Taxable Income and Taxes Payable - student

Taxable Income and Taxes Payable - student - Allocation of...

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1 Allocation of Purchase Price for Allocation of Purchase Price for Multiple Assets Multiple Assets Properties may be acquired or sold as a group. Difficult to allocate that price among the various assets included in the transaction. Conflict may arise between the purchaser and the vendor: Buyer’s interest – allocate to assets that have a faster write-off rate for tax purposes. Vendor’s interest to – wants to reduce tax on the sale.
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2 Allocation of Purchase Price for Allocation of Purchase Price for Multiple Assets Multiple Assets Special rules permit CRA to allocate or reallocate the total price in accordance with the fair market values of individual properties - ITA 68. Irrespective of the legal agreement of sale.
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3 Impact of Non-Arm’s Length Impact of Non-Arm’s Length (“NAL”) (“NAL”) 1. Sell Price < FMV: Vendor – deemed to have sold at FMV Purchaser – no adjustment 2. Sell Price > FMV: Vendor – no adjustment Purchaser – ACB is deemed equal to FMV 3. Gifting: Vendor: sales price = FMV Purchaser: ACB = FMV
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4 Price Adjustment Clauses Price Adjustment Clauses Punitive provisions apply even when intended to deal at FMV. Include a price adjustment clause in written agreement indicates the established price is a reasonable estimate of FMV and that, if found to be in error, the price charged and paid will be altered accordingly. Existence of such an agreement will cause CRA to adjust both sides of the transaction. thereby eliminating the punitive result, which is double taxation.
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5 Allowable Business Investment Allowable Business Investment Loss Loss Special Treatment: Only carried forward ten-years . ABIL unused after ten-years: reclassified as a net capital loss, and can be carried forward indefinitely to be used only against future capital gains.
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6 Farm Losses and Restricted Farm Farm Losses and Restricted Farm Losses Losses Farm losses - chief source of income is farming or fishing. Farm losses are treated the same as business losses.
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7 Restricted Farm Losses [ITA 31(1)] Restricted Farm Losses [ITA 31(1)] Restricted farm losses - not primary sources of income. Max deduction in current year- $8,750 $2,500 plus ½ x $12,500 Unused losses - classified as restricted farm losses. ITA 111(1)(c) - Unused restricted losses can be: carried back three years. forward twenty years. deducted only against farming income.
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8 Individuals: Determination of Individuals: Determination of Taxable Income and Taxes Taxable Income and Taxes Payable Payable
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9 Overview of Course to Date Overview of Course to Date Employment (Lectures 2-3) Business (Lecture 4) Property (Lecture 6) Other Income (Lecture 8) s.3(a) Income from all sources s.3(b) s.3(c) - subdivision e deductions (Lecture 9) s.3(d) - Loss from employ, bus, prop, ABIL Division B net income -Division C deductions Taxable Income
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Taxable Income and Taxes Payable - student - Allocation of...

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