Index A Inventory valuation, 199 Academic prize income, 134 Investigation of site, 210 Accounting net income vs. tax Landscaping, 209 net income, 41-2, 198-210 Lease cancellation cost, 209 Accounting depreciation vs. Life insurance premiums, tax depreciation, 48-9, see 209 also Capital cost allowance Meals and entertainment, (CCA), Cumulative eligible 41, 205 capital (CEC) Motor vehicle, 42-3 Accrued salary and bonus, Personal expenses, 118, 203 205-6 Recreational facilities, 41, Capital outlay or loss, 203 203 Club dues, 41, 203 Reserves, 42, 199-203 Conventions, 41-2 Scientific research and Disability-related experimental development, modification to building, 204-5 210 Tax payments, 203-4 Discount on debt Utility service connection, obligations, 207-8 210 Donations, 211 Accounts receivable, allowance Employers contributions to for bad debts, 199-200, RPP/DPSP, 204 247 Financing expenses, 204 Accounts receivable, sale of, Foreign advertising, 208 247-8 General limitation, 203 Accrual accounting, 38, 199 Home office, 119-20, 208 Acquisition of control, 286-8 Interest and penalties, 93-4, 203-4 Active business assets, 146 307
Active business income, 146 Additional amount credit, 170 Additional refundable tax (ART), 236-7 CFE Tax Attribution, 182-7, see also Corporate attribution; Subsection 75(2) Automobile, see Motor vehicle Avoidance transactions, 17 Adjusted cost base (ACB), 66 Identical properties, 73-4 B Adoption expense credit, 168 Barter transaction, 16 Affiliated persons, 86-9 Basic asset test, 150-3 Age credit, 158-9 Aggregate investment income, 236-8 Basic personal amount tax credit, 157 Bonus and salary accrued, Allowable business investment 205-6 loss (ABIL), 79-81 Boot, see Section 85(1) Allowances, 117-8 rollovers Amalgamations, 279-80 Bursary, 134 Annuity income, 134 Business, 8, 38-9 Arm s length, see Non-arm slength Business income Arm s length share-for-share exchange, 278 Arm s length sale of shares by corporation, 285-6 Defined for tax purposes, 37-9, 99 Business investment loss (BIL), 79-81 Business loss, 46-7 Articles of continuance, 24, 27 Non-capital loss, 47 Asset writedowns, 203 C Associated corporations, 230-5, see also Small business Canada employment credit, deduction; Scientific 159 research and experimental Canada Pension Plan (CPP), development (SR&ED) 99 At risk amount, 301 Tax credit, 164 308
Index Canada Revenue Agency Capital gains, 65-79 (CRA), 6 Charitable donations, 211 Canadian-controlled private Eligible small business corporation (CCPC), 80 corporation shares, 86 Capital cost, 49 Foreign currency, 69-70 Capital cost allowance (CCA), Replacement property rules, 48-56 82-5 Available for use, 55 Reserve, 74-8 Class 8, separate class, 52, Taxable, 67 58-9 Capital gains exemption, 145- Class 10.1, passenger 54 vehicles over $30,000, 59 Capital loss, see Net-capital Class 13, leasehold loss improvements, 59-60 Capital property Class 14, intangible assets, Adjusted cost base (ACB), 60 65-6 Class 29/class 43, Capital gain, 65-6 manufacturing and processing equipment, 60 Capital loss, 65-6 Class 43, manufacturing and Defined, 65-6 processing equipment over Carry over, 67-9 $1,000, 60-1 Change in use, 81-3 Dispositions, 51 Half-net rule, 56-8 Charitable donations Rates, 50-1 Credit for individual, 156, 159-61 Recapture, 51-2 Deduction for corporation, Rental property rules, 52-3 211 Short taxation years, 56-8 Child care expenses, 135-8 Terminal loss, 51 Undepreciated capital cost Child support payments, 134 (UCC), 49 Child tax credit, 172 Capital dividends, 243-5 Children s arts tax credit, 165 309
CFE Tax Children s fitness tax credit, Cumulative net investment 165 loss (CNIL), 153 Club dues, see Recreational D facilities and club dues Death benefit, 192 Commissioned salesperson, 118-9 Death of taxpayer, 189-92 Common Final Evaluation Debt forgiveness, 109 (CFE), 1, 2 Debt obligations, discount on, Common law, 6 207-8 Common-law partnership, 9- Deductions from employment 10 income, 117-23 Connected Deductions from income, Corporations, defined, 80 other, 133-9 Consolidation, 8 Deferred Profit Sharing Plan (DPSP), 204 Construction of building, 55 Disability-related modification Control expense, 210 Acquisition of, 286-8 Disposition, 66-7 Corporations, defined, 12-3 Election re: Canadian Conventions, 41-2 securities, 72 Convertible securities, 278-9 Income versus capital, 71-3, see also Capital gains; Corporate attribution, 259-62 Capital loss Corporate reorganizations, Dividend, deemed, 249-50, 262-83 262, 274, 283-5 Counting days, tip on, 23 Dividend refund, 237-43 Cumulative eligible capital Dividend tax credit, 113-6 (CEC), 61-5 Dividends from Canadian Cumulative eligible capital corporations, 113-6, 211-2 amount (CECA), 61-5 Dues, 203 Dispositions, 62 Recapture, 62 Terminal loss, 62 310
Index E Financing expenses, 204 Education credit, 163-4 Fines and penalties, see Elections, 17 Interest and penalties Eligible dividend, 114 First time homebuyers tax credit, 166 Eligible small business corporation shares, 86 Foreign advertising, 208 Employee benefits, 102-3, see Foreign currency transaction, also Taxable benefits 16-7 Employee stock options, 70-1, Capital gain or loss, 69-70 111-3, 142-3, 203 Foreign reporting, 34 Employment income, 99 Foreign tax credits, 30, 174-8, Deductions from, 117-23 221 Employer obligations, 99 G Versus self-employment or business income, 99-100 Gambling winnings, 116 Employment Insurance (EI), General Anti-Avoidance Rule 41, 99 (GAAR), 17-8 Tax credit, 164 General rate reduction, 214 Equity method, 8-9 Goods and Services Tax Equivalent to spouse credit, (GST), 45 158, 173-4 Goods and Services Tax Estate freeze, 264 (GST) credit, 92 Examination fees, 163-4 Goodwill, 61, 80, 147, 203, 265-6 F Graduated rate estate, 290 Family caregiver tax credit, Gross-up, of dividends, 14, 172 114-6, 128 Family tax cut, 172-3 Farming, see Hobby Farming H Federal abatement, 213-4, 226, Half-net rule, 56-8 228 Hobby farming, 192-3 311
CFE Tax Holding period test, 150 Instalments Home accessibility tax credit, Corporations, 195-8 166 Individuals, 94-8 Home Buyers Plan, 92, 130 Insurance Home office expense, 119-23, Disability, 103 208 Health, 103 Life, 103, 209 Home relocation loan, 141, 176 Intangible assets, see Capital cost allowance, Cumulative I eligible capital Identical properties, 73-4 Integration, 13-6, 217-8 Income inclusions, other, 133- Interest and penalties, 93-4, 9 203-4 Income splitting Interest expense, 40 Attribution, 9, 129, 182-7 Interest free or low interest Defined, 182-3 loans, 188-9, 245, 247, see also Attribution; Taxable Eligible pension income benefits allocation, 131-2 Interest income, 40, 128, 238, Spousal RRSP 259-60 contributions, 129-30 Interpretation Act, 92 Income Tax Act, 5 Interpretation Bulletin, 6 Income Tax Regulations, 5 Inventory, 199 Income, taxable, see Taxable income Investigation of site, 210 Individuals, 91-2 Investment income, see Refundable taxes; Property Infirm dependant credit, 169- income 70, 172 Investment tax credit, 221-6 Information circular, 6 In-home care of relative J credit, 169, 172 Joint ownership, 9 312
Index Joint ventures, 302 Loss carryovers, 67, 211 Lottery winnings, see K Gambling winnings Kiddie tax, 185-6 M L Manufacturing and processing Landscaping expense, 209 (M&P) deduction, 218-21 Lease cancellation, 209 Meals and entertainment, 41, 205 Leasehold improvements, see Capital cost allowance Medical expense credit, 161-3 Leases, 38 Mental or physical impairment credit, 132-3, Legal basics, 11-3 135, 136-7, 162-3, 170-1, Legal entity, 7 173-4 Legal fees Motor vehicle, 103-8 Appeals or objection re: Allowance for employment CRA notice of assessment, expense, 117-9 40 Employer provided, 103-6 Collection of salary, 118 Restrictions on deductible Collection of support expenses, 42, see also payments, 133-4 Taxable benefits Representation expense, 210 Standby charge, 103-8 Lifelong Learning Plan, 130 Moving expenses, 135-6, 139 Limited liability partnership N (LLP), 301-2 Net-capital loss, 67 Limited partnership, 301 Carry over, 67 Listed personal property, 78 Net income for tax purposes Loans, see also Taxable Corporations, 198-207 benefits; Shareholder loans Individuals, 100-1 Basic tax treatment, 108-9 Non-arm s-length, 86-90 Home relocation, 141 Interest free or low interest Low interest employee, 141 loans, 188-9 313
CFE Tax Non-arm s-length (cont d) Options, 39, 70-1, 111-3 Related person, defined, 87 Sale of shares to P corporation, 283-5 Paid-up capital (PUC), 248-50 Non-capital loss, 46-8 PUC reduction, 249-50 Non-monetary transaction, see Part IV tax, 235-6, 238-9 Barter transaction Partnership interest, 295, 297- Non-resident 8 Becoming a, rules, 26-7 Partnerships, 7, 295-301 Deemed disposition, 28 Penalties, see Interest and Section 116 certificate, 33-4 penalties Trusts, 21 Pension adjustment, 127 Withholding tax, see Pension income, 123-33 Withholding tax Pension income splitting, 131- Non-taxable receipts, 116-7 2 Notice of assessment, 6 Pension credit, 159 Notice of objection, 6 Permanent establishment, 226- O 30 Off-calendar year-end, 101, Person, 8 191, 293, 296-7 Personal expenses, 118, 203 Old Age Security (OAS), 123- Personal services business, 4, 131, 159 146-7 Operating benefit, 104, 107-8 Personal tax credits, see Tax Organization Chart, 10 credits Organizational forms of Personal use property, 78-9 business Political contributions, 174-8, Corporation, 7-11 221 Partnership, 7-11 Prescribed interest rate, 95-6 Proprietorship, 7-11 Principal residence exemption, Trust, 7-11 178-82 314
Index Property income, 39, 40 Registered Retirement Income Property loss, 46-8 Fund (RRIF), 128-9, 131 Proprietorship, 8 Registered Retirement Savings Plan (RRSP), 123-32 Proration, 24-5, 27, 58, 62, 83-4 Related persons, see Nonarm s-length Provincial allocation of taxable income, 227-30 Reorganization of capital, 273-7 Public transit passes credit, 165 Reorganizations, corporate, see Corporate Q reorganizations Qualified investments, 86, 124 Replacement property Qualified small business Eligible small business corporation (QSBC) shares, 86 shares, 145-6 Rules, 84-6 Research grants, 133-5 R Reserves, 42, 199-202 Reasonable expenses, 40-1 Residence, see also Non- Recapture, 51-2, 62 resident Recreational facilities and club Becoming resident, 26-9 dues, 41, 203 Corporate residence, 26-7 Redemption of shares, 262-4 Deemed, 26 Refundable dividend tax on Defined, 19-20 hand (RDTOH), 238-9 Determination of, 19-20 Refundable taxes, 236-43 Trusts, 21 Registered Disability Savings Restricted farm loss, 193 Plan (RDSP), 132-3 Retiring allowance, 125-6, 133- Registered Education Savings 4 Plan (RESP), 132 Rights and things, 191 Registered Pension Plan (RPP), 123-9, 204 Rollovers, 264-79, see also Corporate reorganizations; Section 51 and 51.1 315
CFE Tax Rollovers (cont d) Share for share exchange, see rollovers; Section 85(1) section 85.1 rollover rollovers; Section 85.1 Shareholder benefits, 245-7 rollovers; Section 86 rollovers; Section 87 Shareholder loans, 246-7 rollovers; Section 88 Shares rollovers Common, 13 S Preferred, 13 Redemption of, 262-4 Safe income, 285-6 Specified class, 233-4 Safety deposit box, 42 Small business corporation Salary and bonus accrued, (SBC), 80, 146-50, see 205-6 also Allowable business Sale of a corporation, 251-8 investment loss (ABIL); Corporate attribution; Scholarship income, 134 Qualified small business Scientific research and corporation (QSBC) shares experimental development Small business deduction, 214- (SR&ED), 204-5, 221-5 8 Section 22 election, 247-8 Soft costs, 55 Section 51 and 51.1 rollovers, Specified investment business, 278-9 146-7 Section 84.1 rules, 283-5 Specified shareholder, 246-7, Section 85(1) rollover, 265-73 260 Spousal credit, 158, 172-3 Section 85.1 rollover, 278 Spousal support payments, Section 86 rollover, 273-7 134 Section 87 rollover, 279-80 Spousal transfers, 79, 190 Section 88 rollover, 281-3 Spousal trust, 291 Section 116 certificate, 33-4 Standby charge, 103-8 Self-employment income Stock dividends, 115-6, 212, Tests to determine, 99-100 250 316
Index Stock options Education credit, 163-4 Capital gain or loss, 70-1 EI and CPP contributions, Employee, 111-3, 142-3 164 Stop international tax evasion, Equivalent to spouse, 158, 34-5 170, 173-4 Examination fees, 163-4 Stop-loss rules, 87, 90 Family tax cut, 172 Strike pay, 116 First-time homebuyers, 166 Stub period income, 101, 191 Foreign, 174-8 Student loan interest credit, Home accessibility, 166 164 Infirm dependant, 169-70, Subsection 55(2), 285-6 172 Subsection 75(2), 294-5 In-home care of relative, 169, 172 Subsection 84(1), 250 Medical expense, 161-3 Superficial loss rules, 90, 264 Mental or physical Support payments impairment, 170-1, 173-4 Child, 134 Pension, 159 Spousal, 134 Personal, 157 Political contribution, 174-5 T Proration of, 83-4 Tax credits Public transit passes, 165 Additional amount, 170 Spousal, 158, 173-4 Adoption expense, 170 Student loan interest, 164 Age, 158-9 Teacher and early childhood Basic personal amount, 157 educator school supply, 173 Canada employment, 159 Textbook, 164 Charitable donation, 159-61 Transfer to spouse, 173-4 Child tax, 172 Tuition, 163-4 Children s arts, 165 Volunteer firefighter, 171 Children s fitness, 165 Volunteer search and Dividend, 113-6 rescue, 172 317
CFE Tax Tax rates Taxpayer, 6 Brackets (individuals), 155- Teacher and early childhood 6 educator school supply tax Corporate, 213-4 credit, 173 General rate reduction, 214 Terminal loss, 58-61 Proration of, 83-4 Terminal tax return, 189-90 Tax returns Testamentary trust, 293-4 Due dates, 91-4, 189, 195 Textbook credit, 164 Filing requirements, 91-4 Tradesperson s tools, 119 Penalties, 93-4 Terminal, 189-92 Transfer of tax credits to spouse, 172-3 Taxable benefits Transfers and loans, see also Automobile, employer Attribution provided, 102-8 Indirect income, 188 Employee stock options, 111-3 Minors, to, 185 Low (no-interest) loan, Rights to income, 188 employer provided, 108-11, Spouse, to, 184 140, see also Employee Travel expenses benefits Employment related, 117-8 Taxable Canadian property, 20 Treasury shares, 246-7 Taxable capital gain, 66, see Treaty, income tax, 20 also Capital gain Trusts, 289-95 Taxable income, 140-5 Tuition credit, 163-4 Taxes owing U Due dates, 91-2, 195-6 Undepreciated capital cost, see Taxes payable Capital cost allowance Corporation, 213-26 Uniform Evaluation (UFE), 1, Individual, 155-6 2 Tax-free savings account, 116- Universal Child Care Benefit 7, 191 (UCCB), 135 318
Index Utility service connection, 210 Section 116 certificate, 33-4 V Workspace in home, see Home office expense Vacant land, 40, 147-8 Writedowns, see Asset Vesting, 126 writedowns Voluntary disclosure, 93-4 Y Volunteer firefighter tax credit, 171 Year-end, 8, 195 Corporations, 195 Volunteer search and rescue tax credit, 172 Deemed, 26, 27, 58, 280 Off-calendar, 101 W Partnerships, 299-301 Windfall, see Gambling Trusts, 24, 289-95 winnings Winding-up, 281-3 Withholding tax, payments to non-residents, 30-1 Rental income, 31 319