acc742 lecture 4 business income fall 2010

acc742 lecture 4 business income fall 2010 - Chapter4...

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Chapter 4 Income From Business
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Part I Division B Subdivision a – employment income Subdivision b – Income from Business Sections 9-37
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Determination of income S. 4 – general rule for determining  taxpayer’s income or loss from particular  source General rule – only deductions from  particular source can be deducted against  income from that source
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Income From Business Subdivision b ITA 9 through 37.3 Inclusions: 9   - income or loss from a business 10 - Inventories 12 – Income inclusions Deductions: 18 - General Limitations re deductions 19 - Limit on advertising expenses 20 - Specific Deductions 37-  Scientific Research and Experimental  Development
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Income From Business Subdivision b Looking at business income in s. 9 What is business profit? Generally start with GAAP (unless there is another  “truer” picture) Exclude capital items (gains or losses on disposal,  amortization etc) Adjust for items provided by ITA
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The Role of GAAP IFRS will be adopted by public companies  by 2011 As a result, GAAP will refer to IFRS for  public entities and GAAP will refer to Cdn GAAP for private  enterprises
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Income From Business Start with profit per s. 9 S. 12 – adds amounts required by tax not required under GAAP S. 18 – discuss expenses  must have been included for purposes of gaining or producing income Disallows certain expenses S. 20 – expenses specifically allowed by the Act to be deductible S. 67 – outside of subdivision b but is a general provision that  ensures only reasonable expenses deductible
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Income from Business Income not taxed on a consolidated or  equity basis Each legal entity required to file own  return Adjustments may be required for these  types of income
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Business Income To adjust GAAP statements Must know how treated for accounting  purposes Adjustments are mainly add backs (i.e. not  deductible for tax) If treatment same for both tax and accounting  no adjustment needed Adjustments done on T2S(1) form
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Business Income vs Capital Receipt Need to know whether amount is on account of capital or business  income Treatment and deductions different Criteria Relation to other business activities Nature of asset (capital or inventory item) Frequency of transaction (how often done in past) Length of period of ownership Additional work done to dispose of asset Circumstances surrounding disposition Corporate object Intention Other relevant factors See Exhibit 4-1 Textbook
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Income From Business
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