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CIT-Intro - 1 DRAFT CORPORATION INCOME TAX GENERAL RULES F...

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1 DRAFT CORPORATION INCOME TAX: GENERAL RULES F. BARRY GORMAN, PHD, CA, TEP INTRODUCTION 1. TYPES OF CORPORATIONS (a) Definitions (b) Public and Private Corporations (i) Public Corporation (ii) Private Corporation (c) Subcategories of Public and Private Corporations (i) Principal Business Corporation (ii) Small Business Corporation (iii) Investment Corporation (iv) Specified Investment Business (v) Personal Services Business (vi) Manufacturers and Processors (vii) Professional Corporations 2. OVERVIEW OF THE CORPORATION INCOME TAX RETURN 3. CONVERSION OF NET INCOME PER FINANCIAL STATEMENTS TO NET INCOME FOR TAX PURPOSES 4. COMPUTATION OF TAXABLE INCOME (a) Donations (i) Charitable Donations (ii) Gifts to the Crown or of Cultural Property (iii) Ecological Gifts (iv) Gifts of Capital Property (b) Dividends from Taxable Canadian Corporations (c) Losses of Other Years (i) Non-Capital Losses (ii) Net Capital Losses (iii) Loss Carry Overs After an Acquisition of Control (iv) Restricted Farm Losses (v) Farm Losses (vi) Ordering of Deductions (vii) Tax Planning 5. COMPUTATION OF INCOME TAXES PAYABLE (a) Basic Corporate Rate (b) Refundable Tax on Investment Income of a CCPC (c) Small Business Deduction (i) History (ii) Calculation of the Deduction
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2 (iii) Early Implementation Problems (iv) Reduced Benefit for Large Corporations (v) Tax Planning (d) Provincial Abatement (e) Manufacturing and Processing Profits Deduction (i) Computation (ii) MPPD Formula (f) Foreign Tax Credit (g) Investment Tax Credit (i) Eligible Industries (ii) Eligible Acquisitions (iii) Current Rate (iv) Annual Maximum Credit (v) Carry Over of Unused Investment Tax Credits (vi) Effect on Capital Cost Allowance Base (vii) Investment Tax Credit Following Acquisition of Control (viii) Effect on Provincial Taxes Payable (ix) Refundable Investment Tax Credit (x) Inclusion in Income (h) Effective 2011 Corporation Income Tax Rates 6. COMPUTATION OF PROVINCIAL CORPORATION INCOME TAXES
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3 INTRODUCTION The objectives of the corporation income tax system are to levy a tax on the income of a corporation, which is considered a separate tax paying entity, and, at a more advanced level, to (a) alleviate the double taxation of corporate income, (b) prevent avoidance of tax through the use of a corporation, and (c) provide economic and financial incentives to certain corporations. This note, as it reviews the computation of a basic T2 corporate tax return, discusses the rules which fulfill the primary objective of the tax system with respect to corporations. Other notes discuss the manner in which Finance attempts to satisfy the more technical objectives of the corporate system. The tax system is very specific with regard to the definition and classification of corporations . IT-343 indicates that “[A] corporation is an entity created by law having a legal personality and existence separate and distinct from the personality and existence of those who caused its creation or those who own it. A corporation possesses its own capacity to acquire rights and to assume liabilities, and any rights acquired or liabilities assumed by it are not the rights or liabilities of those who control or own it. As long as an entity has such
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