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Unformatted text preview: 3520-9: Last updated on 9/18/091-81Lecture 9: Taxable Income and Tax for CorporationsCorporations are taxed as separate entities & are taxpayers [see definitions of taxpayer & person in ITA 248 (1)]Corporations file T2 returns (individuals file T1 returns) & include their financial statements with their tax returns1.1Recommended Exercises Exercise 11-1 [Review of Net Income]Exercise 11-2 [Taxable Income]Exercise 13-4 [Associated Companies]Exercise 12-1 [Integration (Non-Eligible Dividends)]Exercise 12-2 [Integration (Eligible Dividends)]Exercise 11-7, 15-1 [Active Business Income]2Three Main Types of CorporationsThere are three main types of corporationsPublic corporationsresident in Canada, listed on a designated Canadian stock exchange (all Canadian exchanges are designated) [ITA 89]Private corporations [ITA 89(1)] = not publicCanadian controlled private corporations (CCPCs) [ITA 89(1)] = a special type of private corporation = a private corporation that is not controlled by public companies or non-residents [ITA 89]Income earned by a CCPC is eligible for special tax treatmentCanadian active business income is eligible for the Small Business DeductionInvestment income is eligible for other special treatment that results in lower tax ratesResearch & development tax incentives are more generous3Computation of Net IncomeCorporations use financial statement income to calculate Division B income (also called net income for tax purposes)See Fig. 11-1Exercise 11-1 reviews some important itemssee CTP 11-1 to 11-44Computation of Taxable IncomeDivision B income minus Division C deductions = Taxable incomeThe 3 major Division C deductions for corporations earning income in Canada are:3520-9: Last updated on 9/18/092-8Charitable donations [ITA 110.1(1)]Dividends from taxable Canadian corporations [ITA 112]Loss carryovers [ITA 111]See Fig. 11-2see CTP 11-5 to 11-94.1Charitable DonationsITA 110.1(1): limited to 75% of net incomeThe rules are the same as for individuals except that donations by a corporation are eligible for a taxable income (division C) deduction rather than a tax creditThis is because corporations are subject to a flat tax rate rather than progressive tax ratesAll unclaimed donations can be carried forward 5 years 4.2Dividends from Taxable Canadian CorporationsITA 112This deduction means that dividends between Canadian corporations are essentially tax-free and this prevents double taxationsee CTP 11-10 to 11-124.3Loss CarryoversITA 111: the rules are the same as for individualsthe two most important carryovers areNon capital lossescarry back 3 years, carry forward 20 yearsNet capital lossescarry back 3 years, carry forward indefinitely. Can only be used to offset taxable capital gainssee CTP 10-24 to 10-305Federal Tax PayableThe following table sets out the general corporate tax rate for business income in 2009 and the lower rate for the first $500,000 of active business income earned by...
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- Spring '09