Property Income-slides

Property Income-slides - Tran Chung Income From Property...

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Tran Chung Income From Property INTRODUCTION I want to cover only the following topics: Interest income and deduction Payments based on productions or use Dividends from a corporation resident in Canada Shareholder benefits on loan Income attribution Rental properties INCLUSIONS Interest Income The term “interest” is not defined in the Act. The Supreme Court of Canada has defined interest to be: “the return or consideration or compensation for the use or retention by one person of a sum of money, belonging to, in a colloquial sense, or owed to, another.” Must have three elements: 1. Accrue on a continuous basis 2. Calculated on a principal sum 3. Compensation for the use of money Does this definition include discounts on bond? It is not clear, so the Act contains legislation to bridge any gaps. © 2010 Tran Chung 1
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Method of Reporting Income S ubsections 12(3) and 12(4) state that interest must be computed using the accrual method. “Debt obligation” is not defined, but the CRA indicates debt obligations is considered to include: bank accounts, term deposits, guaranteed investment certificates, Canada Savings Bonds, mortgages, corporate bonds and loans –see IT-396R para 19. Paragraph 12(1)(c) states that when interest is received, it must be included in income to the extent that the interest has not been included previously by the accrual method. Accrual rules for Individual Subsection 12(4) requires that individuals holding an interest in an investment contract include in income on every anniversary of that contract, any interest accrued to that day, to the extent that its has not previously included in income. © 2010 Tran Chung 2
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Example: Mr. Phil Goode purchased a $1,000 faced value bond on January 2, 2010 for $1,000. The bond was issued on the same date, January 2, 2011. Interest is payable at 8% compounded semi- annually on uncashed coupons on each of June 30 and December 31 at the investor’s option. Required: A.If Mr. Goode does not exercise his option to receive interest, when would he first have to include an amount in income? B. What would be the result if he exercised his option on December 31 for interest payable on both June 30 and December 31, 2010? Solution: © 2010 Tran Chung 3
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Discounts and Premiums on Loan Where a loan is made at a discount, but repayable at par, or is made at part, but repayable at a premium, the question arises as to whether the discount or premium is interest or capital gain. Paragraph 12(1)(c) must be read together with subsection 16(1) , “reasonably be regarded as interest” requires some judgment (e.g. benchmark). For example, T-Bills and zero- coupon bond © 2010 Tran Chung 4
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Payments Based on Production or Use Paragraph 12(1)(g) states that any amount received that is dependent on the use of or production of property is taxed as income. Dividends From Corporation Resident in Canada
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This note was uploaded on 11/03/2010 for the course COMM 355 taught by Professor Trancheung during the Winter '10 term at UBC.

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Property Income-slides - Tran Chung Income From Property...

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