable Income..... 607 Deductions Available To Corporations... 607 Dividends From Other Corporations... 608 Non-Capital Loss Carry Over...... 611 Ordering Of Taxable Income Deductions. 613 Geographical Allocation Of Income... 614 Permanent Establishments....... 614 Example - Permanent Establishments... 614 Federal Tax Payable............ 615 Basic Rate.............. 615 Federal Tax Abatement........ 615 General Rate Reduction........ 615 Provincial Tax Payable.......... 616 Small Business Rate.......... 617 Investment Income Rates........ 617 Small Business Deduction........ 618 Canadian Controlled Private Corporation. 619 Active Business Income........ 619 Annual Business Limit......... 621 Allocation Among Associated Companies.. 622 Calculating The Small Business Deduction. 622 Elimination Of Small Business Deduction For Large CCPCs.......... 624 Personal Services Corporations..... 626 Professional Corporations And Management Companies....... 627 Manufacturing And Processing Profits Deduction............... 628 Calculating The Deduction....... 628 M&P Profits Defined......... 630 General Rate Reduction - ITA 123.4(2).. 630 Full Rate Taxable Income........ 631 Application To Companies Other Than CCPCs 631 Application To CCPCs......... 632 Foreign Tax Credits For Corporations.. 633 Key Terms Used In This Chapter..... 635 References................. 636 Problems For Self Study......... 637 Assignment Problems........... 643
Detailed Table Of Contents For Both Volumes (Page 9) CHAPTER 13 Taxation Of Corporate Investment Income II CHAPTER 14 Other Issues In Corporate Taxation Integration................ 651 The Basic Concept.......... 651 Dividend Gross Up And Tax Credit Procedures 652 Integration And Business Income..... 653 Refundable Taxes On Investment Income 655 Meaning Of Aggregate Investment Income. 655 Basic Concepts............ 656 Refundable Part I Tax On Investment Income........... 658 Additional Refundable Tax On Investment Income (ART)....... 658 Problem One: Excessive Tax Rates On Flow Through Of A CCPC s Investment Income. 660 Solution To Problem One: Refundable Portion Of Part I Tax.... 661 Refundable Part IV Tax On Dividends Received.......... 664 Problem Two: Use Of Multi-Level Affiliations To Defer Taxes On Investment Income.. 664 Solution To Problem Two: Refundable Part IV Tax........ 665 Part IV Tax On Portfolio Dividends Received 666 Dividends From A Connected Corporation. 667 Dividends Paid Out Of Mixed Income Of A Connected Corporation..... 669 Refundable Dividend Tax On Hand... 670 Basic Concepts............ 670 RDTOH - General Definition...... 671 Refundable Portion Of Part I Tax Payable. 671 The Dividend Refund......... 673 Example Of RDTOH Calculations.... 674 Working Through Large Corporate Tax Problems.............. 676 Designation Of Eligible Dividends.... 677 CCPCs And Their GRIP........ 679 Non-CCPCs And Their LRIP....... 680 Part III.1 Tax On Excessive Eligible Dividend Designations............ 681 Key Terms Used In This Chapter..... 683 References................. 683 Problems For Self Study......... 684 Assignment Problems........... 690 Introduction................ 701 Acquisition Of Control Rules....... 701 Economic Background......... 701 Acquisition Of Control Legislation.... 702 Deemed Year End.......... 702 Restrictions On The Use Of Charitable Donations............. 702 Restrictions On The Use Of Losses.... 703 Unrecognized Losses At Deemed Year End. 704 Deemed Disposition Election...... 705 Associated Companies.......... 707 Examples - Associated Corporation Rules.. 709 Investment Tax Credits.......... 712 Procedures............. 712 Eligible Expenditures......... 712 Rates............... 713 Refundable Investment Tax Credits.... 714 Carry Overs Of Investment Tax Credits.. 715 Effect Of Acquisition Of Control..... 716 Tax Basis Shareholders Equity...... 716 Shareholders Equity Under GAAP.... 716 Paid Up Capital (Tax Basis Contributed Capital) 717 Tax Basis Retained Earnings....... 717 Capital Dividend Account....... 718 Distributions Of Corporate Surplus... 720 Regular Cash Dividends........ 721 Stock Dividends........... 721 Dividends In Kind.......... 722 Capital Dividends Under ITA 83(2).... 723 Deemed Dividends Under: ITA 84(1) - Increase In PUC...... 724 ITA 84(2) - On Winding-Up...... 726 ITA 84(3) - On Redemption, Acquisition, Or Cancellation Of Shares...... 727 ITA 84(4) And ITA 84(4.1)....... 728 Key Terms Used In This Chapter..... 729 References................. 730 Problems For Self Study......... 731 Assignment Problems........... 737 Tax Software Assignment Problem.... 746
Detailed Table Of Contents For Both Volumes (Page 10) II CHAPTER 15 Corporate Taxation And Management Decisions The Decision To Incorporate....... 749 Basic Tax Considerations........ 749 Other Advantages And Disadvantages... 750 Tax Reduction And Deferral....... 751 Approach.............. 751 Basic Example............ 752 Public Corporation.......... 754 CCPC - Active Business Income..... 755 CCPC - Investment Income Other Than Dividends........ 758 CCPC - Dividend Income........ 759 Conclusions On Tax Reductions And Deferrals 760 Provincial Taxes And Integration..... 763 Tax Deferral............. 763 Tax Reduction............ 764 Examples-EffectsOfProvincialRates On Integration........... 765 Summary: Tax Deferral And Tax Reduction 768 Tax Free Dividends............ 768 Tax Rates On Dividends........ 768 Use Of Tax Credits.......... 768 Tax Free Amounts For 2013....... 770 Income Splitting.............. 770 Basic Concept............ 770 Example.............. 771 Shareholder Benefits Including Loans.. 772 The Owner-Manager Environment.... 772 Shareholder Benefits Other Than Loans.. 773 Shareholder Loans.......... 773 Management Compensation....... 777 General Principles.......... 777 Salary Vs. Dividends.......... 778 Salary Vs. Dividends For The Owner - Manager......... 778 The Basic Trade-Off.......... 778 Conclusion............. 787 Key Terms Used In This Chapter..... 787 References................. 787 Problems For Self Study......... 787 Assignment Problems........... 793 CHAPTER 16 Rollovers Under Section 85 Rollovers Under Section 85........ 799 General Rules For The Transfer..... 800 Transferor And Transferee....... 800 Eligible Property........... 800 Consideration To Transferor....... 801 Making The Election.......... 801 Establishing The Transfer Price...... 801 Transfer Prices - Detailed Rules..... 803 Rules Applicable To All Assets...... 803 Accounts Receivable......... 804 Inventories, Non-Depreciable Capital Property 805 Disallowed Capital Losses....... 806 Depreciable Property......... 808 Disallowed Terminal Losses...... 810 Eligible Capital Property........ 810 Eligible Capital Property - Disallowed Deductions....... 812 Summary Of Transfer Price Rules..... 813 Allocation Of The Elected Value..... 813 Consideration Received By The Transferor. 813 Assets Acquired By The Corporation... 814 Paid Up Capital Of Shares Issued.... 816 Paid Up Capital Reduction....... 816 More Than One Class Of Shares..... 817 Comprehensive Example - Section 85 Rollovers......... 818 Gift To Related Party - Section 85.... 821 General Rules............ 821 Example.............. 822 Excess Consideration - Section 85.... 824 Shareholder Benefit - ITA 15(1)..... 824 Dividend Stripping ITA 84.1...... 826 Applicability Of ITA 84.1........ 827 Dividend Stripping Example....... 827 Capital Gains Stripping ITA 55(2)... 830 Application Of ITA 55(2)........ 830 Capital Gains Stripping - Examples.... 831 Key Terms Used In This Chapter..... 833 References................. 834 Problems For Self Study......... 834 Assignment Problems........... 842
Detailed Table Of Contents For Both Volumes (Page 11) II CHAPTER 17 Other Rollovers And Sale Of An Incorporated Business Introduction................ 851 Share For Share Exchanges - ITA 85.1.. 851 General Rules............ 852 Conditions For The Application Of ITA 85.1 852 Example.............. 852 Exchange Of Shares In A Reorganization - ITA 86................. 854 Conditions For The Reorganization.... 855 Procedures............. 856 Example Using ITA 86(1) In An Estate Freeze 857 Gift To Related Person - ITA 86(2).... 860 Using ITA 86(1) - Tax Planning Considerations 862 Amalgamations - ITA 87......... 863 Position Of The Amalgamated Company.. 864 Position Of The Shareholders...... 865 Vertical Amalgamations (Parent And Subsidiary) 865 Non-Tax Considerations........ 865 Amalgamations - Tax Planning Considerations 866 Winding-Up Of A 90% Owned Subsidiary 867 Acquisition Of Assets......... 867 Disposition Of Shares......... 870 Tax Planning Considerations - Amalgamation Vs. Winding-Up.... 871 Winding-Up Of A Canadian Corporation. 872 Example.............. 873 Convertible Properties.......... 875 Application............. 875 Sale Of An Incorporated Business.... 876 Restrictive Covenants (a.k.a. Non-Competition Agreements).. 877 Sale Of Individual Assets........ 878 Sale Of Assets As A Going Concern.... 878 Sale Of Shares............ 880 Evaluation Of Alternatives....... 881 Example.............. 882 Key Terms Used In This Chapter..... 885 References................. 885 Problems For Self Study......... 886 Assignment Problems........... 891 CHAPTER 18 Partnerships Introduction................ 899 Taxable Entities In Canada....... 899 Chapter Coverage.......... 900 Partnerships Defined........... 900 The Importance Of Defining A Partnership. 900 Basic Partnership Elements....... 901 Types Of Partnerships......... 901 Co-Ownership, Joint Ventures And Syndicates............. 902 Introduction............. 902 Co-Ownership............ 903 Joint Ventures............ 903 Syndicates............. 904 Partnership Income, Losses, And Tax Credits............. 904 Introduction............. 904 Applicable Concepts......... 905 Calculating The Amounts To Be Allocated. 907 Methods Of Allocation......... 912 The Partnership Interest......... 913 The Concept............ 913 Acquiring A Partnership Interest..... 913 Adjusted Cost Base Of The Partnership Interest 914 Disposition Of A Partnership Interest... 918 Limited Partnerships And Limited Partners 919 Definitions............. 919 At-Risk Rules............ 919 Transfer Of Property To And From A Partnership.............. 921 Definition Of Canadian Partnership.... 921 Transfers With No Rollover Provision... 922 Common Partnership Rollovers..... 923 Specified Investment Flow Through Partnerships.............. 926 Key Terms Used In This Chapter..... 927 References................. 927 Problems For Self Study......... 928 Assignment Problems........... 933
Detailed Table Of Contents For Both Volumes (Page 12) II CHAPTER 19 Trusts And Estate Planning Introduction................ 941 Basic Concepts.............. 942 What Is A Personal Trust?........ 942 Establishing A Trust.......... 943 Returns And Payments - Trusts...... 944 Non-Tax Reasons For Using Trusts.... 945 Classification Of Trusts.......... 945 Personal Trusts............ 945 Testamentary Vs. Inter Vivos Trusts.... 946 Taxation Of Trusts............ 947 Rollovers To A Trust.......... 948 Rollovers To Capital Beneficiaries.... 951 21 Year Deemed Disposition Rule.... 951 Net Income For Tax Purposes Of A Trust 952 Preferred Beneficiary Election...... 953 Amounts Deemed Not Paid....... 953 Amounts Retained For A Beneficiary Under 21 Years Of Age........ 953 Taxable Income Of A Trust........ 954 Income Allocations To Beneficiaries... 954 Discretionary And Non-Discretionary Distributions............ 955 Flow Through Provisions........ 955 Principal Residence Exemption..... 957 Tax Payable Of Personal Trusts...... 957 Testamentary vs. Inter Vivos Trusts.... 957 Income Attribution - Trusts........ 960 Purchase Or Sale Of An Interest In A Trust 961 Tax Planning............... 962 Qualifying Spousal Trusts........ 964 Alter Ego Trusts............ 964 Joint Spousal Or Common-Law Partner Trusts 965 Estate Planning.............. 965 Estate Freeze............... 967 SIFT Partnerships And Trusts....... 970 Key Terms Used In This Chapter..... 970 References................. 971 Problems For Self Study......... 972 Assignment Problems........... 974 CHAPTER 20 International Issues In Taxation Introduction................ 979 Residence................. 980 Residence Of Individuals........ 980 Residence Of Corporations....... 987 Residence Of Trusts.......... 988 Part I Tax On Non-Residents....... 988 Carrying on Business in Canada..... 989 Canadian Source Employment Income.. 991 Dispositions of Taxable Canadian Property. 993 Part XIII Tax On Non-Residents..... 994 Interest Payments........... 995 Dividend Payments.......... 996 Royalty Payments........... 996 Rental Income............ 997 Pension Payments, Other Retirement Benefits 998 Shareholder Loans To Non-Residents... 999 Immigration And Emigration...... 1000 Entering Canada - Immigration..... 1000 Departures From Canada - Emigration.. 1000 Unwinding A Deemed Disposition.... 1002 Short-Term Residents......... 1003 Foreign Source Income Of Residents.. 1004 Introduction............ 1004 Foreign Investment Reporting Requirements 1005 Foreign Source Employment Income... 1006 Foreign Source Business Income.... 1006 Foreign Source Interest Income..... 1007 Foreign Source Capital Gains...... 1008 Problems With Foreign Source Dividend Income.......... 1008 Foreign Source Dividends Received By Individuals........... 1009 Foreign Dividends Received From Non-Affiliated Corporations..... 1010 Dividends Received From Non-Controlled Foreign Affiliates... 1011 Dividends Received From Controlled Foreign Affiliates..... 1015 Foreign Accrual Property Income (FAPI).. 1015 Key Terms Used In This Chapter.... 1018 References................ 1018 Problems For Self Study......... 1020 Assignment Problems.......... 1025
Detailed Table Of Contents For Both Volumes (Page 13) II CHAPTER 21 GST/HST Introduction............... 1035 Transaction Tax Concepts........ 1037 Value Added Tax (VAT)........ 1039 Liability For GST/HST.......... 1041 The Concept Of Supply........ 1041 Supply Categories............ 1042 Taxable Supplies.......... 1042 Exempt Supplies........... 1044 Applying the GST/HST Rate....... 1044 Place Of Supply........... 1044 Applying The Rate.......... 1045 Collection And Remittance Of GST/HST 1045 Registration............... 1046 Meaning Of Person For GST/HST.... 1046 Who Must Register.......... 1046 Exemption For Small Suppliers..... 1047 Input Tax Credits............ 1049 VendorsOfFullyTaxableAnd Zero-Rated Supplies........ 1049 Vendors Of Exempt Supplies...... 1051 Examples............. 1052 Relief For Small Businesses....... 1055 Quick Method Of Accounting..... 1055 Small Suppliers Exemption....... 1058 Streamlined Input Tax Credit Method.. 1058 GST/HST Procedures And Administration 1059 GST/HST Returns And Payments.... 1059 Associated Persons.......... 1061 Refunds And Rebates......... 1061 Books And Records......... 1061 Appeals.............. 1061 General Anti-Avoidance Rule...... 1062 Employee And Partner GST/HST Rebate 1062 General Concept.......... 1062 Calculating The GST/HST Rebate Amount. 1063 Example.............. 1063 Residential Property, New Housing Rebate 1064 General Rules For Residential Property.. 1064 New Housing Rebate......... 1064 (continued) CHAPTER 21, continued Sale Of A Business............ 1065 Sale Of Assets............ 1065 Sale Of Shares........... 1065 Other Situations........... 1066 Specific Applications.......... 1067 Partnerships And GST/HST....... 1068 General Rules............ 1068 Partner Expenses.......... 1068 Disposition Of A Partnership Interest... 1068 Transfers Between Partners And Partnerships 1068 Reorganization Of The Partnership... 1069 Trusts And GST/HST........... 1069 Key Terms Used In This Chapter.... 1069 Problems For Self Study......... 1070 Assignment Problems.......... 1075 Glossary The Glossary can be found: at the back of the separate paper Study Guide, and on the Student CD-ROM within the FITAC version of Canadian Tax Principles. Supplementary Readings The Supplementary Readings can be found on the Student CD-ROM. No. 1 - Application Of The Median Rule No. 2 - Stock Option Shares Deemed Not Identical Property No. 3 - Determining M&P Profits No. 4 - SR & ED Expenditures No. 5 - Final Returns For Deceased Taxpayers No. 6 - Business Valuations No. 7 - Tax Shelters No.8-TransferPricing