 Canadian Tax Principles (2021)
Preface Objectives Rates (And Other Data) And Glossary Introduction to Data Analytics in Taxation The Basics Basic Data Analytics in the Private Sector Data Analytics and the CRA Data Analytics in Introductory Taxation Data Analytics Conclusion Acknowledgements About the Authors Gary Donell 2021 Rates, Credits, and Other Data Information Applicable To Individuals Federal Tax Rates For Individuals Federal Tax Credits for Individuals – Personal Tax Credits (ITA 118) Other Common Federal Personal Credits (Various ITA) Education-Related Credits Other Data For Individuals Information Applicable to Individuals and Corporations Information Applicable to Corporations Tax Related Web Sites GOVERNMENT CPA FIRMS OTHER Chapter 1 Introduction to Federal Taxation in Canada The Canadian Tax System Introduction A Word on Basic Concepts A Word on Accounting Principles and Income Tax Alternative Tax Bases Taxable Entities in Canada Federal Income Tax Forms of Business vs. Taxable Entities Tax Exempt Entities Taxable Entities GST/HST Federal Taxation and the Provinces Personal Income Taxes Corporate Income Taxes GST, HST, and PST Tax Policy Concepts Taxation and Economic Policy Taxation and Income Levels General Approaches Progressive vs. Regressive Flat Tax Rate Systems Tax Incidence Tax Expenditures Qualitative Characteristics of Tax Systems General Concepts Conflicts among Characteristics Evaluation of the Canadian System Income Tax Reference Materials Introduction The Income Tax Act Importance Structure of the ITA Parts of the ITA Part I of the ITA Other Income Tax Legislation Draft Legislation Income Tax Regulations (ITR) International Tax Treaties and Tax Information Exchange Agreements (TIEA) Income Tax Application Rules (ITAR) Other Sources of Income Tax Information Electronic Library Resources CRA Website CRA Publications Court Decisions Liability for Part I Income Tax Residency Overview Part I Liability for Canadian Residents Part I Liability for Non-Residents Employment Income Earned in Canada by Non-Residents Business Income Carried on in Canada by Non-Residents Dispositions of Taxable Canadian Property by Non-Residents Property Income Earned by Non-Residents Residence Importance and Overview Factual Residence of Individuals General Concept Temporary Absences Part-Year Residence Sojourners and Other Deemed Residents Individuals with Dual Residency Residence vs. Citizenship Residency of Individuals—The General Analysis Residence of Corporations Factual Residency Deemed Residency Dual Residency Residency of Corporations—The General Analysis Residence of Trusts General Overview Alternative Concepts of Income The Economist's View The Accountant's View The Income Tax Act—The Source Concept Net Income Structure and Components Determining Net Income—Applying ITA 3 ITA 3 Net Income—Example Principles of Tax Planning Introduction Tax Avoidance or Reduction Tax Deferral Income Splitting General Overview Example Problems with Income Splitting Abbreviations References Chapter 2 Procedures and Administration Introduction The CRA—Mandate, Structure, Administration, and Enforcement Returns and Payments—Individuals Requirement to File—ITA 150 Due Date for Individual Returns General Rule Individuals Who Carry on a Business Deceased Individuals Income Tax Withholdings—ITA 153 Salaries and Wages Withholdings by Other Payers ITA 153(1) and the Requirement to File Information Returns Instalment Payments for Individuals—ITA 156 Basis for Requiring Instalments Due Dates for Individuals Determining Amounts of Instalments CRA Instalment Reminders Example of Instalments for Individuals Interest When Interest Is Charged Prescribed Rates of Interest Penalties Late Filing Penalties Late or Deficient Instalments Penalty Due Date for Balance Owing—Living Individuals Deceased Individuals—Balance Due Dates and Final Return Balance Due Dates—Deceased Individual Filing Returns—Special Rules Applicable on Death Returns and Payments—Corporations Due Date for Corporate Returns—ITA 150 Filing Alternatives for Corporations Paper vs. Electronic Filing Canadian Currency and Elective Use of Functional Currency Instalment Payments for Corporations Instalment Threshold Calculating the Amount—General Rules (Excluding Small CCPCs) Calculating the Instalment Amount—Small CCPCs Due Date for Balance Owing—Corporations Interest and Penalties for Corporations Returns and Payments—Trusts Types of Trusts Filing Due Date and Payment of Taxes General Requirement to File an Income Tax Return (T3) 2021 New Reporting Requirements Income Tax Information Returns Books and Records and the CRA Assessments and the CRA My Account Service CRA Website—My Account Service Notice of Assessment Notice of Reassessment and Statutory Limitations Refunds Interest on Refunds Adjustments to Income Tax Returns Disputes and Appeals Representation by Others Notice of Objection General Rules Rules for Large Corporations CRA Service Standards for Processing Objections Tax Court of Canada Deadline for Appeal Informal Procedure General Procedure Appeals by the Minister Resolution Federal Court and Supreme Court of Canada Tax Evasion, Avoidance, and Planning Tax Evasion Tax Avoidance and Planning General Anti-Avoidance Rule (GAAR) General Overview Collection and Enforcement Collections Other Penalties Tax Advisors and Tax Return Preparers Promoters of Abusive Tax Shelters and Tax Planning Arrangements Taxpayer Relief Provisions Overview and Basic Rules Voluntary Disclosure Program (VDP) The Limited Program The General Program Other VDP Issues References Chapter 3 Income or Loss from an Office or Employment Introduction Employment Income Defined General Rules Cash Basis and Planning Amounts Received—Timing Tax Planning Opportunity Limits on Deferral—Unpaid Remuneration Limits on Deferral—Salary Deferral Arrangement Employment Losses—ITA 5(2) Employee versus Self-Employed Introduction Employee Perspective Deductions Available CPP Contributions EI Premiums Employment Benefits The Underground Economy Conclusion Employer Perspective Treating an Employee as an Independent Contractor A Brief Word on Personal Service Businesses Making the Distinction Intent, Actions, and Behaviour Factors in Assessing the Existence of an Employment Relationship Inclusions—Employee Benefits Basic Concepts—ITA 6(1)(a) Inclusions—Non-Salary Benefits Introduction Legislative Guidance ITA 6(1) Other ITA 6 Provisions Common Employee Benefits Specific Items Tax Planning Considerations Salary: The Benchmark Tax Deferral Recreational Facilities and Club Dues Two Problem Benefits—Automobiles and Loans Inclusions—GST/HST & PST on Taxable Benefits Inclusions—Automobile Benefits Employees and Automobiles Motor Vehicles, Automobiles, and Passenger Vehicles Benefits When Motor Vehicles Are Not Automobiles Influence on Employment Income Personal Travel Tax Benefit—Employer-Provided Automobile Allowances and Deductible Travel Costs Taxable Benefits—Standby Charge Employer-Owned Automobiles Employer-Leased Automobiles Reduced Standby Charge Operating Cost Benefit—Employer-Provided Automobile Basic Calculations Operating Cost Benefit—Alternative Calculation Operating Cost Benefit—Employee-Provided Automobile Parking Payments by Employees for Automobile Use Example—Employer-Owned Automobile Example—Employee-Owned or Leased Automobile Example—Employer-Leased Automobile Employer-Provided Automobiles and Tax Planning Inclusions—Allowances Allowance vs. Reimbursement and Advances General Rules Allowances—Exceptions Taxable vs. Non-taxable Allowances and Reasonableness Reasonable Allowances for Motor Vehicles Employer's Perspective of Allowances Employee's Perspective of Allowances Conclusion Inclusions—Employee Life & Disability Insurance Benefits Life Insurance Disability Insurance—Group Sickness or Accident Insurance Plans Loans to Employees General Rules Tax Planning for Interest-Free Loans General Approach Example of Interest-Free Loan Benefit Inclusions—Stock Option Benefits Proposed Changes to the Stock Option Rules The Taxation and Economics of Stock Option Arrangements Stock Option Benefits Rules (ITA 7)—Employees Only Overview of the Income Tax Rules CCPCs vs. Public Corporations Rules for Public Companies Rules for Canadian Controlled Private Corporations (CCPCs) Employee Stock Option Deduction Restriction Other Inclusions Payments by Employer to Employee Forgiveness of Employee Loans Salary Advances Housing Loss Reimbursement Specific Deductions—ITA 8 Overview Employment Expense Essentials Salesperson's Expenses—ITA 8(1)(f) Travel Expenses and Motor Vehicle Costs ITA 8(1)(h) and (h.1) The Salesperson's Dilemma Other Employment Expenses—ITA 8(1)(i) Automobile and Aircraft Expenses—ITA 8(1)(j) Work Space in the Home—ITA 8(1)(i)(iii), 8(1)(f) & 8(13) Determining the Employment Use of a Home Office References Chapter 4 Taxable Income and Tax Payable for Individuals Introduction Taxable Income of Individuals Available Deductions Ordering of Deductions Deductions for Payments—ITA 110(1)(f) Northern Residents Deductions—ITA 110.7 Calculation of Gross Tax Payable Gross Federal Tax Payable Provincial Tax Payable before Credits Provincial Rates Provincial Residence Types of Income Taxes on Income Not Earned in a Province Federal Income Tax Credits General Comments Provincial Amounts Personal Tax Credits—ITA 118(1) Basic Personal Amount—ITA 118(1.1) Background Calculation A Spouse or Common-Law Partner General Overview Individuals with a Spouse or Common-Law Partner—ITA 118(1)(a) Two Credits For the Individual—ITA 118(1)(a)((i) For the Spouse—ITA 118(1)(a)(ii) Individuals Supporting a Dependent Person—ITA 118(1)(b) Overview Eligibility and Eligible Dependant Defined Application Calculation of Eligible Dependant Tax Credit Canada Caregiver Amount for Child—ITA 118(1)(b.1) Single Persons (Basic Personal Tax Credit)—ITA 118(1)(c) Canada Caregiver Tax Credit—ITA 118(1)(d) Eligibility Mental or Physical Infirmity Calculation of the Canada Caregiver Credit Canada Caregiver Credit—Additional Amount [ITA 118(1)(e) & 118(4)(c)] Other Tax Credits for Individuals Age Tax Credit—ITA 118(2) Pension Income Tax Credit—ITA 118(3) General Rules Individuals 65 or Over Individuals under 65 Canada Employment Tax Credit—ITA 118(10) Adoption Expenses Tax Credit—ITA 118.01 Digital News Subscriptions Credit—ITA 118.02 Home Accessibility Tax Credit—ITA 118.041 Described Qualifying and Eligible Individuals Eligible Dwelling Qualifying Renovations and Expenditures First-Time Home Buyers' Tax Credit—ITA 118.05 Volunteer Firefighters and Volunteer Search and Rescue Workers Tax Credits—ITA 118.06 and 118.07 Charitable Donations Tax Credit—ITA 118.1 Extent of Coverage in This Chapter Eligible Gifts Limits on Amount Claimed Calculating the Donation Credit Carry Forward of Charitable Donations Medical Expense Tax Credit—ITA 118.2 Qualifying Medical Expenses Determining the Credit Twelve-Month Period Example of Medical Expense Tax Credit Calculation Disability Tax Credit—ITA 118.3 Calculation Disability Credit Transfer to a Supporting Person Other Credits and Deductions Related to Disabilities Education-Related Tax Credits Tuition Fees Tax Credit—ITA 118.5(1) to ITA 118.5(4) Online and Correspondence Courses Ancillary and Examination Fees Included in Tuition Fees Tax Credit Interest on Student Loans Tax Credit—ITA 118.62 Carry Forward of Tuition Fees Tax Credit—ITA 118.61 Transfer of Tuition Fees Tax Credit - ITA 118.9 Employment Insurance (EI) and Canada Pension Plan (CPP) Tax Credits—ITA 118.7 Overpayment of EI Premiums and CPP Contributions Transfers to a Spouse or Common-Law Partner—ITA 118.8 Political Contributions Tax Credits—ITA 127(3) Canada Elections Act Income Tax Rules Labour-Sponsored Venture Capital Corporations Credit—ITA 127.4 Dividend Tax Credit Foreign Tax Credits Investment Tax Credits Refundable Credits Introduction GST/HST Credit—ITA 122.5 Refundable Medical Expense Supplement—ITA 122.51 Canada Workers Benefit—ITA 122.7 Calculation of the Canada Workers Benefit Refundable Teacher and Early Childhood Educator School Supply Tax Credit—ITA 122.9 Climate Action Incentive Payments Background The Refundable Credit Canada Training Credit—ITA 118.5(1.2) & 122.91 The Credit Base Calculating the Refund Social Benefits Repayment (OAS and EI) Basic Concepts Clawbacks Treatment in Net and Taxable Income Employment Insurance (EI) Benefits Clawback Old Age Security (OAS) Benefits Clawback Comprehensive Example Basic Data Net and Taxable Income Tax Payable/Federal Balance Owing References Chapter 5 Capital Cost Allowance Introduction Understanding Depreciable Property Tax and Accounting Procedures Compared Introduction Terminology Some Other Differences Additions to Capital Cost Determination of Amounts General Rules Capitalization of Interest Government Assistance Non-Arm's-Length Acquisitions GST/HST and PST Considerations Expenditures on Depreciable Property—Capital vs. Income CCA—General Restrictions An Overview Available-for-Use Rules Classes of Depreciable Property General Rules Separate Classes Capital Cost Allowance General Overview Basic Calculations Commonly Used CCA Classes The Old Half-Year Rule (ITR 1100(2)) Pre-November 21, 2018 Revised ITR 1100(2) Net Additions Accelerated Investment Incentive (AccII) Limitations on Our Coverage Basic Concepts Eligibility for the AccII—ITR 1104(4) Determining Whether the AccII Applies Application—Declining Balance Classes AccII Application—Class 12 AccII Application—Class 13 AccII Application—Class 14 AccII Application—Class 53 (100% Write-Off) Zero-Emission Vehicles Defined Implementation Short Fiscal Periods—ITR 1100(3) Class 14.1 Additions to the Class Rate Goodwill Tax Planning Considerations for CCA Immediate Expensing for CCPCs Disposition of Depreciable Property Overview—Understanding the Basics UCC & Dispositions Applying the UCC to Dispositions—Examples Revisited No Immediate Tax Consequences Disposition with Recapture Disposition with a Terminal Loss Disposition with Recapture and Capital Gains UCC and Dispositions with Multiple Properties Employees—Recapture and Terminal Losses Dispositions of Class 54 Property (Zero-Emission Passenger Vehicles) Dispositions of Class 14.1—Differences from Other Classes Single Goodwill Account No Terminal Losses—ITA 20(16.1)(c) Disposition Summary—Income Tax Consequences CCA Schedule CCA Determination—Some Special Situations Separate Class Election The Problem Class 8 Property Eligible for Elective Separate Class Treatment Non-Residential Buildings References Appendix: CCA Rates for Select Depreciable Property Chapter 6 Income or Loss from a Business Introduction The Importance of a Business Defining a Business Business versus Income from Property Commencing a Business The Impact of a Personal Element The Source of Income Analysis Adventure or Concern in the Nature of Trade An Elective Option—ITA 39(4) Sources of Income and Categorizing Property Business Income and Loss—General Principles Overview What Is "Profit"? The 9-12-18-20 General Rule Business Income—Inclusions ITA 12 Amounts Receivable—ITA 12(1)(b) Amounts Received in Advance—ITA 12(1)(a) Quality of Income—ITA 9(1), 12(1)(a), and 12(1)(b) Reserves The General System Reserve for Doubtful and Bad Debts—ITA 20(1)(l) and 20(1)(p) Reserve for Certain Goods and Services—ITA 20(1)(m) Inventory Reserve for Unpaid Amounts—ITA 20(1)(n) Limitations on Deductions from Business and Property Income Expense Analysis Some Specific Limitations—ITA 18 Incurred to Produce Income—ITA 18(1)(a) Capital Expenditures—ITA 18(1)(b) Case Law Examples—Capital Expenditures Capital Expenditure Summary Personal and Living Expenses—ITA 18(1)(h) Recreational Facilities and Club Dues—ITA 18(1)(l) Safety Deposit Box Fees—ITA 18(1)(l.1) Political Contributions—ITA 18(1)(n) Lease Cancellation Payments—ITA 18(1)(q) Certain Automobile Expenses—ITA 18(1)(r) Payments under the ITA—ITA 18(1)(t) Interest and Property Taxes on Land—ITA 18(2) Soft Costs—ITA 18(3.1) Prepaid Expenses Business/Property Expenditure Analysis Flowchart—Example with Appraisal Costs Business Use-of-Home Expenses ("Work Space")—ITA 18(12) Foreign Media Advertising—ITA 19 and 19.1 Business Income—Specific Deductions Inventory—ITA 10 General Rule Overhead Absorption Income Tax vs. GAAP A Few Additional Comments on Inventory Valuation Some Specific Deductions—ITA 20 Other Limitations on Deductions from Business and Property Income—Subdivision f Introduction Reasonableness—ITA 67 Meals and Entertainment General Rules—ITA 67.1 Exceptions "Luxury" Automobile Costs Automobiles Owned by the Taxpayer Limits on CCA—ITA 13(7)(g) and (i) Limits on Interest—ITA 67.2 Automobile Leasing Costs—ITA 67.3 Basic Formula (Cumulative) Anti-Avoidance Formula Deductible Amount Example Leasing Property—Some Accounting versus Income Tax Issues Illegal Payments, Fines, and Penalties—ITA 67.5 and 67.6 Reconciliation Schedule Business Income—Example Example Data Example Analysis Taxation Year General Rules Non-incorporated Businesses—Fiscal Period Special Business Income Situations Income for Farmers Restricted Farm Losses—ITA 31 Professional Income (Work-in-Process [WIP]) The Problem Sale of a Business General Rules Inventories—ITA 23 Accounts Receivable—ITA 22 Election References Chapter 7 Income or Loss from Property Introduction Income from Property: General Concept The Source of Income Analysis Income from Property vs. Business—The Importance Interest as a Deduction—ITA 20(1)(c) The Problem with Interest Expense ITA 20(1)(c) Revisited What Is Interest? Direct or Indirect Use Supreme Court of Canada—The Singleton Decision The Purpose Test Supreme Court of Canada—The Ludco Decision Tracing Supreme Court of Canada—The Bronfman Trust decision The Disappearing Source Rule—ITA 20.1(1) Some Other Exceptions Interest Deductibility—Common and Preferred Shares Discount and Premium on Debt Obligations Overview Issuers of Debt at a Discount Issuers of Debt at a Premium Interest Income General Provision—ITA 12(1)(c) Corporations and Partnerships—Full Accrual Method—ITA 12(3) Individuals—Modified Accrual Method—ITA 12(4) The Impact of Discounts and Premiums to Investment Contract Holders Accrued Interest on Disposition—ITA 20(14) Payments Based on Production or Use—ITA 12(1)(g) Rental Income General Rules Capital Cost Allowances General Rules Special CCA Rules Rental Income Example Cash Dividends from Taxable Canadian Corporations—ITA 12(1)(j) The Concept of Integration Implementing Integration Gross Up and the Tax Credit Mechanism The Problem with Achieving Perfect Integration The Solution—Eligible and Non-Eligible Dividends The Gross Up and Dividend Tax credit Mechanism—Eligible Dividends The Eligible Dividend Tax Credit Example of Eligible Dividends The Gross Up and Dividend Tax Credit Mechanism—Non-Eligible Dividends The Non-Eligible Dividend Tax Credit Example of Non-Eligible Dividends Comparison of Investment Returns Mutual Funds Objective Organization Mutual Fund Trusts Mutual Fund Corporations Distributions Mutual Fund Trusts Mutual Fund Corporations Adjusted Cost Base (ACB) Mutual Fund Trusts Mutual Fund Corporations Other Types of Dividends Capital Dividends—ITA 83(2) Stock Dividends Foreign Source Income General Rules Foreign Non-Business (Property) Income Foreign Business Income Shareholder Benefits—ITA 15(1) & (2) References Chapter 8 Capital Gains and Capital Losses Introduction Capital Gains and Capital Losses—Overview A Brief Word on the History of Capital Gains and Capital Losses Capital Gain/Loss Concepts Basic Terminology A Word on Property Ownership Key Capital Gain/Loss Concepts The Capital Gain and Capital Loss—Basic Calculations The 40-39-38 Rule Select Capital Gain and Capital Loss Topics Superficial Losses for Individuals Select ACB Considerations—Negative ACB Select ACB Considerations—GST & HST Identical Properties Partial Dispositions—ITA 43 Warranties on Capital Property—ITA 42 Capital Gain Reserves—ITA 40(1)(a)(iii) Example—Outstanding Balance Greater Than Formula Limit Example—Outstanding Balance Less Than Formula Limit Bad Debts on Sales of Capital Property Loss Restrictions on the Sale of Land and Building—ITA 13(21.1) The Solution Principal Residence—ITA 40(2)(b) The Principal Residence Exemption Principal Residence Defined Gain Reduction Formula—ITA 40(2)(b) Personal-Use Property Definition Capital Gains and Losses Listed Personal Property Gains and Losses on Foreign Currency Introduction Deemed Dispositions—Change in Use General Rules Change in Use—The Basics Income Earning Use to Personal Use—ITA 13(7)(a) & 45(1)(a)(ii) Personal Use to Income Earning Use—ITA 13(7)(b) & 45(1)(a)(i) Example—Change in Use Special Rules for Principal Residences Principal Residence—Ancillary Use to Earn Income Change in Use—Principal Residence to Income Earning Use (Rental)—ITA 45(2) Change in Use—Income Earning Use to Principal Residence—ITA 45(3) A Word on Changes in Use and Automobiles Deemed Dispositions on Becoming a Non-Resident of Canada Basic Rules Capital Gains Deferral—ITA 44.1 Basic Provision Definitions Example Deferral on Replacement Property—ITA 13(4) & 44(1) The Problem—Potential Taxation Legislative Relief Voluntary and Involuntary Dispositions Replacements Application of ITA 44(1) to Capital Gains Application of ITA 13(4) to Recapture of CCA Combined Application of ITA 13(4) and 44(1) Example 1—Replacement Cost Exceeds POD Example 2—Proceeds of Disposition Exceed Replacement Cost Election to Reallocate Proceeds of Disposition—ITA 44(6) Capital Gains and Tax Planning References Chapter 9 Other Income and Deductions, and Other Issues Introduction Coverage of Chapter 9 Subdivisions d, e, and f Other Types of Income—Subdivision d Inclusions Pension Benefits—ITA 56(1)(a)(i) Retiring Allowances—ITA 56(1)(a)(ii) A Word on the Interaction between ITA 56 and ITA 60 Death Benefits—ITA 56(1)(a)(iii) & 56(1)(a.1) Other Income—Deferred Income Plans—ITA 56(1)(h), (h.1), (h.2), (i), & (t) Scholarships, Bursaries, and Research Grants—ITA 56(1)(n) & (o) Social Assistance and Workers' Compensation—ITA 56(1)(u) & (v) Other Deductions—Subdivision e Deductions CPP Contributions on Self-Employed Earnings—ITA 60(e) & (e.1) Moving Expenses—ITA 62 General Rules Vehicle and Meal Expenses—Detailed vs. Simplified Methods Employer Reimbursements and Allowances Tax Planning Considerations Child Care Expenses—ITA 63 Basic Definitions Limits for Lower-Income Spouse or Single Parent Attendance at Boarding School or Camp When Deductible by the Higher-Income Spouse Example Disability Supports Deduction—ITA 64 Eligibility and Coverage Limits on the Amount Deducted Disability Supports Deduction vs. Medical Expense Tax Credit Complications Related to Attendant Care Costs Related Inclusions and Deductions Introduction Pension Income Splitting—ITA 56(1)(a.2), 60(c), & 60.03 General Rules Complications Spousal and Child Support—ITA 56(1)(b) & 60(b) Definitions General Income Tax Treatment Conditions for Deduction and Inclusion Additional Considerations Annuity Payments Received—ITA 56(1)(d) & 60(a) Annuities and Their Uses Capital Element of an Annuity Registered Savings Plans Introduction Tax-Free Savings Accounts (TFSAs) General Procedures Registered Education Savings Plans (RESPs)—ITA 146.1 Contributions Canada Education Savings Grants (CESGs) Canada Learning Bonds (CLBs) Types of Plans Refund of Contributions Education Assistance Payments (EAP) Accumulated Income Payments to Subscribers Comparison of TFSAs and RRSPs Comparison of TFSAs vs. RRSPs vs. RESPs Registered Disability Savings Plans (RDSPs)—ITA 146.4 The Problem The Solution Non-Arm's-Length Transactions Introduction The Problem Inadequate Considerations—ITA 69 The Problem Purpose and General Rules Example ITA 69 Override Inter Vivos Transfers to a Spouse—ITA 73(1) & (1.01) General Rules for Capital Property Electing out of the Spousal Rollover Non-Arm's-Length Transfers of Depreciable Property—ITA 13(7)(e) Situation 1—FMV Exceeds the Transferor's Capital Cost Solution to Situation 1 Situation 2—FMV Less Than the Transferor's Capital Cost The Solution to Situation 2 Inter Vivos Transfer of Farm or Fishing Property to a Child Death of an Individual Taxpayer General Rules Rollover to a Spouse, a Common-Law Partner, or a Spousal Trust Transfers of Farm or Fishing Property to a Child at Death Income Attribution Overview Basic Rules—ITA 74.1(1) & (2) The Attribution Rules Applicable to Property Income and Capital Gains Not Applicable after Death of Transferor Not Applicable to Business Income Summary of Rules Avoiding Income Attribution Example Income Attribution—Non-Arm's-Length Loans (ITA 56(4.1)) Tax Planning and Income Attribution References Chapter 10 Retirement Savings and Other Special Income Arrangements Planning for Retirement Introduction Providing Consistency Tax-Deferred Savings Sources of Deferral Tax-Free Compounding Early Contributions Advantages at Retirement Defined Benefit vs. Money Purchase Plans Registered Retirement Savings Plans (RRSPs)—ITA 146 Basic Operations Establishment Withdrawals Investment Options for an RRSP The Capital Gains and Dividend Problems Non-Deductible Financing Costs RRSP Deduction Limit The Basic Formula Unused RRSP Deduction Room RRSP Dollar Limit Earned Income Pension Adjustments (PAs)—Overview Pension Adjustments—Money Purchase RPPs and DPSPs Pension Adjustments—Defined Benefit RPPs Prescribed Amount—ITA 146(1) Past Service Pension Adjustments (PSPAs) Pension Adjustment Reversals (PARs) Examples of RRSP Deduction Calculations Undeducted RRSP Contributions General Rules Excess RRSP Contributions Tax Planning—Excess RRSP Contributions RRSP and RRIF Administration Fees RRSP Withdrawals and Voluntary Annuity Conversions Lump-Sum Withdrawals Conversion to an Income Stream Conversion to RRIF Involuntary Termination Due to Age Limitation Objective Post-Termination Spousal RRSP Benefits Attribution Rules Home Buyers' Plan (HBP)—ITA 146.01 Qualifying HBP Withdrawals Restrictions on the Deduction of New RRSP Contributions Repayment of HBP Lifelong Learning Plan (LLP)—ITA 146.02 General Format Withdrawals Repayment of LLP Other Considerations Ceasing to Be a Resident of Canada RRSP Balances Home Buyers' Plan Balances Lifelong Learning Plan Balances Death of the RRSP Annuitant General Rules Exceptions—Transfers to a Spouse or Common-Law Partner and Certain Children Home Buyers' Plan Balances Lifelong Learning Plan Balances Registered Pension Plans (RPPs)—ITA 147.1 Establishing an RPP Types of Plans Registration of the Plan—ITA 147.1(2) Employer Contributions to the RPP General Rules Restrictions Employee Contributions to the RPP Options at Retirement Phased Retirement The Problem The Solution Inadequate Retirement Savings The Problem Pooled Registered Pension Plans (PRPPs)—ITA 147.5 Target Benefit Plans Expanded Canada Pension Plan Registered Retirement Income Funds (RRIF)—ITA 146.3 Establishment Only Transfers from Other Plans Other Considerations RRIF Withdrawals Pension Income Tax Credit and Pension Income Splitting Withdrawals Greater Than the Minimum Withdrawal Calculating the Amount of the Minimum Withdrawal Use of Spouse's Age for Minimum Withdrawal Death of the RRIF Annuitant General Rules Rollovers Evaluation of RRIFs Deferred Profit-Sharing Plans (DPSPs)—ITA 147 General Rules Tax Planning Employee Profit-Sharing Plans (EPSPs)—ITA 144 General Rules Part XI.4 Tax on Excess EPSP Contributions Transfers between Plans Accumulated Benefits Retiring Allowance Transfers—ITA 60(j.1) Retirement Compensation Arrangements (RCA) The Problem Arrangements Defined Part XI.3 Refundable Tax Salary Deferral Arrangements (SDA) The Problem The Solution Individual Pension Plans (IPPs) References Chapter 11 Taxable Income and Tax Payable for Individuals Revisited Introduction Taxable Income Overview Lump-Sum Payments—ITA 110.2 The Problem Qualifying Amounts Relief Mechanism Loss Basics General Transaction-Based Losses Transaction-Based Losses—Exceptions Source-Based Losses Loss Carry Overs and Tax Credits Summary—Interaction between ITA 3 and Loss Carry Overs Types of Loss Carry Overs Non-Capital Losses—ITA 111(8) Net Capital Losses—ITA 111(8) General Rules—Summary Conversion of a Net Capital Loss to a Non-Capital Loss Net Capital Losses at Death—ITA 111(2) Allowable Business Investment Losses (ABIL)—ITA 39(1)(c) Special Treatment Effect of the ITA 110.6 Capital Gains Deduction—ITA 39(9) Farm Losses Regular Farm Losses Restricted Farm Losses Capital Gains Deduction—ITA 110.6 Background The Original Legislation Current and Future Limits Qualified Property—ITA 110.6(1) Qualified Farm and Fishing Property (QFP) Qualified Small Business Corporation Shares (QSBC Shares) Determining the Deductible Amount General Rules Capital Gains Deduction Available Annual Gains Limit (AGL)—ITA 110.6(1) Cumulative Net Investment Loss (CNIL)—ITA 110.6(1) Cumulative Gains Limit (CGL)—ITA 110.6(1) Comprehensive Example Ordering of Deductions and Losses Significance of Ordering Example Tax Payable Overview General Basic Federal Tax Payable Tax on Split Income (TOSI) Introduction—Income Splitting The 2000 TOSI (Kiddy Tax) Part 2: The 2018 TOSI (Adults 18 Years of Age and Older) Applying the TOSI The Basic Analysis General Exclusions Applying the TOSI Specific Exclusions Overview Related Business Excluded Business Excluded Shares Reasonable Return, Safe Harbour Capital Return, and Arm's-Length Capital TOSI—Analytical Summary TOSI Example Dividends to an Adult Child Away at School Calculation of the TOSI Tax The Tax Credit Problem Two Components Tax Credits Revisited Transfer of Dividends to a Spouse or Common-Law Partner—ITA 82(3) Charitable Donations Credit Revisited Introduction Donations Classified Eligible Amounts Deemed Fair Market Value Gifts of Capital Property—Transfer at Elected Value Gifts of Capital Property—Income Limits Gifts of Publicly Traded Securities and Ecologically Sensitive Land Gifts of Publicly Traded Securities Acquired through Stock Options Canadian Cultural Property Limits on Amount Claimed and Carry Forward Provisions Foreign Tax Credits Revisited Foreign Non-Business (Property) Income Tax Credit for Individuals—ITA 126(1) Foreign Business Income Tax Credit for Individuals—ITA 126(2) Alternative Minimum Tax—ITA 127.5 (Division E.1) General Concept Minimum Tax Calculation Definition Adjusted Taxable Income Tax Payable before Credits Tax Credits for AMT AMT Carry Forward—ITA 120.2 Sample Comprehensive Personal Tax Return References Appendix—Returns for Deceased Taxpayers Special Rules at Death Coverage In Text Charitable Donations—Special Rules at Death Medical Expenses—Special Rules at Death Deemed Disposition of Capital Property at Death Deferred Income Plans at Death Capital Losses—Special Rules at Death Representation Procedures for Specific Returns Ordinary Return(s) Rights or Things Return Other Elective Returns Filing Requirements Prior-Year Returns Multiple Returns Use of Deductions and Credits Multiple Usage Elective Usage Usage with Related Income Usage with Ordinary Return Payment of Taxes Sample Personal Tax Returns Sample Problem Data Notes to the Chapter 11 Return—No Pension Splitting General Notes Item Specific Notes T2125 (Items 24 to 26) Tax Planning Points Notes To The Chapter 11 Returns - With Pension Splitting Both Are Filing Returns With Pension Income Splitting Completed Tax Returns in PDF format Chapter 12 Taxable Income and Tax Payable for Corporations Introduction Corporate Income Tax Payable—The Basics Computation of Net Income Computation of Taxable Income Deductions Available to Corporations Taxable Dividends from Taxable Canadian Corporations Deduction from Taxable Income—ITA 112(1) Taxable Dividends—Problems with Integration Dividend Stop Loss Rule—ITA 112(3) Foreign Source Dividends Received Non-Capital Loss Carry Over for a corporation Additional Issues An Expanded Definition Example Ordering of Taxable Income Deductions Geographical Allocation of Income Permanent Establishments Activity at Permanent Establishments Example—Permanent Establishments Federal Tax Payable Basic Rate—ITA 123(1) Federal Tax Abatement—ITA 124(1) General Rate Reduction—ITA 123.4(2) General Rate Reduction Percentage Full Rate Taxable Income—ITA 123.4(1) Provincial/Territorial Tax Payable General Rules General Rate Manufacturing and Processing Rate Small Business Rate Investment Income Rates Other Provincial Taxes Other Goals of the Corporate Tax System Small Business Deduction—ITA 125 Introduction General Rules Canadian Controlled Private Corporation (CCPC)—ITA 125(7) Active Business Income The General Idea The Problem with Defining Property Income The Solution—Specified Investment Business—ITA 125(7) Property Income Received from an Associated Corporation—ITA 129(6) Annual Business Limit Calculating the Small Business Deduction The General Formula Constraints—Type of Income and Business Limit Constraints—Taxable Income Constraints—Foreign Tax Credits Business Limit Reduction—ITA 125(5.1) Problem I Problem II Taxable Capital Employed in Canada (TCEC) Grind—ITA 125(5.1)(a) Example of the TCEC Grind Adjusted Aggregate Investment Income (AAII) Grind—ITA 125(5.1)(b) Economic Impact Personal Services Business—ITA 125(7) Professional Corporations and Management Companies Manufacturing and Processing Profits Deduction—ITA 125.1 Introduction Calculating the Deduction General Formula Constraints—Small Business Deduction Constraints—Taxable Income Constraints—Foreign Tax Credits Constraints—Aggregate Investment Income Eligibility M&P Profits Defined General Rate Reduction—ITA 123.4 Approach to Rate Reductions Full Rate Taxable Income—ITA 123.4(1) Application to Non-CCPCs Application to CCPCs Foreign Tax Credits for Corporations Introduction Calculation of Foreign Tax Credits—ITA 126 Foreign Non-Business (Property) and Business Tax Credits Adjusted Division B Income Tax Otherwise Payable Foreign Tax Credit Carry Overs Refundable Journalism Labour Tax Credit—ITA 125.6 Description Definitions—ITA 125.6 References Chapter 13 Taxation of Corporate Investment Income Introduction Integration The Basic Concept The Goal Integration Procedures Eligible vs. Non-Eligible Dividends The Problem Eligible Dividends Non-Eligible Dividends Importance Rates Required for Integration Corporate Tax Rates and Provincial Dividend Tax Credits Actual vs. Required Corporate Tax Rates Actual vs. Required Dividend Tax Credits Alternative Calculations for Dividend Tax Credits Refundable Taxes on Investment Income Meaning of aggregate investment income—ITA 129(4) Regular Meaning Basic Concepts The Problem The Refundable Tax Solution Refundable Part I Tax on Investment Income Additional Refundable Tax on Investment Income (ART)—ITA 123.3 Basic Calculations Refundable Part I Tax Basics Concepts Illustrated Use of Other Rates in Refundable Part I Tax Example Refundable Part IV Tax Basics Connected Corporations—ITA 186(2), (4), & (7) Part IV Analysis Flowchart Example #1—Connected Corporation Dividends Example #2—Connected Corporation Dividends Other Part IV Tax Considerations Designation of Eligible Dividends Basic Concepts CCPCs—The General Rate Income Pool (GRIP)—ITA 89(1) Other Corporations—The Low Rate Income Pool (LRIP)—ITA 89(1) Part III.1 Tax—Excessive Eligible Dividend Designations (EEDD)—ITA 185.1 EEDD for a CCPC EEDD for Other Corporations A Final Word on Eligible Dividends Refundable Dividend Tax on Hand (RDTOH)—ITA 129(4) Overview—Part I and IV Understanding the New RDTOH System Refundable Part I Tax Payable—ITA 129(4) "Non-Eligible RDTOH" Basic Formula Investment Income Constraint—ITA 129(4)(a)(i) Taxable Income Constraint—ITA 129(4)(a)(ii) Part I Tax Payable Constraint—ITA 129(4)(a)(iii) Formula for Part I Tax Addition to RDTOH Eligible and Non-Eligible RDTOH Accounts—ITA 129(4) Dividend Refund Basics Eligible RDTOH Defined Non-Eligible RDTOH Defined The Dividend Refund Dividend Refund on Eligible Dividends—ITA 129(1) Dividend Refund on Non-Eligible Dividends—ITA 129(1) Economic Impact of Changes The Impact Illustrated Example of the Taxation of Corporate Investment Income Working through Corporate Tax Problems References Appendix—ART and Foreign Tax Credit Calculations Sample Corporate Tax Return Sample Problem Data Notes On Sample Corporate Tax Return Loss Carry Forwards Building Sale Aggregate Investment Income Active Business Income M&P CCA – Class 53 & Schedule 8 Capital Dividend Account djusted Aggregate Investment Income (AAII) & The New Passive Investment Rules (ITA 125(5.1)) GRIP, Dividend Refunds, and Eligible and Non-Eligible RDTOH Completed Tax Return in PDF format Chapter 14 Other Issues in Corporate Taxation Introduction Acquisition of Control Rules Introduction Transferring Tax Preferences between Corporations An Overview of the Acquisition of Control (AOC) Legislation The Loss Restriction Event Deemed Year End—ITA 249(4) Tainted Tax Preferences: Charitable Donations—ITA 110(1.2) Tainted Tax Preferences: Net Capital Losses—ITA 111(4) Tainted Tax Preferences: Non-Capital Losses—ITA 111(5) Unrealized Losses Forced Out Unrealized Loss Provisions Unrealized Gains Election—ITA 111(4)(e) Summary—ITA 111(4)(e) Example Associated Corporations—ITA 256 Overview Basic Concepts Examples—Associated Corporation Rules Deemed Association Investment Tax Credits—ITA 127(5) Background Overview Eligible Expenditures Rates General Special Rate on SRED Expenditures for CCPCs Refundable Investment Tax Credits—ITA 127.1 General Rules—40% Refund Additional Refund—100% Refund Carry Overs of Investment Tax Credits Effect of AOC and Investment Tax Credits Corporate Distribution Principles Overview Tax Basis Equity Concepts Overview Corporate Shares and the ITA Calculating PUC and the ACB of Shares Capital Dividend Account (CDA)—ITA 89(1) Overview Calculating the CDA Corporate Distributions Introduction Stock Dividends Dividends in Kind Capital Dividends under ITA 83(2) ITA 84(1) Deemed Dividends—Increase In PUC General Rules Excluded Transactions A Word on Reporting Deemed Dividends ITA 84(2) Deemed Dividends—Reorganization ITA 84(3) Deemed Dividends—Share Redemption ITA 84(4) & (4.1) Deemed Dividends—Return of PUC ITA 84 Deemed Dividends—Summary References Chapter 15 Corporate Taxation and Management Decisions The Decision to Incorporate Basic Tax Considerations Deferral and Reduction Using Imperfections in the Integration System Income Splitting Other Advantages and Disadvantages Advantages Disadvantages Tax Reduction and Deferral Approach Basic Example Data on the Individual Taxpayer Personal Tax Rates and Tax Payable Corporate Tax Rates Public Corporation M&P Deduction General Results Analysis Integration and Eligible Dividends CCPC—Active Business Income General Results Analysis "Bonusing Down" Active Business Income CCPC—Investment Income Other Than Dividends CCPC—Dividend Income Possible Sources of Dividend Income Analysis Conclusions on Tax Reductions and Deferrals Provincial Taxes and Integration Introduction Tax Deferral Tax Reduction Introduction Provincial Rates on Individuals Provincial Dividend Tax Credit and Provincial Corporate Tax Rates Examples—Effects of Provincial Rates on Integration Data Public Company Paying Eligible Dividends CCPC Paying Non-Eligible Dividends Summary: Tax Deferral and Tax Reduction Tax-Free Taxable Dividends Tax Rates on Dividends Use of Tax Credits Credits in General Special Rules for Dividends Tax-Free Amounts for 2021 Income Splitting Basic Concept Shareholder Benefits—ITA 15(1) General Overview Other Important Shareholder Benefit Issues Automobile Benefit—ITA 15(5) Loan Benefits—ITA 15(9) Benefits to Family Members—ITA 15(1.4)(c) Use of Corporate Property—ITA 15(1) Penalties and Statute-Barred Issues—ITA 163(2) and 152(4)(a)(j) Shareholder Benefit Caution Shareholder Loans and Indebtedness—ITA 15(2) Overview The Mechanics of Shareholder Loans and Indebtedness The Main Exceptions Running Loan Accounts vs. Specific Loans Shareholder Loan Repayments Imputed Interest Benefit—ITA 80.4 Management Compensation General Principles Salary as the Bench Mark Tax Effective Alternatives Salary vs. Dividends Salary vs. Dividends Overview Analysis of the Example Other Considerations Provincial Tax Rates and Credits Dividend Preference—Income Splitting Dividend Benefit—CNIL Reduction Salary Benefit—Earned Income for RRSPs and CPP Salary Benefit—Earned Income for Child Care Expenses (ITA 63) Salary Benefit—Corporate Losses Salary Cost (Possible)—Provincial Payroll Taxes Salary Costs—CPP and EI Salary Benefit—CPP and Canada Employment Tax Credits Example Extended Use of Tax Credits Optimizing a Limited Payment of Cash Conclusion References Chapter 16 Rollovers Under Section 85 Overview The ITA 85 Impact Common Uses for ITA 85(1) General Conditions—ITA 85(1) Overview Seller and Purchaser (Transferor and Transferee) Eligible Property—ITA 85(1.1) Consideration (Share and Non-Share) The Election The Elected Amount Importance Electing to Avoid Accrued Gains Electing Other Amounts The Elected Amount—The Detailed Rules Rules Applicable to All Eligible Property Overview Proceeds and Cost—ITA 85(1)(a) Non-Share Consideration (NSC) or Boot—ITA 85(1)(b) Fair Market Value (FMV)—ITA 85(1)(c) Summary Accounts Receivable—ITA 22 Inventories and Non-Depreciable Capital Property—ITA 85(1)(c.1) Losses on Non-Depreciable Capital Property General Rules Affiliated Persons—ITA 251.1 The Disallowed Capital Loss Depreciable Property—ITA 85(1)(e) General Rules Examples—Elected Amounts Example—Order of Disposition—ITA 85(1)(e.1) Depreciable Property—Disallowed Terminal Losses General Rules Summary of Acceptable Elected Amounts—ITA 85(1) Allocating the Elected Amount The Tax Cost of Consideration Received Tax Cost of Eligible Property to the Corporate Purchaser General Rules The AccII—ITR 1104(4) The Half-Year Rule—ITR 1100(2.2) Elected Amounts and Capital Gains on Depreciable Property—ITA 13(7)(e) Summary of Depreciable Property Rules Share Consideration—PUC, ITA 85(2.1) Overview PUC Reduction—ITA 85(2.1) Share Consideration—Multiple Classes of Shares Comprehensive Example—Section 85 Rollovers Basic Information Excluded Property Implementing the Election Gift to a Related Person—ITA 85(1)(e.2) General Rules Example Excess Consideration—ITA 15(1) Introduction Shareholder Benefit—ITA 15(1) Dividend/Surplus Stripping—ITA 84.1 Overview The Standard Planning to Which ITA 84.1 Applies Applying ITA 84.1—All NSC or All Shares Applying ITA 84.1—Mixed Consideration ITA 84.1—The Calculations Capital Gains Stripping—ITA 55(2) Overview The Conditions and Exceptions—ITA 55(2) Applying ITA 55(2) A Word on Safe Income Back to Applying ITA 55(2) The Income Tax Consequences of ITA 55(2) Example 1—ITA 55(2)(b) Example 2—ITA 55(2)(c) References Chapter 17 Other Corporate Rollovers and Sale of a Corporate Business Introduction Share-for-Share Exchanges—ITA 85.1 Background ITA 85.1 in Practice The ITA 85.1 Coverage General Rules Additional Conditions for the Application of ITA 85.1 Example Opting Out of ITA 85.1 Share Exchange in a Capital Reorganization—ITA 86 Application of ITA 86(1) Overview Use in Estate Freeze Qualifying for Rollover Treatment under ITA 86 General Conditions Establishing FMV for Preferred Shares The Income Tax Calculations General Rules PUC Reduction Calculation—ITA 86(2.1) Example Using ITA 86(1) in an Estate Freeze Basic Data ITA 86(1) Components The Income Tax Consequences Economic Analysis Gifting to a Related Person—ITA 86(2) Overview The Calculations Calculation of the Gift Portion PUC Reduction Other Calculations ITA 86(1) vs. ITA 85(1)—Tax Planning Considerations General Comments Use in Key Employee Successions Amalgamations—ITA 87 Amalgamations and Corporate Law Amalgamations and the ITA Predecessor Shareholders—ITA 87(4) Amalgamation Concerns Amalgamations—Tax Planning Considerations Winding-Up a 90% Owned Subsidiary—ITA 88(1) Wind-Ups and Dissolutions—Corporate Law Wind-Ups and Dissolution—The ITA Voluntary Wind-Ups and Dissolution—ITA 88(1) Subsidiary Losses—ITA 88(1.1) & 88(1.2) The Bump—ITA 88(1)(c) & 88(1)(d) Disposition of Subsidiary Shares—ITA 88(1)(b) Tax Planning Considerations—Amalgamation vs. Winding-Up Winding-Up a Canadian Corporation—ITA 88(2) Overview Income Tax Consequences—ITA 69(5), 84(2), & 88(2) Example Basic Information Cash Available for Distribution to Shareholders Distribution to Shareholders Involuntary Dissolution by Corporate Law authority Convertible Properties—ITA 51 Overview Other Exchange Considerations—ITA 51.1 & ITA 51(2) Gifting Sale of an Incorporated Business Restrictive Covenants—ITA 56.4 Overview General Rules Sale of the Business Overview Income Tax Considerations on the Sale of Corporate Property (Assets) Sale of Shares Overview & Tax Planning Considerations Example Sale of Shares for $180,000 Sale of Assets for $200,000 References Chapter 18 Partnerships Introduction Taxable Entities in Canada Chapter Coverage Partnership Defined The Importance of Defining a Partnership Basic Partnership Elements Types of Partnerships General Partnerships Limited Partnerships Limited Liability Partnerships (LLP) Co-Ownership, Joint Ventures, and Syndicates Introduction Co-Ownership Joint Ventures Defined Income Tax Treatment of Joint Ventures Syndicates Partnership Income, Losses, and Tax Credits Introduction Applicable Concepts Taxation Year Partnership Property Retention of Income Characteristics Accrual Basis Calculating the Amounts to Be Allocated Business Income Capital Gains and Capital Losses Dividend Income Foreign Source Income Allocations of Tax Credits Methods of Allocation The Partnership Interest The Concept Acquiring a Partnership Interest New Partnership Admission to Existing Partnership Adjusted Cost Base (ACB)—Partnership Interest Basic Concept Timing of ACB Adjustments ACB Adjustments for Income Allocations ACB Adjustments—Capital Contributions and Drawings ACB Adjustments—Charitable Donations Negative ACB—ITA 40(3) & 53(1)(a) Disposition of a Partnership Interest Sale to an Arm's-Length Person Withdrawal from Partnership Limited Partnerships and Limited Partners Definitions Limited Partner—ITA 96(2.4) At-Risk Rules—ITA 96(2.2) Overview The At-Risk Amount (ARA)—ITA 96(2.2) Limited Partnership Losses (LPL)—ITA 96(2.1) Dispositions of Property to and from a Partnership Canadian Partnership—ITA 102(1) Dispositions with No Rollover Provision Dispositions from Partners to the Partnership—ITA 97(1) Dispositions from a Partnership to Partners—ITA 98(2) Common Partnership Rollovers Disposition from Partners to a Partnership—ITA 97(2) Partnership Property Transferred to a New Partnership—ITA 98(6) Partnership Property Used in a Sole Proprietorship—ITA 98(5) Incorporating a Partnership—ITA 85(2) & (3) References Chapter 19 Trusts and Estate Planning Introduction Basic Concepts What Is a Trust? Legal Perspective Tax Perspective Trusts and Estates Establishing a Trust Three Certainties Returns and Payments—Trusts Non-Tax Reasons for Using Trusts Classification of Trusts Introduction Personal Trusts General Definition Testamentary vs. Inter Vivos Trusts Testamentary Trusts Graduated Rate Estates (GREs) Spousal or Common-Law Partner Trust Other Beneficiaries Inter Vivos Trusts Spousal or Common-Law Partner Trust Alter Ego Trust Joint Spousal or Common-Law Partner Trust Family Trust Taxation of Trusts Taxation Year The Basic Taxation Model Rollovers to a Trust Introduction Qualifying Spousal or Qualifying Common-Law Partner Trust Alter Ego Trust Joint Spousal or Joint Common-Law Partner Trust Rollovers to Capital Beneficiaries General Rule Exceptions 21-Year Deemed Disposition Rule Other Deemed Dispositions Net Income of a Trust Basic Rules Preferred Beneficiary Election Amounts Deemed Not Paid Amounts Retained for a Beneficiary under 21 Years of Age Taxable Income of a Trust Income Allocations to Beneficiaries General Rules Discretionary and Non-Discretionary Powers Flow-Through Provisions General Applicability Dividends Capital Gains Tax on Split Income (TOSI) Business Income, CCA, Recapture, and Terminal Losses Principal Residence Exemption Tax Payable of Personal Trusts Gross Tax Payable Graduated Rate Estates (GREs) Inter Vivos Trusts and Non-GRE Testamentary Trusts Other Tax Payable Considerations Availability of Tax Credits Alternative Minimum Tax (AMT) Tax-Free Taxable Dividends Income Attribution—Trusts General Rules Attribution to Settlor (Reversionary Trust) Purchase or Sale of an Interest in a Trust Income Interest Capital Interest Tax Planning Family Trusts Discretionary Family Trusts Income Splitting Qualifying Spousal or Common-Law Partner Trusts Alter Ego Trusts Joint Spousal or Joint Common-Law Partner Trusts Estate Planning Non-Tax Considerations Income Tax Considerations Estate Freeze Objectives of an Estate Freeze Techniques Not Involving Rollovers Gifts Instalment Sales Establishing a Trust Use of a Holding Company ITA 86 Share Exchange Nature of the Exchange Example Rollovers—ITA 85 vs. ITA 86 References Chapter 20 International Issues in Taxation Introduction Overview The Role of Income Tax Treaties Canadian Income Tax and Non-Residents Introduction Application—ITA 2(3) Filing Requirements Taxable Income Tax Payable Carrying on Business in Canada General Rules Canada/U.S. Treaty on Business Income Canadian Source Employment Income General Rules Canada/U.S. Tax Treaty on Employment Income Dispositions of Taxable Canadian Property General Rules Compliance Certificates Canada/U.S. Treaty on Dispositions of Taxable Canadian Property Part XIII Tax on Non-Residents Introduction Applicability Part I vs. Part XIII Tax Rates Interest Payments—ITA 212(1)(b) Part XIII Rules Canada/U.S. Tax Treaty on Interest Payments Dividends—ITA 212(2) Part XIII Rules Canada/U.S. Tax Treaty on Dividend Payments Royalty Payments—ITA 212(1)(d) Part XIII Rules Canada/U.S. Tax Treaty on Royalty Payments Rental Income—ITA 212(1)(d) Part XIII Rules Rental Income of Non-Residents—Elective Treatment (ITA 216) Solution to Potential Cash Flow Problem—ITA 216(4) Canada/U.S. Tax Treaty on Rental Income Pension Payments and Other Retirement-Related Benefits Part XIII Rules An Elective Option for Pension Income of Non-Residents—ITA 217 Canada/U.S. Tax Treaty on Pension Benefits Shareholder Loans and Benefits to Non-Residents Interest in Thin Capitalization Situations—ITA 18(4) Immigration and Emigration Entering Canada—Becoming a Resident of Canada (Immigration)—ITA 128.1(1) Deemed Dispositions/Reacquisitions Ceasing to Be a Resident of Canada (Emigration)—ITA 128.1(4) Deemed Dispositions Canada/U.S. Tax Treaty—Article XIII(7) Elective Dispositions Security for Departure Tax Unwinding a Deemed Disposition—ITA 128.1(6) The Problem The Solution Short-Term Residents Foreign Source Income of Canadian Residents Introduction Foreign Property Reporting Requirements—ITA 233.3 (T1135) Foreign Employment Income The Problem Canada/U.S. Tax Treaty—Foreign Source Employment Income Foreign Source Business Income The Problem Canada/U.S. Tax Treaty—Foreign Business Income—Article VII Foreign Interest Income The Problem Canada/U.S. Tax Treaty—Foreign Interest Income—Article XI Foreign Source Capital Gains The Problem Canada/U.S. Tax Treaty—Foreign Source Capital Gains—Article XIII Foreign Dividends Foreign Dividends Received by Individuals Foreign Dividends from Non-Resident Corporations That Are Not FAs Foreign Dividends from Non-Resident Corporations That Are FAs but Not CFAs Foreign Affiliate (FA) Defined Dividends Received from FAs—Basic Concepts Exempt vs. Taxable Surplus Dividends Paid from Exempt Surplus—ITA 113(1)(a) Dividends Paid from Taxable Surplus—ITA 113(1)(b) & (c) Dividends Received from a CFA Controlled Foreign Affiliate (CFA) Defined—ITA 95(1) Foreign Accrual Property Income (FAPI)—ITA 95(1) General Rules Taxation of FAPI Dividends from FAPI References Chapter 21 GST/HST Introduction Background Introduction of the GST Harmonized Sales Tax (HST) Current Sales Tax Rates in Canada How This Text Deals with the Complexity Transaction Tax Concepts General Description Types of Transaction Taxes Alternative Methods Single Stage Transaction Taxes—Retail Sales Tax Multi-Stage Transaction Taxes—Turnover Tax Value Added Tax (VAT)—Types Accounts-Based VAT Invoice-Credit VAT—The Canadian Approach Comparison Liability for GST/HST Basic Charging Provision The Concept of a Supply Supply Categories Taxable Supplies General Rules Fully Taxable Supplies Zero-Rated Supplies Exempt Supplies Applying the GST/HST Rate Place of Supply The Problem Tangible Goods Real Property Services Applying the Rate Consideration Received Effect of Trade-Ins Collection and Remittance of GST/HST Registration Meaning of a Person for GST/HST Who Must Register Basic Requirement Commercial Activity Exemption for Non-Residents Exemption for Small Suppliers Overview Last Four Calendar Quarters Test (Cumulative) Calendar Quarter Test (> $30,000 in a Single Quarter) Voluntary Registration Registrants Ineligible for the Small Supplier Exemption Input Tax Credits (ITC) Vendors of Fully Taxable and Zero-Rated Supplies General Rules Current Expenditures Capital Expenditures Restrictions on Claiming ITCs Vendors of Exempt Supplies Accounting vs. Income Tax vs. GST/HST Differences Similarities Financial Statement Presentation Example 1—Fully Taxable and Zero-Rated Supplies Example 2—Fully Taxable and Exempt Supplies Relief for Small Businesses Quick Method of Accounting General Rules Quick Method Categories Specific Quick Method Remittance Rates Quick Method Example ITCs and Income Tax Simplified Input Tax Credit (ITC) Method GST/HST Compliance and Administration GST/HST Returns and Payments Timing of Liability Taxation Year for GST/HST Registrants Filing Due Date Payments and Instalments Interest Late Filing Penalty Associated Persons Refunds and Rebates Books and Records Appeals Informal Procedures Notice of Objection Tax Court of Canada, Federal Court of Appeal, and the Supreme Court of Canada General Anti-Avoidance Rule Employee and Partner GST/HST Rebate General Concept Calculating the GST/HST Employee Rebate Amount Example Residential Property and New Housing Rebate General Rules for Residential Property New Housing Rebate Calculating the Rebate Implementing the Rebate—Practical Considerations Sale of a Business Sale of Assets Sale of Shares Other Situations ITA 85 Rollovers & ETA 167 Amalgamations and Wind-Ups Supplies within Closely Held Corporate Groups Holding Companies Ceasing to Carry on Business Specific Applications Partnerships and GST/HST General Rules Partner Expenses Disposition of a Partnership Interest Transactions between Partners and Partnerships Reorganization of a Partnership Trusts and GST/HST  Preface
2021 Rates, Credits, and Other Data
Chapter 1 Introduction to Federal Taxation in Canada
Chapter 2 Procedures and Administration
Chapter 3 Income or Loss from an Office or Employment
Chapter 4 Taxable Income and Tax Payable for Individuals
Chapter 5 Capital Cost Allowance
Chapter 6 Income or Loss from a Business
Chapter 7 Income or Loss from Property
Chapter 8 Capital Gains and Capital Losses
Chapter 9 Other Income and Deductions, and Other Issues
Chapter 10 Retirement Savings and Other Special Income Arrangements
Chapter 11 Taxable Income and Tax Payable for Individuals Revisited
Chapter 12 Taxable Income and Tax Payable for Corporations
Chapter 13 Taxation of Corporate Investment Income
Chapter 14 Other Issues in Corporate Taxation
Chapter 15 Corporate Taxation and Management Decisions
Chapter 16 Rollovers Under Section 85
Chapter 17 Other Corporate Rollovers and Sale of a Corporate Business
Chapter 18 Partnerships
Chapter 19 Trusts and Estate Planning
Chapter 20 International Issues in Taxation
Chapter 21 GST/HST
| 
