CTP13_Chapter_07

2013 buy 100000 bond with interest payable at on 10

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Unformatted text preview: he transferor – $7,500 can be deducted by the transferee - ITA 20(14) Copyright © 2014, Clarence Byrd Inc. 22 Canadian Tax Principles Payments Based On Payments Production Or Use Production • • Rents Rents Royalties – Can Be Earned Income For RRSP Purposes Only If Writer, Can Composer, Inventor, etc. Composer, Copyright © 2014, Clarence Byrd Inc. 23 Canadian Tax Principles Rental Income • General Rules – Rents Included On An Accrual Basis – Deductions • Interest • Property Taxes • Maintenance • Management Fees • CCA (Restricted) Copyright © 2014, Clarence Byrd Inc. 24 Canadian Tax Principles Rental Income Example An individual acquires a rental property at a cost of $120,000 (ignore land cost). It is rented for $1,200 per month and has a $90,000, 9 percent mortgage. Condo fees are $150 per month and property taxes are $3,000 per year. Rents $14,400 Taxes ($3,000) Interest ( 8,100) Condo Fees ( 1,800) ( 12,900) Rental Income Before CCA $ 1,500 Maximum CCA [(4%)($120,000)(1/2)] ( 2,400) Net Rental Income Nil Copyright © 2014, Clarence Byrd Inc. 25 Canadian Tax Principles Special Rules • Separate Class For Each Rental Property With A Cost Greater Separate Than $50,000 Than • CCA Cannot Be Used To Increase Or Create A Rental Loss Copyright © 2014, Clarence Byrd Inc. 26 Canadian Tax Principles Cash Dividends - Integration “I get the same after tax amount by either route!!!” Individual With Income Source Corporation Copyright © 2014, Clarence Byrd Inc. 27 Canadian Tax Principles Gross Up and Credit Procedures • Non-Eligible Dividends – 25 percent gross up – Federal credit equals 2/3 of gross up • Same as 13-1/3 percent of taxable dividends • Same as 16-2/3 percent of dividends received – Provincial credits = 5% to 40% of gross up – Will change in 2014 Copyright © 2014, Clarence Byrd Inc. 28 Canadian Tax Principles Gross Up and Credit Procedures • Eligible Dividends – Gross up = 38 percent of dividends received – Federal credit = 6/11 of gross up – Provincial credits = 23% to 44% of gross up Copyright © 2014, Clarence Byrd Inc. 29 Canadian Tax Principles Gross Up Tax Credit Procedures Non-Eligible Dividends Corporation Earnings $10,000 Taxes At 20 Percent Available For Dividends Dividends Paid Gross Up (25%) ( 2,000) $ 8,000 $ 8,000 2,000 Taxable Dividends $10,000 Tax At 45 Percent (29% + 16%) $ 4,500 Dividend Tax Credit [(2/3 + 1/3)($2,000)] ( 2,000) Total Taxes Payable $ 2,500 Cash Retained ($8,000 - $2,500) $ 5,500 Direct Receipt ($10,000)(1 - .45) $ 5,500 Copyright © 2014, Clarence Byrd Inc. 30 Canadian Tax Principles Eligible Dividends Defined • Amounts paid to Canadian residents by: – Public corporations resident in Canada that are subject to Public general rates general – CCPCs out of active business income taxed at general rates – CCPCs out of eligible dividends received CCPCs Copyright © 2014, Clarence Byrd Inc. 31 Canadian Tax Principles Gross Up And Tax Credit Procedures Eligible...
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