CIF Chapter_12 - Chapter 12 Integration for Business and...

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Chapter 12 Integration for Business and Investment Income of the Private Corporation Chapter 12 1
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Integration Issue Double taxation – the same income is taxed first at the corporate level and then again at the individual shareholder level Objectives of integration: Total tax should be the same whether the income is earned through a corporation or directly by the individual Tax neutrality with respect to the form of Chapter 12 2
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Dividend Gross up and Tax Credit “Eligible Dividends” subject to 44% gross up are: Dividends from the active business of CCPCs not eligible for SBD Dividends from Canadian public companies, and other corporations that are not CCPCs, that are resident in Canada Chapter 12 3 Non-eligible Dividends Eligible Dividends Gross-up 25% 44% Federal dividend tax credit 2/3 of gross up 10/17 of gross up
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Income from an Active Business of a CCPC Small business deduction (SBD) Definition of “Active Business” Associated Companies Corporate Partners Investment Tax Credit Chapter 12 4
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Small Business Deduction Chapter 12 5 Exhibit 12-2 Tax Rates Applicable to Taxable Income Eligible for Small Business Deduction Federal Tax Rate 38% Federal Abatement (10) Net federal tax after federal abatement 28% Small Business Deduction (17) Total Federal Tax 11% Provincial tax (hypothetical) 5 Effective total tax 16% Purpose: Assist small CCPCs to retain capital to expand their businesses
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Small Business Deduction Calculation: 17% of the least of: a) Net Canadian active business income; b) Taxable income earned in Canada less foreign- source income estimated as the sum of: i. Foreign-source investment income, estimated as 10/4 times the foreign tax credit on foreign non- business income, excluding the additional refundable tax on investment income, ii. Foreign-source business income, estimated as 3 times the foreign tax credit on foreign business Chapter 12 6
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Small Business Deduction Elimination of small business deduction for large CCPCs Business limit of $500,000 is reduced by $1 for every $10 of taxable capital employed in Canada in excess of $10 million When taxable capital reaches $15 million, the business limit is fully clawed back Chapter 12 7
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Small Business Deduction Elimination of small business deduction for large CCPCs Formula: Where: A is the corporation’s business limit for the year; and B is 0.225% x (D-$10 million) Chapter 12 8 A X B $11,250
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Definition: “Active business carried on by a corporation” means any business carried on by the corporation other than a specified investment business or a personal service business and includes an adventure in the nature of trade. Chapter 12
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CIF Chapter_12 - Chapter 12 Integration for Business and...

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