ch13so - Chapter 13 Tax Planning for Small Business...

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Unformatted text preview: Chapter 13 Tax Planning for Small Business Questions 13-1 It is possible for two companies to be related and associated for tax purposes. However, the term associated corporations is used to determine the extent of the small business deduction, the availability of an investment tax credit, and in certain circumstances, the capital deduction applied against the large corporations tax. In determining whether two corporations are associated for tax purposes, it may be necessary to determine first whether two parties are related for tax purposes. For example, special rules exist to deem two corporations associated if a taxpayer who controls one corporation is related to another taxpayer who controls another corporation, and there is cross ownership of shares (subsection 256(1)). When this situation arises, it is necessary to determine what constitutes a related party. Generally, a related party includes individuals who are related by blood, marriage, common-law partnership, or adoption. Related parties are also extended to include (subsection 251(2)) a corporation and a person who controls the corporation, and a corporation and a member of a related group that controls the corporation, and any two corporations that are controlled by the same person, or a person related to a person or related group that controls the other corporation. In addition to defining associated corporations , the Income Tax Act 153 154 TAXATION IN CANADA (section 251) also deems related persons as not dealing with each other at arms length. Several rules are in place to ensure that no undue tax benefit is realized on transactions between non-arms-length persons. TAX PLANNING FOR SMALL BUSINESSES 155 13-2 All the individuals and all the corporations are related. Jim is related to Donna, as he is Donnas spouse (connected by marriage). Donna and Sylvia are connected as they are sisters (connected by blood). Jim is related to Sylvia as she is his sister-in-law (connected by marriage to a person, Donna, who is connected to Sylvia by blood). Donna is related to PTB as she controls PTB. Sylvia is related to BT as she controls BT. PTB and BT are related as they are both controlled by one person and those persons are related. BT and CSI are related as BT controls CSI. PTB and CSI are related as they are each controlled by one person and those persons are related. Jim is related to CSI, as he is related to the person who controls CSI. Jim is related to both PTB and BT, as he is related to the person who controls it.person who controls it....
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This note was uploaded on 06/03/2009 for the course BUSINESS AIT 805 taught by Professor Shirenekhan during the Winter '09 term at Seneca.

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ch13so - Chapter 13 Tax Planning for Small Business...

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