IFITC Chapter_6

IFITC Chapter_6 - Chapter 6 Income from Property Inclusions...

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Chapter 6 Income from Property
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Inclusions Sec. 12 Interest income from savings, deposits, loans, bonds, and debentures; Dividends from shares; and Income based on the production or use of property
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Interest Income Reporting Corporations, partnerships, and trusts Accrual method of accounting Individuals Annual accrual based on the anniversary date of an investment contract Annual accrual does not apply if individual receives interest prior to anniversary date (under general rule).
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Interest Income Purchasing a corporate bond at discount Investor’s Position Is interest income actual received or based on effective interest rate? Issuer’s Position “Deep” discount vs. “Shallow” discount If a deep discount, only 50% of discount can be deducted as if it were an interest expense
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Interest Income Treasury Bills Discount included as interest income Zero-coupon bonds Interest is paid as part of redemption proceeds at maturity Difference between cost of bond and maturity value represents the present value of the accumulated interest income (compounded on annual basis for Type 1 bonds)
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Interest Income Purchasing an accrued interest bond Interest income is divided as: Transferor must include interest accrued up to the date of the transfer. Amount included in income is excluded from the proceeds of the debt obligation. Transferee must include interest from the date of the transfer.
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Payments Based on Production or Use Must be included as property income Purpose of rule: To prevent taxpayers from characterizing property income as capital gains which have a lower tax rate
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Dividends All dividends are income Including dividend-in-kind “Taxable Dividends” are dividends from resident corporations “Dividends” are dividends from non-resident corporations
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Dividends from Corporations Resident in Canada (Figure 6-1)
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This note was uploaded on 11/07/2011 for the course ACCT 470 taught by Professor Dixon during the Spring '11 term at Camosun College.

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IFITC Chapter_6 - Chapter 6 Income from Property Inclusions...

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