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Tax final

Terms in this set (93)

Filing deadline for individuals
April 30th of the following year (June 15 if taxpayer or spouse had business income)
Filing deadline for corporations
Six months after corporation's year end
Filing and payment deadline for trusts
90 days after the trust yeast end
Payment deadline for individuals
April 30th of the following year
Payment deadline for corporation
Six months after corporation's year end HOWEVER interest on unpaid taxes is charged beginning two months after year end (three months for Canadian Controlled Private Corporations)
How do individuals change a previous tax return, and what is the normally permitted time frame you can do this?
Tax returns are changed by filing a T1 Adjustment Request (T1ADJ) or using Change My Return online. Normally permitted within last 10 years.
What are the fines and other costs of filing a late tax return?
Fine of 5% of unpaid taxes, plus 1% for each full month that the return is late. Interest at the prescribed rate is also imposed on the balance, compounded daily.

Penalties double to 10%+2% per month unpaid if you were previously charged a late filling penalty within the last 3 years.
What is the threshold of unreported income where fines begin to be applied? What are the fines for crossing this threshold?
Unreported income of $500 or more in one or more of your previous three returns may be assessed a penalty of the lesser of
-10% of the unreported amount
-50% of the tax calculates on the unreported amount
What penalties are associated with knowingly making a false statement or omission on your tax return?
The greater of
-$100
-50% of understated or overstated credits relating to the false statement
When are installment payments required?
Installment payments are required if your estimated net tax owing for the current year AND either of the two previous years is above a defined threshold. The threshold for BC 2020 is $3000.

For farming and fishing, answer changes to "both of the two previous years"
When are installment payments due?
15 of the month in September, December, March, and June.
How are interest charges determined on unpaid installments?
First, the CRA calculates interest for all installment payments up to the balance due date for the year. This amount is then reduced by the interest that would have been paid on amounts the taxpayer has paid. If this value is less than $25, no interest is charged
What are the fines for installment late or under payments?
Start with 50% of accrued interest on these amounts. Reduce this by the greater of
-$1000
-25% interest tat would have been paid if taxpayer made no installment payments

If final number is $1000 or less, no installment charges are applied.
What five types of income are used to determine NITP?
Employment, business, property, capital gainsand loses, other
Describe employment income.
Employment income is income earned while working for another party. It may consist of salary, wages, benefits, tips, gratuities, and honoraria.
Describe business income.
Business income is income earned on a person's own endeavors, such as selling goods or services.
Describe property income
Property income is passive income and includes rent, interest and dividends.
What are capital gains?
Capital gains are income resulting from selling shares or other property other than inventory.
Describe other income
Other income is everything that is taxable and does not fit into the other four categories of income
What are three examples of income not subject to income tax?
Gifts (excerpt from employer and done capital gifts), lottery winnings, and life insurance.
Describe the 4 step process for determining net income for tax purposes.
A) Determine the aggregate of employment, business, property and other income (must be positive or zero)
B) Increase A by amount that capital gains exceed allowable capital losses (must be positive or zero)
C) Reduce B by other items of deduction (must be positive or zero)
D) Reduce C by employment, business, or property losses (must be positive or zero)
What is the due date for objections to CRA assessment?
90 days after NOA received
What are nine factors considered when determining employed vs. self employed?
Intention
Contract for service
Control
Tools and equipment
Subcontracting
Financial risk
Investment and management
Opportunity for profit
Integration
What two forms other than a T4 may be included in a return when determining income from employment?
T4A: Statement of Pension, Retirement, Annuity, and Other Income

T777: Statement of Employment Expenses
List 14 taxable employment receipts and benefits
1. Salaries, wages, commissions, directors fees, bonuses, tips, gratuities, honoraria
2. Disability payments
3. Public health plan premiums
4. Premiums for life insurance
5. Financial counseling fees
6. Personal and living expense allowance
7. Travel expenses of spouse (unless requested by employer
8. Prizes from employer sponsored contests
9. Reimbursement for the cost of tools
10. Public transit passes
11. Cell phone or computer where the ownership transfers to the employee
12. Tuition fees played by employer, unless course taken for employers benefit
13. Low interest loans
14. Personal use of employers automobile
List 15 non taxable employment benefits
1. Merchandise discounts
2. Subsidized meals
3. Overtime meals
4. Uniforms provided by employer
5. On site recreation facilities
6. On site daycare facilities
7. Counseling services for mental/physical health, reemployment, or retirement
8. Transportation passes
9. Cell phone service plan
10. Employment portion of internet service plan
11. Loyalty rewards
12. Employer contribution to RPP, group accident/sickness plan, private health services, deferred profit sharing plans
13. Non cash gifts and awards under $500 to arms length employee not related to performance
14. Reasonable auto allowances
15. Reimbursement up to 500 for office/ computer equipment purchased to wfh due to covid 19
List 7 deductions from employment income.
1. Legal expenses to collect salaries, wages, etc.
2. Employee RPP contributions
3. Union and professional dues.
4. Expenses incurred to earn commissions
5. Travel expenses including hotel, transportation, 50% of meals
6. Consumed supplies
7. Work space in home
What is the tax version of the accounting term "Acquisition cost"
Capital cost
What is the tax version of the accounting term "Amortization expense /depreciation"
Capital cost allowance (CCA)
What is the tax version of the accounting term "Net book value"
Unappreciated capital cost
What are the requirements of property for claiming CCA?
The property must be owned by the taxpayer and acquired for the purpose of gaining or producing income
What is AAIP
The Accelerated Asset Investment Program, available November 20, 2018 until 2028 allowing the increase of net purchases by 50% prior to calculating CCA
When does recapture occur
Recapture occurs when the UCC of an asset class is negative prior to claiming CCA. This occurs when dispositions exceed beginning of year UCC balances.
How is recapture treated?
Recapture is added to income for the current year
What proportion of grossed up eligible dividends may be claimed as a tax credit?
6/11
When does a terminal loss occur?
A terminal loss occurs when there is a balance remaining in a class of CCA, and all the assets in the class have been disposed of.
How are terminal loses treated?
A terminal loss is deducted from income in the year it is incurred
What is the gross up rate for eligible dividends?
38%
What is the gross up rate for ineligible dividends?
15%
What proportion of grossed up ineligible dividends may be claimed as a dividend tax credit?
9/13
What tax credits are permitted on foreign dividends?
None. Instead, a foreign tax credit is used to offset taxes paid to foreign tax authorities.
What exchange rate is used when converting foreign dividends to Canadian dollars for reporting purposes?
Either the exchange rate on the date dividends were received, or the average exchange rate for the year.
What are the main categories of expenses deductible against rental income?
Mortgage interest, property taxes, utilities, repairs and maintenance, insurance, CCA, advertising, and agents fees.
When is CCA not deductible against rental income?
When it creates or increases a rental loss
T5s are NOT used to report property income in which scenarios?
Amounts paid to one recipient when the total yearly amount is less than $50

Interest that is part of a blended payment made by an individual

Interest paid on loans from banks, or other institutions whose usual business includes lending money
What slip is used to document alimony and child support payments?
None, they are the responsibility of the recipient and payor to track and record.
How are RESP withdrawals treated for tax purposes?
The original investment is non taxable. The amount of investment income earned by the plan is included in recipient's income.
How are retiring allowances, such as early retirement payments, severance pay, and wrongful dismissal payments treated for tax purposes.
They are included in income as "other income". They would be recorded on a T4 skip under boxes 66 or 67.
How are pension benefits treated for tax purposes?
Pension benefits are included in income as other income.
How are receipts from retirement savings plans treated for tax purposes?
They are fully taxable when withdrawn and included in income as other income.
How are scholarships treated for tax purposes?
Scholarships are exempt from income if they apply to an elementary or secondary school education, or they apply to post secondary education related to a college diploma, bachelor, masters, or doctoral degree, and the scholarship was received to support the taxpayers enrollment in that program.

If the taxpayer was in part time enrollment, the exemption is limited to the amount paid for tuition and program related materials.
How are research grants treated for tax purposes?
Research grants less expenses incurred for purposes of carrying on research work are included in income.
How are adult training allowance receipts treated for tax purposes?
These are included in income, AND personal/living expenses incurred while living away from home are not deductible.
How are social assistance receipts treated for tax purposes?
Social assistance receipts are included in income. If the taxpayer is married, income is included in income of the spouse with higher income.
How are Canada Child Benefit receipts treated for tax purposes?
The benefit is tax free and therefore not included in income.
How are TFSA withdrawals treated for tax purposes?
All withdrawals are tax free and therefore not included in income
What is a deemed disposition of capital property?
A deemed disposition occurs when a taxpayer disposes of capital property by a method other than sale, such as theft, destruction, departure from Canada, death of taxpayer, appropriation, or gift.
Way are the 5 categories of listed personal property?
Works of art, jewellery, rare books, stamp collections, and coin collections.
What are the rules for carrying LPP losses forwards and backwards
Back three years, forward seven years.
How is a principal residence defined for tax purposes?
Any housing unit owned by the taxpayer, ordinarily inhabited at any time during the year, including up to one acre of land
How are alimony and child support payments treated for tax purposes?
Alimony is a deduction from income, since they are taxable to the recipient. Child support payments are no effect on income.
Way are the differences between how base amounts and enhanced amounts of CPP contributions are treated for tax purposes?
Base amounts are used to calculate a tax credit, while enhanced amounts are a deduction to income
What are the limitations to claiming moving expense deductions?
Move must be made in connection with new job or business, or to attend post secondary institution within Canada

Must move at least 40km closer to work or school

For work only deductible against new employment income. May be caused forward a year

For school, deductible against prizes and research grants

Only excess of allowances and reimbursement by employer are deductible
What expenses are included in moving expenses?
Traveling costs
Cost of food and lodging up to 15 days at old and new location
Lease cancellation costs
Costs of selling former residence
Costs of legal services and transfer taxes incurred to purchase new residence of former residence sold by taxpayer or spouse
Costs of moving and storing furniture
Define earned income for child care purposes
All salaries from wages and employment, training allowances and research grants business income
Define earned income for RRSP purposes
The total of employment income, royalty income from work or invention, rental income, business income, and spousal support receipts LESS business losses, rental losses, and spousal support payments
What is the Homebuyers Plan?
The Homebuyers Plan allows an individual to withdraw $25,000 from their RRSP tax free to purchase a primary residence, provided no other home has been owned in preceding 4 calendar years.

Once withdrawn, the individual must repay the withdrawal within 15 years having payments begin no later than 2 years after withdrawal. Repayment occurs by the participant making contributions to their RRSP without tax deductions.
What are four factors of consideration when determining business income vs peppery income?
...
What is the Lifelong Learning plan?
The LLP allows an individual to withdraw up to $20,000, limited to $10,000 per single calendar year, from their RRSP to finance their education, or the education of a spouse or common law partner. Repayment is required within 10 years, stating the earliest of the fifth year after withdrawal, or the second year after completing full time education.
When can meals and entertainment be deducted 100% as a business expense?
You bill your client for the full amount
You include the amount in your employees income
All employees are invited, up to six events per year
When can you deduct life insurance premiums for a business owner from business income
When insurance is required as collateral for a loan
What are the monthly lease and interest limits for passenger vehicle business deductions?
$800 for leases, $300 for interest
What limitations are there on convention business expense deductions?
Max two per year. If food is included and amount not provided allocate $50 per day
When must wages be paid to be allowed as a business expense?
Within 180 days of fiscal year end
What are the carryover rules for non capital losses?
Back 3 years, forward 20 years
What are the carryover rules for net capital losses?
Back 3 years, forward indefinitely
What are the carryover rules for listed personal property losses?
Back 3 years forward 7 years
What are the five marginal tax rates?
15, 20.5, 26, 29, 33 percent
What is the basic personal credit base amount?
$13,229
For the eligible dependant tax credit, when is the dependent not required to be under 18 years of age?
If they are a parent, grandparent, or dependent by reason of physical or mental infirmity
What relatives may be considered eligible for the eligible dependent credit?
Sons, daughters, parents, grandparents, brothers, sisters, grandchildren.
At what age are Canadian residents eligible for the age credit?
65 years
How long can you carry student loan interest credits forward?
5 years
How long does a business have to register under the GST program if it exceeds $30,000 taxable supplies in a single quarter?
29 days
How long does a business have to register under the GST program if it exceeds $30,000 taxable supplies in four consecutive quarters?
Until the month following the first month in the next quarter.
What is a taxable supply?
One where GST must be collected upon sale to a third party. Input tax credits are allowed for taxable supplies.
What is a zero rated supply?
Zero rated supplies are ones where the GST rate is reduced to 0%. Input tax credits are allowed for zero rated supplies.
What are exempt supplies?
Exempt supplies are ones where GST is not able to be collected upon sale. Input tax credits are not allowed for exempt supplies.
What is the required reporting period, filling deadline, and remittance deadline when annual taxable supplies are $1,500,000 or less?
Reporting period: Annual
Filing deadline: Three months after end of reporting period
Remittance deadline: Three months after end of reporting period
What is the required reporting period, filling deadline, and remittance deadline when annual taxable supplies are more than $1,500,000 up to $6,000,000?
Reporting period: Quarterly
Filing deadline: One month after end of reporting period
Remittance deadline: One month after end of reporting period
What is the required reporting period, filling deadline, and remittance deadline when annual taxable supplies are more than $6,000,000?
Reporting period: Monthly
Filing deadline: One month after end of reporting period
Remittance deadline:One month after end of reporting period
When does a business become ineligible to calculate their GST using the quick method.
When revenue including taxable supplies and GST/HST exceeds $400,000, or when the business is that of a lawyer, accountant, or bookkeeper.
When are businesses not required to register under the PST program?
When sales are under $10,000 for the past 12 months, or if they are not seeking goods regularly from an established commercial premise.
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