4sc3 formula sheet final

QSBC share: meets SBC (CCPC, 90% ABI), Holding (24 months) and Basic Asset Test (50% FMV asset used in CANABI) Altered test: Parent ABA + subs's shares = 90%, Subsidiary OR parent meet 50% basic asset test Capital gains deduction: least of: unused lifetime deduction (1), cumulative gains limit (2), & annual gains limit (3), where: 1) 456815 - previously claimed capital deductions 2) Net taxable CG - net capital losses - ABILs - CG deductions - CNIL 3) Net current CG - net current CL - current ABIL Deduct this from the taxable capital gain before you calculate the tax. Imputed interest on attribution: (loan * presc int rate) - (div earned * 1+gross up) - interest received - TOSI rel. taxdiv Net capital losses, property losses, and ABIL expire upon acquisition. ABIL still remains deductible if the business is carried on w reasonable expectation of profit + to the extent of income from the transmission of business/a business selling similar products. Income: Business Income + Property income + taxable capital gains - allowable capital losses - business losses - property loss Non-capital loss balance: loss for taxation year from business + property + loss for old year - unutilized losses set to expire Impact of acquisition: 1) Establish deemed year end on the day before acquisition 2) Realize inventory, A/R, accrual losses 3) If ACB > FMV, adjust to FMV (non-depreciable capital property) 4) If UCC > FMV @ established year end, deem difference to be CCA and reduce income Can elect to have deemed disposition of any taxable property that triggers gains with a PoD between FMV and ACB. If ACB is adjusted to FMV, new UCC limited to (realACB) +1/2(FMV-real ACB) Capital dividends account is the sum of 1, 2, 3, 4, minus 5, where: 1) Untaxed portion of net capital gain - allowable capita 2) Capital dividends received 3) Untaxed portion of gains on eligible capital property (50% of gain on a pre-2017 disposition) 4) Untaxed insurance proceeds 5) Capital dividends paid/payable by corporation YOU KEEP MAKING THIS MISTAKE SO DOUBLE CHECK: EQUIPMENT (+ NON CAPITAL PROPERTY) DOES NOT IMPACT AII/CDA EQUIPMENT, INVENTORY, A/R DO NOT IMPACT AII/CDA Refundable P1 tax (added to NERDTOH/ERDTOH) = 30(2/3)% * AII Tax on non-elg div = (1_.15)*tax rate-.15, if elg replace 15 w 38 Minimum share price to recover equivalent to total asset share = P, where P-t*(50%*(P-ACB)-CGD) = after-tax cash from asset sale and wind up, and t = shareholder tax rate. P = [ (2*after-tax cash - (t*ACB) -CGD) ] / 2-t If cap div is paid prior to share: Cap div + p -.5 (1/2 * (p-acb)-cgd)) = aft tax cash S85: On transferring assets between corporations: terminal loss is denied on transfer to an affiliated purchaser and kept with transferor until the transferee sells asset to non-affiliated person. Transferee records asset with a cost = cost for transferor and an addition to UCC = FMV. Capital loss on redemption is denied if the corporations are affiliated immediately after redemption, and is added to the ACB of any other shares owned by the transferor. If no other shares are owned the capital loss is lost. If the transferor is an individual, the capital loss is denied as superficial and added to the cost of the asset to the transferee. PUC REDUCTION = (1-2) * (3/1) 1) Increase in LSC after sec85 disposition 2) Excess of EA over boot 3) Increase in LSC of particular class on transfer S86: Applicable if no S85 + All shares are capital property for shareholder, all shares of a particular class for shareholder are exchanged, and property receivable includes other shares 1)Issuance of new shares a. First, subtract: (PUC old shares - Boot), subtract LSC from that = PUC reduction b.PUC new (LSC new - PUC reduction) c. ACB old shares - FMV boot - benefit = New share ACB 2) Redemption on old shares a. PUC new shares + FMV boot = redemption proceeds
b.Redemption proceeds - PUC old shares = deemed dividend on redemption c. ACB new shares + FMV boot = P of D d.P of D - deemed dividend on redemption = Adj P of D e. Adj p of D - ACB old = Capital gain 3) Net Economic Effect: sum of: Deemed dividends on redemption, Capital gain/loss FMV new shares - ACB new shares S85.1: Exchanging shares for another arms-length corporation. Tax-free rollover. Automatic, no election. Works if: previously unissued shares are the only consideration, arm's length, does not control the purchaser or own more than 50% of the FMV of all outstanding shares, not elected under Sec 85, not reorganized, capital property, purchased by a Canadian Corporation. Consequences: 1) Vendor: Proceeds = Old ACB, ACB new = ACB old, PUC new = PUC old. 2) Purchaser: ACB = lesser of FMV old and PUC old S87: Amalgamation Rollover. Conditions: both corps must be Canadian, all property must be delegated to the new amalgamated corp, all shareholders must receive new corp shares, transfer cannot occur as a result of normal purchase/distribution on a wind-up. Depreciable capital property is transferred @ UCC, Non-depreciable is transferred @ ACB, and inventory is transferred @ cost. Everything else is flowed through. Effects of the rollover at the shareholder level: Shareholder deemed disposed of shares at ACB and acquired new shares of amalgamated corporation at same ACB Conditions for rollover: No boot received; Original shares are capital property to shareholder; Amalgamation does not result in deemed gift to a person related to the shareholder. S88: Winding up a subsidiary: if a Can.corp has at least 90% of each class of shares owned by another Can.corp, it is wound up into this parent corp. Effect on parent: deemed to have acquired subsidiary corp property at ACB. Bump: ACB of subsidiary shares - sum of(cost amount of subsidiary asset + cash - liabilities - reserves + dividends paid to parent) No deemed year end. Deductible losses are: losses not yet deducted by subsidiary may be deducted in next taxation year to the extent that they have not expired. Deemed to have disposed of sub shares for proceeds equal to the greater of: (the lesser of sub PUC and (cost of assets received - liab - tax reserves)) and ACB of subsidiary shares held by parent immediately before wind-up. TOSI applies the highest marginal rate of tax to split income. Split income includes taxable dividends from a private corporation (including deemed dividends) unless the income meets the definition of an excluded amount. An excluded amount includes income from a property to the extent that the amount is (where the individual has attained the age of 17) is not derived directly or indirectly from a related business in respect of the individual. A related business is defined to include a business carried on by a source individual in respect of the specified individual or a business if the source individual owns not less than 10% of the fair market value of the shares of the corporation. A source individual is a Canadian resident who is related to the specified individual. Total ERDTOH/NERDTOH: /38.33% = taxable dividend paid (from corp POV). P of D is always adjusted to FMV. If P of D </> FMV, there is double taxation. Excluded shares: provide him with 10% of the votes and value of the corporation, [Less than 90% of the business income of the corporation needs to be from the provision of services, the corporation cannot be a professional corporation and all or substantially all of the income of the business is not derived from a related business. Proceed from redemption/from wind-up Step 1: Deemed Dividend Redemption Amount Less: PUC of shares redeemed Tax @ div % Deemed dividend on redemption Less: Capital dividend account Step 2: Capital gain (loss) P of D (redemption amount) Less: deemed dividend + capital dividend Adjusted proceeds of disposition Adjusted proceeds of disposition Less: adjusted cost base Tax @ gain % Capital gain Corporation After-tax Cash PUC Capital dividend Taxable dividend paid Dividend refund Available to Invest Individual Wind-up Cash PUC Cap div Taxable div Tax on div Available to invest Total available to invest Late-filed tax return Tax owing * 5% + 1% for each complete month late, max 17% Late-filed tax return - repeat offender Tax owing * 10% + 2% for each complete month late, max 50% Failure to report income - repeat offender Income not reported * 10% Under-reporting income Min 100, max = increased tax liab * 50% Late or deficient instalments (interest charged - greater of 10000 and 25% of interest that would've been charged if no instalments were made) * 50% Planner's penalty (for them) Minimum 1000, maximum fee charged for planning Preparer's penalty (for u) Minimum 1000, maximum 100000 + fee charged, limited to 50% * tax on unreported income
- If tax owing > 3k in prev year and 3k in one of next 2 years - Indv: not primarily earning S&W, pay instalments on the 15 th of each calendar quarter, the lesser of: 1) ¼ of instalment base (taxes payable in preceding year) [2021] 2) ¼ of est tax payable for current year [2022] 3) First 2 instalments: (¼ of instalment base for second preceding year [2020]) second 2 instalments: (½ of the eexcess for the preceding year [2021] - ½ of the instalment base of the second preceding year [2020]) 4) Interest is charged @ prescribed rates on late instalments from the day they are due to the final payment until tax is paid and is non-deductible 2) Corporations can overpay to offset interests: 1) Elg ccpc: Corp w/assoc corp in either current or prev year w TI < 500,000 and Taxcap < 10M, Claimed SBD in either current or prev taxation year Has perfect compliance history, has quarterly instalments calculated as due @ the last day of each quarter calculated as: i. ¼ × estimated tax payable for current year,¼ × tax payable of previous year, or (i) ¼ × tax payable for second preceding year for the first instalment, and (ii) ⅓ × (tax payable of previous year less first instalment paid of current year) for next three instalments. 2) Monthly instalments for other corporations: 1/12 × estimated tax liability for current year; 1/12 × instalment base for the immediately preceding taxation year; or 1/12 × instalment base for the second preceding year for the first two months, then 1/10 × (instalment base for immediately preceding taxation year less instalments paid in first two months). i. Due three months after the end of your year (CCPC) or two months (normal) Partnership: Limited partners cannot deduct partnership losses Income; Add: charitable donations, taxable capital gains, loss carryovers Personal tax credits: charitable donations tax credit, dividend tax credit, foreign tax credit o Partnership interest is capital property and you must track ACB Partnership ACB: Additions: Capital contributions + income (partner's share) Other: PUC, life insurance proceeds Deductions: Capital withdrawals; Income: Partner's share of losses, drawings, charitable donations, input tax credit Negative ACBs happen, a general partner will not be taxed as a capital gain if there is no actual disposition of the partnership interest, but it is taxable for limited partners and certain other passive partners A partnership can be reorganized; its like a sec85 rollover, but the transferor must receive a "partnership interest" rather than shares. Assets can also be transferred if there is a joint election made.To transfer property to a partnership (s97): partnership must be a canadian partnership immediately after transfer, all partners must elect to apply the rollover. A trust is a relationship where the trustee must deal with the trust property for the benefit of the beneficiaries any of whom may enforce the obligation. There must be a certainty of intention, subject matter, and of objects transferring/acquiring all done @ FMV, unless spouse, done @ FMV Fiscal Years Inter vivos trust: December 3, 33% Testamentary trust: December 31, 33% Graduated rate estate Can have an off-calendar year for the first 36 months, after which they must adopt a calendar year end, marginal tax rates of individuals o Must file tax returns within 90 days of the end of the fiscal period Don't receive personal tax credits but get dividend and foreign tax credit Every 21 years from a trusts beginning date, it is deemed to dispose all capital property @ FMV and must pay tax on resulting cap gain and income. The "rights or things" return is a separate return from the terminal return and must be filed by the later of one year after death and 90 days after the assessment of the terminal return. Payment is due on the same date as the terminal tax return. The executrix may elect to defer payment of taxes, related to rights or things and on deemed dispositions, in the form of ten annual instalments plus interest at prescribed rates. AII: Net Taxable Capital Gains - Net Capital Losses deducted under Division c + Income from Property (can and foreign) - Dividends Deducted under Division C - Losses from property (Can and foreign)
AAII: Cap gain + interest income + royalty income + portfolio dividends + rental income = Your AAII is passive income. SBD Elg. Inc.: (Amount of AAII > 50K) * 5, subtracted from 500K = for passive income. o When passive income > 150k, SBD is eliminated 500k - ((taxable income - 50k)/80) = for taxable capital o When taxable capital > 50m, SBD is clawed back Refundable P1 tax: the least of 30 *AII, 30 %*(TI - SBD Elg. Inc), P1 tax, P4 tax on taxable dividends received: taxable not-connected dividends subject to P4 tax* 38.33%, taxable connected dividends (dividends * share amount in organization) ERDTOH: opening balance + part iv tax on eligible portfolio dividends and connected dividends NERDTOH = refundable p1 tax - less dividend refund from prev year + opening balance + part iv tax on non eligible portfolio and connected dividends Dividend refund = the total of: The lesser of 38 % * all elg div paid in the year /ERDTOH ending balance +The lesser of 38 % * all n.elg div paid in the year /NERDTOH ending balance + (Either: If 38 % * all n.elg div paid in the year is in excess of NERDTOH ending balance at the end of the year, the lesser of: The amount in excess/ The amount by which the ERDTOH balance at the end of the year exceeds a, if any. If not, then NIL.) Non-capital losses = ABIL + Net capital losses + div c deducted dividends - income from business and property - taxable capital gains less allowable capital losses DIV gross-up and DTC, respectively: NE: 15%, 9/13 of gross up, E: 38%, 6/11 of gross up
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